10-K 1 c48888e10vk.htm FORM 10-K 10-K
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
Form 10-K
 
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the Fiscal Year Ended December 31, 2008
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 1-11718
 
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
 
     
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
  36-3857664
(I.R.S. Employer
Identification No.)
Two North Riverside Plaza, Suite 800,
Chicago, Illinois
(Address of Principal Executive Offices)
  60606
(Zip Code)
 
(Registrant’s telephone number, including area code)
(312) 279-1400
Securities registered pursuant to Section 12(b) of the Act:
 
     
(Title of Class)
 
(Name of Exchange on Which Registered)
 
Common Stock, $.01 Par Value
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ     
  Accelerated filer o        Non-accelerated filer o 
(Do not check if smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of voting stock held by non-affiliates was approximately $980.2 million as of June 30, 2008 based upon the closing price of $44.00 on such date using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by Directors and Officers, some of whom may not be held to be affiliates upon judicial determination.
 
At February 19, 2009, 25,227,540 shares of the Registrant’s common stock were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE:
 
Part III incorporates by reference portions of the Registrant’s Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 12, 2009.
 


 

 
Equity LifeStyle Properties, Inc.
 
 
TABLE OF CONTENTS
 
                 
       
Page
 
      Business     3  
      Risk Factors     9  
      Unresolved Staff Comments     18  
      Properties     18  
      Legal Proceedings     26  
      Submission of Matters to a Vote of Security Holders     33  
 
PART II.
      Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     34  
      Selected Financial Data     35  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     37  
      Quantitative and Qualitative Disclosures About Market Risk     61  
      Forward-Looking Statements     61  
      Financial Statements and Supplementary Data     62  
      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     62  
      Controls and Procedures     62  
      Other Information     63  
 
PART III.
      Directors, Executive Officers and Corporate Governance     64  
      Executive Compensation     64  
      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     64  
      Certain Relationships and Related Transactions and Director Independence     64  
      Principal Accountant Fees and Services     64  
 
PART IV.
      Exhibits and Financial Statement Schedules     65  
 EX-12
 EX-21
 EX-23
 EX-24.1
 EX-24.2
 EX-24.3
 EX-24.4
 EX-24.5
 EX-24.6
 EX-24.7
 EX-24.8
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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PART I
 
Item 1.   Business
 
Equity LifeStyle Properties, Inc.
 
General
 
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”), is referred to herein as the “Company,” “ELS,” “we,” “us,” and “our.” ELS has elected to be taxed as a real estate investment trust (“REIT”), for U.S. federal income tax purposes commencing with its taxable year ended December 31, 1993.
 
The Company is a fully integrated owner and operator of lifestyle-oriented properties (“Properties”). The Company leases individual developed areas (“sites”) with access to utilities for placement of factory built homes, cottages, cabins or recreational vehicles (“RVs”). Customers may lease individual sites or purchase right-to-use contracts providing the customer access to specific Properties for limited stays. The Company was formed in December 1992 to continue the property operations, business objectives and acquisition strategies of an entity that had owned and operated Properties since 1969. As of December 31, 2008, we owned or had an ownership interest in a portfolio of 309 Properties located throughout the United States and Canada consisting of 112,074 residential sites. These Properties are located in 28 states and British Columbia (with the number of Properties in each state or province shown parenthetically) as follows: Florida (86), California (48), Arizona (35), Texas (15), Pennsylvania (13), Washington (14), Colorado (10), Oregon (9), North Carolina (8), Delaware (7), New York (6), Nevada (6), Virginia (6), Wisconsin (6), Indiana (5), Maine (5), Illinois (4), Massachusetts (4), New Jersey (4), Michigan (3), South Carolina (3), New Hampshire (2), Ohio (2), Tennessee (2), Utah (2), Alabama (1), Kentucky (1), Montana (1), and British Columbia (1).
 
Properties are designed and improved for several home options of various sizes and designs that are produced off-site, installed and set on designated sites (“Site Set”) within the Properties. These homes can range from 400 to over 2,000 square feet. The smallest of these are referred to as “Resort Cottages.” Properties may also have sites that can accommodate a variety of RVs. Properties generally contain centralized entrances, internal road systems and designated sites. In addition, Properties often provide a clubhouse for social activities and recreation and other amenities, which may include restaurants, swimming pools, golf courses, lawn bowling, shuffleboard courts, tennis courts, laundry facilities and cable television service. In some cases, utilities are provided or arranged for by us; otherwise, the customer contracts for the utility directly. Some Properties provide water and sewer service through municipal or regulated utilities, while others provide these services to customers from on-site facilities. Properties generally are designed to attract retirees, empty-nesters, vacationers and second home owners; however, certain of our Properties focus on affordable housing for families. We focus on owning properties in or near large metropolitan markets and retirement and vacation destinations.
 
Employees and Organizational Structure
 
We have approximately 3,000 full-time, part-time and seasonal employees dedicated to carrying out our operating philosophy and strategies of value enhancement and service to our customers. The operations of each Property are coordinated by an on-site team of employees that typically includes a manager, clerical and maintenance workers, each of whom works to provide maintenance and care of the Properties. Direct supervision of on-site management is the responsibility of our regional vice presidents and regional and district managers. These individuals have significant experience in addressing the needs of customers and in finding or creating innovative approaches to maximize value and increase cash flow from property operations. Complementing this field management staff are approximately 125 full-time corporate employees who assist on-site management in all property functions.
 
Formation of the Company
 
The operations of the Company are conducted primarily through the Operating Partnership. The Company contributed the proceeds from its initial public offering and subsequent offerings to the Operating Partnership


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for a general partnership interest. In 2004, the general partnership interest was contributed to MHC Trust, a private REIT subsidiary owned by the Company. The financial results of the Operating Partnership and the Subsidiaries are consolidated in the Company’s consolidated financial statements. In addition, since certain activities, if performed by the Company, may not be qualifying REIT activities under the Internal Revenue Code of 1986, as amended (the “Code”), the Company has formed taxable REIT subsidiaries, as defined in the Code, to engage in such activities.
 
Several Properties are wholly owned by taxable REIT subsidiaries of the Company. In addition, Realty Systems, Inc. (“RSI”) is a wholly owned taxable REIT subsidiary of the Company that is engaged in the business of purchasing and selling or leasing site set homes that are located in Properties owned and managed by the Company. RSI also provides brokerage services to residents at such Properties for those residents who move from a Property but do not relocate their homes. RSI may provide brokerage services, in competition with other local brokers, by seeking buyers for the site set homes. Subsidiaries of RSI also lease from the Operating Partnership certain real property within or adjacent to certain Properties consisting of golf courses, pro shops, stores and restaurants.
 
Business Objectives and Operating Strategies
 
Our strategy seeks to maximize both current income and long-term growth in income. We focus on properties that have strong cash flow and we expect to hold such properties for long-term investment and capital appreciation. In determining cash flow potential, we evaluate our ability to attract and retain high quality customers in our Properties who take pride in the Property and in their home. These business objectives and their implementation are determined by our Board of Directors and may be changed at any time. Our investment, operating and financing approach includes:
 
  •  Providing consistently high levels of services and amenities in attractive surroundings to foster a strong sense of community and pride of home ownership;
 
  •  Efficiently managing the properties to increase operating margins by controlling expenses, increasing occupancy and maintaining competitive market rents;
 
  •  Increasing income and property values by continuing the strategic expansion and, where appropriate, renovation of the Properties;
 
  •  Utilizing management information systems to evaluate potential acquisitions, identify and track competing properties and monitor customer satisfaction;
 
  •  Selectively acquiring properties that have potential for long-term cash flow growth and to create property concentrations in and around major metropolitan areas and retirement or vacation destinations to capitalize on operating synergies and incremental efficiencies; and
 
  •  Managing our debt balances such that we maintain financial flexibility, minimize exposure to interest rate fluctuations, and maintain an appropriate degree of leverage to maximize return on capital.
 
Our strategy is to own and operate the highest quality properties in sought-after locations near urban areas, retirement and vacation destinations across the United States. We focus on creating an attractive residential environment by providing a well-maintained, comfortable Property with a variety of organized recreational and social activities and superior amenities as well as offering a multitude of lifestyle housing choices. In addition, we regularly conduct evaluations of the cost of housing in the marketplaces in which our Properties are located and survey rental rates of competing properties. From time to time we also conduct satisfaction surveys of our customers to determine the factors they consider most important in choosing a property. We improve site utilization and efficiency by tracking types of customers and usage patterns and marketing to those specific customer groups.
 
Acquisitions and Dispositions
 
Over the last decade our portfolio of Properties has grown significantly from owning or having an interest in 154 Properties with over 53,000 sites to owning or having an interest in 309 Properties with over 112,000 sites.


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We continually review the Properties in our portfolio to ensure that they fit our business objectives. Over the last five years we sold 14 Properties, and we redeployed capital to markets we believe have greater long-term potential. In that same time period we acquired 180 Properties located in high growth areas such as Florida, Arizona and California.
 
On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access, LP (“Privileged Access”) for an unsecured note payable of $2.0 million (the “PA Transaction”). Prior to the purchase, Privileged Access was the tenant under a 12-year lease with the Company for 82 Properties that terminated upon the closing of our acquisition. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. See Note 12 in the Notes to Consolidated Financial Statements contained in this Form 10-K.
 
We believe that opportunities for property acquisitions are still available. Increasing acceptability of and demand for a lifestyle that includes Site Set homes and RVs as well as continued constraints on development of new properties continue to add to their attractiveness as an investment. We believe we have a competitive advantage in the acquisition of additional properties due to our experienced management, significant presence in major real estate markets and substantial capital resources. We are actively seeking to acquire additional properties and are engaged in various stages of negotiations relating to the possible acquisition of a number of properties.
 
We anticipate that new acquisitions will generally be located in the United States, although we may consider other geographic locations provided they meet our acquisition criteria. We utilize market information systems to identify and evaluate acquisition opportunities, including a market database to review the primary economic indicators of the various locations in which we expect to expand our operations. Acquisitions will be financed from the most appropriate sources of capital, which may include undistributed funds from operations, issuance of additional equity securities, sales of investments, collateralized and uncollateralized borrowings and issuance of debt securities. In addition, the Company may acquire properties in transactions that include the issuance of limited partnership interests in the Operating Partnership (“Units”) as consideration for the acquired properties. We believe that an ownership structure that includes the Operating Partnership will permit us to acquire additional properties in transactions that may defer all or a portion of the sellers’ tax consequences. When evaluating potential acquisitions, we consider such factors as:
 
  •  The replacement cost of the property including land values, entitlements and zoning;
 
  •  The geographic area and type of the property;
 
  •  The location, construction quality, condition and design of the property;
 
  •  The current and projected cash flow of the property and the ability to increase cash flow;
 
  •  The potential for capital appreciation of the property;
 
  •  The terms of tenant leases or usage rights, including the potential for rent increases;
 
  •  The potential for economic growth and the tax and regulatory environment of the community in which the property is located;
 
  •  The potential for expansion of the physical layout of the property and the number of sites;
 
  •  The occupancy and demand by customers for properties of a similar type in the vicinity and the customers’ profile;
 
  •  The prospects for liquidity through sale, financing or refinancing of the property; and
 
  •  The competition from existing properties and the potential for the construction of new properties in the area.
 
When evaluating potential dispositions, we consider such factors as:
 
  •  The ability to sell the Property at a price that we believe will provide an appropriate return for our stockholders;


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  •  Our desire to exit certain non-core markets and recycle the capital into core markets; and
 
  •  Whether the Property meets our current investment criteria.
 
When investing capital we consider all potential uses of the capital including returning capital to our stockholders. Our Board of Directors continues to review the conditions under which we will repurchase our stock. These conditions include, but are not limited to, market price, balance sheet flexibility, other opportunities and capital requirements. On January 16, 2004, we paid a special dividend of $8.00 per share using proceeds from a recapitalization.
 
Property Expansions
 
Several of our Properties have available land for expanding the number of sites available to be utilized by our customers. Development of these sites (“Expansion Sites”) is evaluated based on the following: local market conditions; ability to subdivide; accessibility through the Property or externally; infrastructure needs including utility needs and access as well as additional common area amenities; zoning and entitlement; costs; topography; and ability to market new sites. When justified, development of Expansion Sites allows us to leverage existing facilities and amenities to increase the income generated from the Properties. Where appropriate, facilities and amenities may be upgraded or added to certain Properties to make those Properties more attractive in their markets. Our acquisition philosophy has included the desire to own Properties with potential Expansion Site development. Approximately 83 of our Properties have expansion potential, with approximately 5,600 acres available for expansion.
 
Leases or Usage Rights
 
At our Properties, a typical lease entered into between the owner of a home and the Company for the rental of a site is for a month-to-month or year-to-year term, renewable upon the consent of both parties or, in some instances, as provided by statute. These leases are cancelable, depending on applicable law, for non-payment of rent, violation of Property rules and regulations or other specified defaults. Non-cancelable long-term leases, with remaining terms ranging up to ten years, are in effect at certain sites within 39 of the Properties. Some of these leases are subject to rental rate increases based on the Consumer Price Index (“CPI”), in some instances taking into consideration certain floors and ceilings and allowing for pass-throughs of certain items such as real estate taxes, utility expenses and capital expenditures. Generally, market rate adjustments are made on an annual basis. At Properties zoned for RV use, long-term customers typically enter into rental agreements and many typically prepay for their stay. Many resort customers will also leave deposits to reserve a site for the following year. Generally these customers cannot live full time on the Property. At resort Properties designated for use by customers who have purchased a right-to-use or a membership contract, the contract generally grants the customer access to designated resort Properties on a continuous basis of up to 14 days. The customer typically makes a nonrefundable upfront payment and annual dues payments are required to renew the contract. The annual dues increase is provided for in the contract and is generally based on a percentage of CPI. Approximately 30 percent of the current customers dues do not increase on an annual basis as their dues were frozen in accordance with the terms of their contract, generally because the customer is over 61 years old.
 
Regulations and Insurance
 
General.  Our Properties are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, clubhouses and other common areas, regulations relating to providing utility services — such as electricity — to our customers, and regulations relating to operating water and wastewater treatment facilities at certain of our Properties. We believe that each Property has the necessary permits and approvals to operate.
 
Rent Control Legislation.  At certain of our Properties, state and local rent control laws, principally in California, limit our ability to increase rents and to recover increases in operating expenses and the costs of capital improvements. Enactment of such laws has been considered from time to time in other jurisdictions. We presently expect to continue to maintain Properties, and may purchase additional properties, in markets that are either subject to rent control or in which rent-limiting legislation exists or may be enacted. For example, Florida


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has enacted a law that generally provides that rental increases must be reasonable. Also, certain jurisdictions in California in which we own Properties limit rent increases to changes in the CPI or some percentage thereof. As part of our effort to realize the value of our Properties subject to restrictive regulation, we have initiated lawsuits against several municipalities imposing such regulation in an attempt to balance the interests of our stockholders with the interests of our customers (see Item 3 — Legal Proceedings). Further, at certain of our Properties primarily used as membership campgrounds, some state statutes limit our ability to close the Property unless we make a reasonable substitute property available for the member’s use. Many states also have consumer protection laws regulating right-to-use or campground membership sales and the financing of such sales. Some states have laws requiring the Company to register with a state agency and obtain a permit to market (see Item 1A. Risk Factors).
 
Insurance.  The Properties are covered against fire, flood, property damage, earthquake, windstorm and business interruption by insurance policies containing various deductible requirements and coverage limits. Recoverable costs are classified in other assets as incurred. Insurance proceeds are applied against the asset when received. Recoverable costs relating to capital items are treated in accordance with the Company’s capitalization policy. The book value of the original capital item is written off once the value of the impaired asset has been determined. Insurance proceeds relating to capital costs are recorded as income in the period they are received.
 
Our current property and casualty insurance policies, which we plan to renew, expire on March 31, 2009. We have a $100 million property insurance program. The California Earthquake sublimit is $25 million and the policy deductibles range from $100,000 to five percent of insurable values specifically for named storms, Florida wind, and earthquakes. A deductible indicates ELS’ maximum exposure in event of a loss within policy limit.
 
INDUSTRY
 
We believe that modern properties similar to ours provide an opportunity for increased cash flows and appreciation in value. These may be achieved through increases in occupancy rates and rents, as well as expense controls, expansion of existing Properties and opportunistic acquisitions, for the following reasons:
 
  •  Barriers to Entry:  We believe that the supply of new properties in locations targeted by the Company will be constrained due to barriers to entry. The most significant barrier has been the difficulty of securing zoning from local authorities. This has been the result of (i) the public’s historically poor perception of manufactured housing, and (ii) the fact that properties generate less tax revenue because the homes are treated as personal property (a benefit to the homeowner) rather than real property. Another factor that creates substantial barriers to entry is the length of time between investment in a property’s development and the attainment of stabilized occupancy and the generation of revenues. The initial development of the infrastructure may take up to two or three years. Once a property is ready for occupancy, it may be difficult to attract customers to an empty property. Substantial occupancy levels may take several years to achieve.
 
  •  Industry Consolidation:  According to various industry reports, there are approximately 65,000 properties in the United States, and approximately 10% or approximately 6,000 of the properties have more than 200 sites and would be considered investment-grade. We believe that this relatively high degree of fragmentation provides us, as a national organization with experienced management and substantial financial resources, the opportunity to purchase additional properties.
 
  •  Customer Base:  We believe that properties tend to achieve and maintain a stable rate of occupancy due to the following factors: (i) customers typically own their own homes, (ii) properties tend to foster a sense of community as a result of amenities such as clubhouses and recreational and social activities, (iii) since moving a Site Set home from one property to another involves substantial cost and effort, customers often sell their home in-place (similar to site-built residential housing) with no interruption of rental payments to us.
 
  •  Lifestyle Choice:  According to the Recreational Vehicle Industry Association, nearly 1 in 10 U.S. vehicle-owning households owns an RV. The 78 million people born from 1946 to 1964 or “baby boomers”


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  make up the fastest growing segment of this market. Every day 11,000 Americans turn 50 according to U.S. Census figures. We believe that this population segment, seeking an active lifestyle, will provide opportunities for future cash flow growth for the Company. Current RV owners, once finished with the more active RV lifestyle, will often seek more permanent retirement or vacation establishments. The Site Set housing choice has become an increasingly popular housing alternative for retirement, second-home, and “empty-nest” living. According to a Fannie Mae survey, the baby-boom generation will constitute 18% of the U.S. population within the next 30 years and more than 32 million people will reach age 55 within the next ten years. Among those individuals who are nearing retirement (age 40 to 54), approximately 33% plan on moving upon retirement.
 
We believe that the housing choices in our Properties are especially attractive to such individuals throughout this lifestyle cycle. Our Properties offer an appealing amenity package, close proximity to local services, social activities, low maintenance and a secure environment. In fact, many of our Properties allow for this cycle to occur within a single Property.
 
  •  Construction Quality:  Since 1976, all factory built housing has been required to meet stringent federal standards, resulting in significant increases in quality. The Department of Housing and Urban Development’s (“HUD”) standards for Site Set housing construction quality are the only federally regulated standards governing housing quality of any type in the United States. Site Set homes produced since 1976 have received a “red and silver” government seal certifying that they were built in compliance with the federal code. The code regulates Site Set home design and construction, strength and durability, fire resistance and energy efficiency, and the installation and performance of heating, plumbing, air conditioning, thermal and electrical systems. In newer homes, top grade lumber and dry wall materials are common. Also, manufacturers are required to follow the same fire codes as builders of site-built structures. In addition, although Resort Cottages do not come under the same regulation, many of the manufacturers of Site Set homes also produce Resort Cottages with many of the same quality standards.
 
  •  Comparability to Site-Built Homes:  The Site Set housing industry has experienced a trend towards multi-section homes. Many modern Site Set homes are longer (up to 80 feet, compared to 50 feet in the 1960’s) and wider than earlier models. Many such homes have nine-foot ceilings or vaulted ceilings, fireplaces and as many as four bedrooms, and closely resemble single-family ranch style site-built homes.
 
  •  Second Home Demographics:  According to 2008 National Association of Realtors (“NAR”) reports, sales of second homes in 2007 accounted for 33% of residential transactions, or 2.09 million second-home sales in 2007. There were approximately 7.5 million vacation homes in 2007. The typical vacation-home buyer is 46 years old and earned $99,100 in 2007. Approximately 57% of vacation home-owners prefer to be near an ocean, river or lake; 38% close to boating activities; 32% close to hunting or fishing activities; and 17% close to winter recreations. In looking ahead, NAR believes that baby boomers are still in their peak earning years, and the leading edge of their generation is approaching retirement. As they continue to have the financial wherewithal to purchase second homes as a vacation property, investment opportunity, or perhaps as a retirement retreat, those baby boomers will continue to drive the market for second-homes. We believe it is likely that over the next decade we will continue to see historically high levels of second home sales and resort homes and cottages in our Properties will also continue to provide a viable second home alternative to site-built homes.
 
We are also monitoring the performance of the following related industries that may limit our long-term or short-term opportunities.
 
  •  Shipments — According to statistics compiled by the U.S. Census Bureau, shipments of new manufactured homes have been declining since 2005. Estimated 2008 shipments of new manufactured homes decreased over 14% to 81,900 units as compared to 2007 shipments of 95,700 units. The decline for 2007 as compared to 2006 was over 18 percent. According to the Recreational Vehicle Industry Association (“RVIA”), shipments of RV’s declined 32.9% in 2008 to 237,000 units as compared to 2007 and declined 52% in the last six months of 2008 as compared to the last six months of 2008. Industry experts have predicted that 2009 RV shipments will decline again in 2009 over 21 percent to 186,500.


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  •  Sales — Sales of RV’s declined over 24% for the first ten months of 2008, as compared to the first ten months of 2007. 309,000 were sold during the year ended December 31, 2007, representing a decline of almost 21% over the prior year. RVIA has indicated that credit restrictions are causing RV buyers to delay purchases and RV dealers to keep inventories low and that 2009 sales will be further affected by falling employment and continued declines in household wealth and home prices.
 
  •  Availability of financing — The current credit crisis has made it difficult for manufactured home and RV manufacturers to obtain floor plan financing and for potential customers to obtain loans for manufactured home or RV purchases. According to RVIA, both consumer loans and dealer floor plan loans were recently included in the Term Asset-Backed Securities Loan Facility (“TALF”) program created by the US Federal Reserve.
 
Please see our financial statements and related notes contained in this Form 10-K for more information.
 
Available Information
 
We file reports electronically with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy information and statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We maintain an Internet site with information about the Company and hyperlinks to our filings with the SEC at http://www.equitylifestyle.com, free of charge. Requests for copies of our filings with the SEC and other investor inquiries should be directed to:
 
Investor Relations Department
Equity LifeStyle Properties, Inc.
Two North Riverside Plaza
Chicago, Illinois 60606
Phone: 1-800-247-5279
e-mail: investor_relations@mhchomes.com
 
Item 1A.   Risk Factors
 
Our Performance and Common Stock Value Are Subject to Risks Associated With the Real Estate Industry.
 
Adverse Economic Conditions and Other Factors Could Adversely Affect the Value of Our Properties and Our Cash Flow.  Several factors may adversely affect the economic performance and value of our Properties. These factors include:
 
  •  changes in the national, regional and local economic climate;
 
  •  local conditions such as an oversupply of lifestyle-oriented properties or a reduction in demand for lifestyle-oriented properties in the area, the attractiveness of our Properties to customers, competition from manufactured home communities and other lifestyle-oriented properties and alternative forms of housing (such as apartment buildings and site-built single family homes);
 
  •  the ability of manufactured home and RV manufacturers to adapt to changes in the economic climate and the availability of units from these manufacturers;
 
  •  the ability of our potential customers to sell their existing site-built residence in order to purchase a resort home or cottage in our properties and heightened price sensitivity for seasonal and second homebuyers;
 
  •  the ability of our potential customers to obtain financing on the purchase of a resort home, resort cottage or RV;
 
  •  availability and price of gasoline, especially for our transient customers;


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  •  our ability to collect rent, annual payments and principal and interest from customers and pay or control maintenance, insurance and other operating costs (including real estate taxes), which could increase over time;
 
  •  the failure of our assets to generate income sufficient to pay our expenses, service our debt and maintain our Properties, which may adversely affect our ability to make expected distributions to our stockholders;
 
  •  our inability to meet mortgage payments on any Property that is mortgaged, in which case the lender could foreclose on the mortgage and take the Property;
 
  •  interest rate levels and the availability of financing, which may adversely affect our financial condition;
 
  •  changes in laws and governmental regulations (including rent control laws and regulations governing usage, zoning and taxes), which may adversely affect our financial condition;
 
  •  poor weather, especially on holiday weekends in the summer, could reduce the economic performance of our Northern resort Properties; and
 
  •  our ability to sell new or upgraded right-to-use contracts and to retain customers who have previously purchased a right-to-use contract.
 
New Acquisitions May Fail to Perform as Expected and Competition for Acquisitions May Result in Increased Prices for Properties.  We intend to continue to acquire properties. Newly acquired Properties may fail to perform as expected. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position. Difficulties in integrating acquisitions may prove costly or time-consuming and could divert management attention. Additionally, we expect that other real estate investors with significant capital will compete with us for attractive investment opportunities. These competitors include publicly traded REITs, private REITs and other types of investors. Such competition increases prices for properties. We expect to acquire properties with cash from secured or unsecured financings, proceeds from offerings of equity or debt, undistributed funds from operations and sales of investments. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.
 
Because Real Estate Investments Are Illiquid, We May Not be Able to Sell Properties When Appropriate.  Real estate investments generally cannot be sold quickly. We may not be able to vary our portfolio promptly in response to economic or other conditions, forcing us to accept lower than market value. This inability to respond promptly to changes in the performance of our investments could adversely affect our financial condition and ability to service debt and make distributions to our stockholders.
 
Some Potential Losses Are Not Covered by Insurance.  We carry comprehensive insurance coverage for losses resulting from property damage, liability claims and business interruption on all of our Properties. We believe that the policy specifications and coverage limits of these policies should be adequate and appropriate. There are, however, certain types of losses, such as lease and other contract claims that generally are not insured. Should an uninsured loss or a loss in excess of coverage limits occur, we could lose all or a portion of the capital we have invested in a Property, as well as the anticipated future revenue from the Property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Property.
 
Our current property and casualty insurance policies, which we plan to renew, expire on March 31, 2009. We have a $100 million property insurance program. The California Earthquake sublimit is $25 million and the policy deductibles range from $100,000 to five percent of insurable values specifically for named storms, Florida wind, and earthquakes. A deductible indicates ELS’ maximum exposure in event of a loss within policy limit.
 
There can be no assurance that the actions of the U.S. government, Federal Reserve and other governmental and regulatory bodies for the purpose of stabilizing the financial markets, or market response to those actions, will achieve the intended effect, and our business may not benefit from and may be adversely impacted by these actions and further government or market developments could adversely impact us.  Since mid-2007, and particularly during the second half of 2008, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in the values of subprime mortgages, but spread


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to all mortgage and real estate asset classes, to leveraged bank loans and to nearly all asset classes, including equities. The global markets have been characterized by substantially increased volatility and short-selling and an overall loss of investor confidence, initially in financial institutions, but more recently in companies in a number of other industries and in the broader markets. The decline in asset values has caused increases in margin calls for investors, requirements that derivatives counterparties post additional collateral and redemptions by mutual and hedge fund investors, all of which have increased the downward pressure on asset values and outflows of client funds across the financial services industry. In addition, the increased redemptions and unavailability of credit have required hedge funds and others to rapidly reduce leverage, which has increased volatility and further contributed to the decline in asset values.
 
In response to the recent unprecedented financial issues affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 (the “EESA”), was signed into law on October 3, 2008. The EESA provides the U.S. Secretary of Treasury with the authority to establish a Troubled Asset Relief Program (“TARP”), to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations, or other instruments that are based on, or related to, such mortgages, that in each case was originated or issued on or before March 14, 2008. EESA also provides for a program that would allow companies to insure their troubled assets. As of February 19, 2009, the U.S. Treasury had announced the establishment of the following programs under TARP: the Capital Purchase Program (“CPP”), the Targeted Investment Program (“TIP”), the Systemically Significant Failing Institutions Program (“SSFIP”), the Asset Guarantee Program (“AGP”), the Auto Industry Financing Program (“AIFP”), and the Homeowner Affordability and Stability Plan (“HASP”) which is partially financed by TARP. On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (“ARRA”), a $787 billion stimulus bill for the purpose of stabilizing the economy by creating jobs, among other things.
 
These can be no assurance that the EESA, TARP or other programs will have a beneficial impact on the financial markets, including current extreme levels of volatility. In addition, the U.S. Government, Federal Reserve and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. We cannot predict whether or when such actions may occur or what impact, if any, such actions could have on our business, results of operations and financial condition.
 
Adverse changes in general economic conditions may adversely affected our business.
 
Our success is dependent upon economic conditions in the U.S. generally, and in the geographic areas in which a substantial number of our Properties are located. The recent adverse changes in national economic conditions and in the economic conditions of the regions in which we conduct substantial business may have an adverse effect on the real estate values of our Properties and our financial performance and the market price of our common stock.
 
In a recession or under other adverse economic conditions like the current credit crisis, non-earning assets and write-downs are likely to increase as debtors fail to meet their payment obligations. Although we maintain reserves for credit losses and an allowance for doubtful accounts in amounts that we believe should be sufficient to provide adequate protection against potential write-downs in our portfolio, these amounts could prove to be insufficient.
 
Campground Membership Properties Laws and Regulations Could Adversely Affect the Value of Our Properties and Our Cash Flow.
 
Many of the states in which the Company does business have laws regulating right-to-use or campground membership sales. These laws generally require comprehensive disclosure to prospective purchasers, and give purchasers the right to rescind their purchase generally between three-to-five days after the date of sale. Some states have laws requiring the Company to register with a state agency and obtain a permit to market. The Company is subject to changes, from time to time, in the application or interpretation of such laws that can affect its business or the rights of its members.


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In some states, including California, Oregon and Washington, laws place limitations on the ability of the owner of a campground property to close the property unless the customers at the property receive access to a comparable property. The impact of the rights of customers under these laws is uncertain and could adversely affect the availability or timing of sale opportunities or the ability of the Company to realize recoveries from property sales.
 
The government authorities regulating the Company’s activities have broad discretionary power to enforce and interpret the statutes and regulations that they administer, including the power to enjoin or suspend sales activities, require or restrict construction of additional facilities and revoke licenses and permits relating to business activities. The Company monitors its sales and marketing programs and debt collection activities to control practices that might violate consumer protection laws and regulations or give rise to consumer complaints.
 
Certain consumer rights and defenses that vary from jurisdiction to jurisdiction may affect the Company’s portfolio of contracts receivable. Examples of such laws include state and federal consumer credit and truth-in-lending laws requiring the disclosure of finance charges, and usury and retail installment sales laws regulating permissible finance charges.
 
In certain states, as a result of government regulations and provisions in certain of the right-to-use or campground membership agreements, the Company is prohibited from selling more than ten memberships per site. At the present time, these restrictions do not preclude the Company from selling memberships in any state. However, these restrictions may limit the Company’s ability to utilize properties for public usage and/or the Company’s ability to convert sites to more profitable or predictable uses, such as annual rentals.
 
Debt Financing, Financial Covenants and Degree of Leverage Could Adversely Affect Our Economic Performance.
 
Scheduled Debt Payments Could Adversely Affect Our Financial Condition.  Our business is subject to risks normally associated with debt financing. The total principal amount of our outstanding indebtedness was approximately $1.7 billion as of December 31, 2008. Our substantial indebtedness and the cash flow associated with serving our indebtedness could have important consequences, including the risks that:
 
  •  our cash flow could be insufficient to pay distributions at expected levels and meet required payments of principal and interest;
 
  •  we will be required to use a substantial portion of our cash flow from operations to pay our indebtedness, thereby reducing the availability of our cash flow to fund the implementation of our business strategy, acquisitions, capital expenditures and other general corporate purposes;
 
  •  our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
  •  we may not be able to refinance existing indebtedness (which in virtually all cases requires substantial principal payments at maturity) and, if we can, the terms of such refinancing might not be as favorable as the terms of existing indebtedness;
 
  •  if principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our cash flow will not be sufficient in all years to repay all maturing debt; and
 
  •  if prevailing interest rates or other factors at the time of refinancing (such as the possible reluctance of lenders to make commercial real estate loans) result in higher interest rates, increased interest expense would adversely affect cash flow and our ability to service debt and make distributions to stockholders.
 
Ability to obtain mortgage financing or to refinance maturing mortgages may adversely affect our financial condition.  During 2008, we have received financing proceeds from Fannie Mae secured by mortgages on individual manufactured home Properties. The terms of the Fannie Mae financings have been relatively attractive as compared to other potential lenders. If financing proceeds are no longer available from Fannie Mae


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for any reason or if Fannie Mae terms are no longer attractive, it may adversely affect cash flow and our ability to service debt and make distributions to stockholders.
 
Financial Covenants Could Adversely Affect Our Financial Condition.  If a Property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose on the Property, resulting in loss of income and asset value. The mortgages on our Properties contain customary negative covenants, which among other things, limit our ability, without the prior consent of the lender, to further mortgage the Property and to discontinue insurance coverage. In addition, our credit facilities contain certain customary restrictions, requirements and other limitations on our ability to incur indebtedness, including total debt to assets ratios, debt service coverage ratios and minimum ratios of unencumbered assets to unsecured debt. Foreclosure on mortgaged Properties or an inability to refinance existing indebtedness would likely have a negative impact on our financial condition and results of operations.
 
Our Degree of Leverage Could Limit Our Ability to Obtain Additional Financing.  Our debt to market capitalization ratio (total debt as a percentage of total debt plus the market value of the outstanding common stock and Units held by parties other than the Company) is approximately 59% as of December 31, 2008. The degree of leverage could have important consequences to stockholders, including an adverse effect on our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes, and makes us more vulnerable to a downturn in business or the economy generally.
 
We Depend on Our Subsidiaries’ Dividends and Distributions.
 
Substantially all of our assets are indirectly held through the Operating Partnership. As a result, we have no source of operating cash flow other than from distributions from the Operating Partnership. Our ability to pay dividends to holders of common stock depends on the Operating Partnership’s ability first to satisfy its obligations to its creditors and make distributions payable to third party holders of its preferred Units and then to make distributions to MHC Trust and common Unit holders. Similarly, MHC Trust must satisfy its obligations to its creditors and preferred stockholders before making common stock distributions to us.
 
Stockholders’ Ability to Effect Changes of Control of the Company is Limited.
 
Provisions of Our Charter and Bylaws Could Inhibit Changes of Control.  Certain provisions of our charter and bylaws may delay or prevent a change of control of the Company or other transactions that could provide our stockholders with a premium over the then-prevailing market price of their common stock or which might otherwise be in the best interest of our stockholders. These include the Ownership Limit described below. Also, any future series of preferred stock may have certain voting provisions that could delay or prevent a change of control or other transaction that might involve a premium price or otherwise be beneficial to our stockholders.
 
Maryland Law Imposes Certain Limitations on Changes of Control.  Certain provisions of Maryland law prohibit “business combinations” (including certain issuances of equity securities) with any person who beneficially owns ten percent or more of the voting power of outstanding common stock, or with an affiliate of the Company who, at any time within the two-year period prior to the date in question, was the owner of ten percent or more of the voting power of the outstanding voting stock (an “Interested Stockholder”), or with an affiliate of an Interested Stockholder. These prohibitions last for five years after the most recent date on which the Interested Stockholder became an Interested Stockholder. After the five-year period, a business combination with an Interested Stockholder must be approved by two super-majority stockholder votes unless, among other conditions, our common stockholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares of common stock. The Board of Directors has exempted from these provisions under the Maryland law any business combination with Samuel Zell, who is the Chairman of the Board of the Company, certain holders of Units who received them at the time of our initial public offering, the General Motors Hourly Rate Employees Pension Trust and the General Motors Salaried Employees Pension Trust, and our officers who acquired common stock at the time we were formed and each and every affiliate of theirs.


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We Have a Stock Ownership Limit for REIT Tax Purposes.  To remain qualified as a REIT for U.S. federal income tax purposes, not more than 50% in value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal income tax laws applicable to REITs) at any time during the last half of any taxable year. To facilitate maintenance of our REIT qualification, our charter, subject to certain exceptions, prohibits Beneficial Ownership (as defined in our charter) by any single stockholder of more than 5% (in value or number of shares, whichever is more restrictive) of our outstanding capital stock. We refer to this as the “Ownership Limit.” Within certain limits, our charter permits the Board of Directors to increase the Ownership Limit with respect to any class or series of stock. The Board of Directors, upon receipt of a ruling from the IRS, opinion of counsel, or other evidence satisfactory to the Board of Directors and upon fifteen days prior written notice of a proposed transfer which, if consummated, would result in the transferee owning shares in excess of the Ownership Limit, and upon such other conditions as the Board of Directors may direct, may exempt a stockholder from the Ownership Limit. Absent any such exemption, capital stock acquired or held in violation of the Ownership Limit will be transferred by operation of law to us as trustee for the benefit of the person to whom such capital stock is ultimately transferred, and the stockholder’s rights to distributions and to vote would terminate. Such stockholder would be entitled to receive, from the proceeds of any subsequent sale of the capital stock transferred to us as trustee, the lesser of (i) the price paid for the capital stock or, if the owner did not pay for the capital stock (for example, in the case of a gift, devise of other such transaction), the market price of the capital stock on the date of the event causing the capital stock to be transferred to us as trustee or (ii) the amount realized from such sale. A transfer of capital stock may be void if it causes a person to violate the Ownership Limit. The Ownership Limit could delay or prevent a change in control of the Company and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for their common stock.
 
Conflicts of Interest Could Influence the Company’s Decisions.
 
Certain Stockholders Could Exercise Influence in a Manner Inconsistent With the Stockholders’ Best Interests. As of December 31, 2008, Mr. Samuel Zell and certain affiliated holders beneficially owned approximately 14.2% of our outstanding common stock (in each case including common stock issuable upon the exercise of stock options and the exchange of Units). Mr. Zell is the chairman of the Company’s Board of Directors. Accordingly, Mr. Zell has significant influence on our management and operation. Such influence could be exercised in a manner that is inconsistent with the interests of other stockholders.
 
Mr. Zell and His Affiliates Continue to be Involved in Other Investment Activities.  Mr. Zell and his affiliates have a broad and varied range of investment interests, including interests in other real estate investment companies involved in other forms of housing, including multifamily housing. Mr. Zell and his affiliates may acquire interests in other companies. Mr. Zell may not be able to control whether any such company competes with the Company. Consequently, Mr. Zell’s continued involvement in other investment activities could result in competition to the Company as well as management decisions, which might not reflect the interests of our stockholders.
 
Members of Management May Have a Conflict of Interest Over Whether To Enforce Terms of Mr. McAdams’s Employment and Noncompetition Agreement.  Mr. McAdams is our President and has entered into an employment and noncompetition agreement with us. For the most part these restrictions apply to him both during his employment and for two years thereafter. Mr. McAdams is also prohibited from otherwise disrupting or interfering with our business through the solicitation of our employees or clients or otherwise. To the extent that we choose to enforce our rights under any of these agreements, we may determine to pursue available remedies, such as actions for damages or injunctive relief, less vigorously than we otherwise might because of our desire to maintain our ongoing relationship with Mr. McAdams. Additionally, the non-competition provisions of his agreement, despite being limited in scope and duration, could be difficult to enforce, or may be subject to limited enforcement, should litigation arise over it in the future. See Note 12 in the Notes to Consolidated Financial Statements contained in this Form 10-K.


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Risk of Eminent Domain and Tenant Litigation.
 
We own Properties in certain areas of the country where real estate values have increased faster than rental rates in our Properties either because of locally imposed rent control or long term leases. In such areas, we have learned that certain local government entities have investigated the possibility of seeking to take our Properties by eminent domain at values below the value of the underlying land. While no such eminent domain proceeding has been commenced, and we would exercise all of our rights in connection with any such proceeding, successful condemnation proceedings by municipalities could adversely affect our financial condition. Moreover, certain of our Properties located in California are subject to rent control ordinances, some of which not only severely restrict ongoing rent increases but also prohibit us from increasing rents upon turnover. Such regulation allows customers to sell their homes for a premium representing the value of the future discounted rent-controlled rents. As part of our effort to realize the value of our Properties subject to rent control, we have initiated lawsuits against several municipalities in California. In response to our efforts, tenant groups have filed lawsuits against us seeking not only to limit rent increases, but to be awarded large damage awards. If we are unsuccessful in our efforts to challenge rent control ordinances, it is likely that we will not be able to charge rents that reflect the intrinsic value of the affected Properties. Finally, tenant groups in non-rent controlled markets have also attempted to use litigation as a means of protecting themselves from rent increases reflecting the rental value of the affected Properties. An unfavorable outcome in the tenant group lawsuits could have an adverse impact on our financial condition.
 
Environmental and Utility-Related Problems Are Possible and Can be Costly.
 
Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at such property. The owner or operator may have to pay a governmental entity or third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site.
 
Environmental laws also govern the presence, maintenance and removal of asbestos. Such laws require that owners or operators of property containing asbestos properly manage and maintain the asbestos, that they notify and train those who may come into contact with asbestos and that they undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on real property owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.
 
Utility-related laws and regulations also govern the provision of utility services and operations of water and wastewater treatment facilities. Such laws regulate, for example, how and to what extent owners or operators of property can charge renters for provision of, for example, electricity, and whether and to what extent such utility services can be charged separately from the base rent. Such laws also regulate the operations and performance of water treatment facilities and wastewater treatment facilities. Such laws may impose fines and penalties on real property owners or operators who fail to comply with these requirements.
 
We Have a Significant Concentration of Properties in Florida and California, and Natural Disasters or Other Catastrophic Events in These or Other States Could Adversely Affect the Value of Our Properties and Our Cash Flow.
 
As of December 31, 2008, we owned or had an ownership interest in 309 Properties located in 28 states and British Columbia, including 86 Properties located in Florida and 48 Properties located in California. The occurrence of a natural disaster or other catastrophic event in any of these areas may cause a sudden decrease in the value of our Properties. While we have obtained insurance policies providing certain coverage against


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damage from fire, flood, property damage, earthquake, wind storm and business interruption, these insurance policies contain coverage limits, limits on covered property and various deductible amounts that the Company must pay before insurance proceeds are available. Such insurance may therefore be insufficient to restore our economic position with respect to damage or destruction to our Properties caused by such occurrences. Moreover, each of these coverages must be renewed every year and there is the possibility that all or some of the coverages may not be available at a reasonable cost. In addition, in the event of such natural disaster or other catastrophic event, the process of obtaining reimbursement for covered losses, including the lag between expenditures incurred by us and reimbursements received from the insurance providers, could adversely affect our economic performance.
 
Market Interest Rates May Have an Effect on the Value of Our Common Stock.
 
One of the factors that investors consider important in deciding whether to buy or sell shares of a REIT is the distribution rates with respect to such shares (as a percentage of the price of such shares) relative to market interest rates. If market interest rates go up, prospective purchasers of REIT shares may expect a higher distribution rate. Higher interest rates would not, however, result in more funds for us to distribute and, in fact, would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our publicly traded securities to go down.
 
We Are Dependent on External Sources of Capital.
 
To qualify as a REIT, we must distribute to our stockholders each year at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and excluding any net capital gain). In addition, we intend to distribute all or substantially all of our net income so that we will generally not be subject to U.S. federal income tax on our earnings. Because of these distribution requirements, it is not likely that we will be able to fund all future capital needs, including for acquisitions, from income from operations. We therefore will have to rely on third-party sources of debt and equity capital financing, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including conditions in the capital markets generally and the market’s perception of our growth potential and our current and potential future earnings. As a result of the current credit crisis it may be difficult for us to meet one or more of the requirements for qualification as a REIT, including but not limited to our distribution requirement. Moreover, additional equity offerings may result in substantial dilution of stockholders’ interests, and additional debt financing may substantially increase our leverage.
 
Our Qualification as a REIT is Dependent on Compliance With U.S. Federal Income Tax Requirements.
 
We believe we have been organized and operated in a manner so as to qualify for taxation as a REIT, and we intend to continue to operate so as to qualify as a REIT for U.S. federal income tax purposes. Qualification as a REIT for U.S. federal income tax purposes, however, is governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. In connection with certain transactions, we have received, and relied, on advice of counsel as to the impact of such transactions on our qualification as a REIT. Our qualification as a REIT requires analysis of various facts and circumstances that may not be entirely within our control, and we cannot provide any assurance that the Internal Revenue Service (the “IRS”) will agree with our analysis or the analysis of our tax counsel. In particular, the proper federal income tax treatment of right-to-use and membership contracts is uncertain and there is no assurance that the IRS will agree with the Company’s treatment of such contracts. If the IRS were to disagree with our analysis or our tax counsel’s analysis of facts and circumstances, our ability to qualify as a REIT may be adversely affected. These matters can affect our qualification as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions might significantly change the tax laws with respect to the requirements for qualification as a REIT or the U.S. federal income tax consequences of qualification as a REIT.
 
If, with respect to any taxable year, we fail to maintain our qualification as a REIT (and specified relief provisions under the Code were not applicable to such disqualification), we could not deduct distributions to stockholders in computing our net taxable income and we would be subject to U.S. federal income tax on our net


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taxable income at regular corporate rates. Any U.S. federal income tax payable could include applicable alternative minimum tax. If we had to pay U.S. federal income tax, the amount of money available to distribute to stockholders and pay indebtedness would be reduced for the year or years involved, and we would no longer be required to distribute money to stockholders. In addition, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost, unless we were entitled to relief under the relevant statutory provisions. Although we currently intend to operate in a manner designed to allow us to qualify as a REIT, future economic, market, legal, tax or other considerations may cause us to revoke the REIT election.
 
Interpretation of and Changes to Accounting Policies and Standards Could Adversely Affect Our Reported Financial Results.
 
Our Accounting Policies and Methods Are the Basis on Which We Report Our Financial Condition and Results of Operations, and They May Require Management to Make Estimates About Matters that Are Inherently Uncertain.  Our accounting policies and methods are fundamental to the manner in which we record and report our financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in reporting materially different amounts than would have been reported under a different alternative.
 
One policy critical to the presentation of our financial condition and results of operations in 2008 was our policy related to Privileged Access. From April 14, 2006 through August 13, 2008, Privileged Access was our largest tenant and leased 82 resort Properties from us. Effective January 1, 2008, the 100 percent owner of Privileged Access, Mr. Joe McAdams, became our President and we amended and restated the leases for the Properties. Under generally accepted accounting principles, effective January 1, 2008, Mr. McAdams, Privileged Access and the Company were considered related parties. Due to the materiality of the leasing arrangement and the related party nature of the arrangement, the Company analyzed whether the operations of Privileged Access should be consolidated with ours. We determined under FIN 46 that it was not appropriate to consolidate Privileged Access as we did not control Privileged Access and was not the primary beneficiary of Privileged Access. This conclusion required management to make certain judgments. As a result of the complex nature of the arrangements, on February 15, 2008, we submitted a letter to the Office of the Chief Accountant at the SEC describing the relationship and asking for the SEC’s concurrence with our conclusions that we should not consolidate the operations of Privileged Access. The SEC did not object to the Company’s conclusions as described in the letter.
 
Our Accounting Policies for the Sale of Right-To-Use Contracts Will Result in a Substantial Deferral of Revenue in our Financial Results.  Beginning August 14, 2008, the Company began selling right-to-use contracts after the PA Transaction. Customers who purchase right-to-use contracts are generally required to make an upfront nonrefundable payment to the Company. The Company incurs significant selling and marketing expenses to originate the right-to-use contracts, and the majority of expenses must be expensed in the period incurred, while the related sales revenues are generally deferred and recognized over the expected life of the contract which is estimated based upon historical attrition rates. The expected life of a right-to-use contract is currently estimated to be between one and 31 years. As a result, the Company may incur a loss from the sale of right-to-use contracts, build up a substantial deferred sales revenue liability balance, and recognize substantial non-cash revenue in years subsequent to the original sale. This accounting may make it difficult for investors to interpret the financial results from the sale of right-to-use contracts. The Company submitted correspondence to the Office of the Chief Accountant at the SEC describing the right-to-use contracts and subsequently discussed the revenue recognition policy with respect to the contracts with the SEC. The SEC does not object to the Company’s application of Staff Accounting Bulletin 104, Revenue Recognition in Consolidated Financial Statements. Corrected (“SAB 104”) with respect to the deferral of the upfront


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nonrefundable payments received from the sale of right-to-use contracts. See Note 2 (n) in the Notes to Consolidated Financial Statements contained in this Form 10-K for the Company’s revenue recognition policy.
 
Changes in Accounting Standards Could Adversely Affect Our Reported Financial Results.  The bodies that set accounting standards for public companies, including the Financial Accounting Standards Board (“FASB”), the SEC and others, periodically change or revise existing interpretations of the accounting and reporting standards that govern the way that we report our financial condition and results of operations. These changes can be difficult to predict and can materially impact our reported financial results. In some cases, we could be required to apply a new or revised accounting standard, or a revised interpretation of an accounting standard, retroactively, which could have a negative impact on reported results or result in the restatement of our financial statements for prior periods.
 
Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
General
 
Our Properties provide attractive amenities and common facilities that create a comfortable and attractive home for our customers, with most offering a clubhouse, a swimming pool, laundry facilities and cable television service. Many also offer additional amenities such as sauna/whirlpool spas, golf courses, tennis, shuffleboard and basketball courts, exercise rooms and various social activities such as concerts. Since most of our customers generally rent our sites on a long-term basis, it is their responsibility to maintain their homes and the surrounding area. It is our role to ensure that customers comply with our Property policies and to provide maintenance of the common areas, facilities and amenities. We hold periodic meetings with our Property management personnel for training and implementation of our strategies. The Properties historically have had, and we believe they will continue to have, low turnover and high occupancy rates.
 
Property Portfolio
 
As of December 31, 2008, we owned or had an ownership interest in a portfolio of 309 Properties located throughout the United States and British Columbia containing 112,074 residential sites.
 
The distribution of our Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences. We intend to target new acquisitions in or near markets where our Properties are located and will also consider acquisitions of Properties outside such markets. Refer to Note 2 (c) of the Notes to Consolidated Financial Statements contained in this Form 10-K.
 
Bay Indies located in Venice, Florida and Viewpoint located in Mesa, Arizona, our two largest properties as determined by property operating revenues, accounted for approximately 2.2% and 2.1%, respectively, of our total property operating revenues for the year ended December 31, 2008.
 
The following table sets forth certain information relating to the Properties we owned as of December 31, 2008, categorized by our major markets (excluding membership campground Properties and Properties owned through joint ventures).
 
                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Florida
                                                                                                   
                                                                                                     
East Coast:
                                                                                                   
                                                                                                     
Sunshine Key
  38801 Overseas Hwy   Big Pine Key   FL     33043       RV       54                       409       42       100.0 %     100.0 %   $ 10,418     $ 4,505  
                                                                                                     
Carriage Cove
  Five Carriage Cove Way   Daytona Beach   FL     32119       MH       59                       418       418       91.6 %     92.6 %   $ 5,572     $ 5,342  
                                                                                                     
Coquina Crossing
  4536 Coquina Crossing Dr.   Elkton   FL     32033       MH       316       26       145       562       562       91.1 %     88.1 %(b)   $ 5,193     $ 4,912  


18


Table of Contents

                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Bulow Plantation
  3165 Old Kings Road South   Flagler Beach   FL     32136       MH       323       181       722       276       276       98.6 %     98.6 %(b)   $ 5,326     $ 5,034  
                                                                                                     
Bulow RV
  3345 Old Kings Road South   Flagler Beach   FL     32136       RV       (f )                     352       92       100.0 %     100.0 %   $ 4,944     $ 4,779  
                                                                                                     
Carefree Cove
  3273 N.W. 37th St   Ft. Lauderdale   FL     33309       MH       20                       163       163       93.3 %     92.0 %   $ 6,328     $ 6,047  
                                                                                                     
Park City West
  10550 W. State Road 84   Ft. Lauderdale   FL     33324       MH       60                       363       363       89.3 %     89.5 %   $ 5,734     $ 5,367  
                                                                                                     
Sunshine Holiday
  2802 W. Oakland Park Blvd.   Ft. Lauderdale   FL     33311       MH       32                       269       269       88.1 %     91.8 %   $ 5,835     $ 5,590  
                                                                                                     
Sunshine Holiday RV
  2802 W. Oakland Park Blvd.   Ft. Lauderdale   FL     33311       RV       (f )                     131       44       100.0 %     100.0 %   $ 5,515     $ 5,280  
                                                                                                     
Maralago Cay
  6280 S. Ash Lane   Lantana   FL     33462       MH       102       5               602       602       90.7 %     90.9 %   $ 7,001     $ 6,284  
                                                                                                     
Coral Cay
  2801 NW 62nd Avenue   Margate   FL     33063       MH       121                       819       819       84.7 %     82.2 %   $ 6,028     $ 5,818  
                                                                                                     
Lakewood Village
  3171 Hanson Avenue   Melbourne   FL     32901       MH       68                       349       349       87.1 %     86.8 %   $ 5,664     $ 5,488  
                                                                                                     
Holiday Village
  1335 Fleming Ave Box 228   Ormond Beach   FL     32174       MH       43                       301       301       85.7 %     86.7 %   $ 4,814     $ 4,666  
                                                                                                     
Sunshine Holiday
  1701 North US Hwy 1   Ormond Beach   FL     32174       RV       69                       349       140       100.0 %     100.0 %   $ 4,323     $ 4,069  
                                                                                                     
The Meadows
  2555 PGA Boulevard   Palm Beach Gardens   FL     33410       MH       55                       379       379       85.2 %     83.9 %(b)   $ 6,263     $ 5,936  
                                                                                                     
Breezy Hill RV
  800 NE 48th Street   Pompano Beach   FL     33064       RV       52                       762       358       100.0 %     100.0 %   $ 5,810     $ 5,557  
                                                                                                     
Highland Wood RV
  900 NE 48th street   Pompano Beach   FL     33064       RV       15                       148       11       100.0 %     100.0 %   $ 5,075     $ 5,583  
                                                                                                     
Lighthouse Pointe
  155 Spring Drive   Port Orange   FL     32129       MH       64                       433       433       86.6 %     86.8 %(b)   $ 4,708     $ 4,613  
                                                                                                     
Pickwick
  4500 S. Clyde Morris Blvd   Port Orange   FL     32119       MH       84       4               432       432       100.0 %     99.5 %   $ 4,923     $ 4,686  
                                                                                                     
Indian Oaks
  780 Barnes Boulevard   Rockledge   FL     32955       MH       38                       208       208       100.0 %     100.0 %   $ 4,137     $ 4,014  
                                                                                                     
Countryside
  8775 20th Street   Vero Beach   FL     32966       MH       125                       643       643       89.6 %     89.3 %(b)   $ 5,395     $ 5,117  
                                                                                                     
Heritage Plantation
  1101 Ranch Road   Vero Beach   FL     32966       MH       64                       435       435       83.4 %     82.6 %   $ 5,312     $ 5,185  
                                                                                                     
Holiday Village
  1000 S.W. 27th Avenue   Vero Beach   FL     32968       MH       20                       128       128       28.9 %     35.2 %   $ 4,239     $ 4,233  
                                                                                                     
Sunshine Travel
  9455 108th Avenue   Vero Beach   FL     32967       RV       30       6       48       300       176       100.0 %     100.0 %   $ 4,200     $ 4,058  
                                                                                                     
Central:
                                                                                                   
                                                                                                     
Clerbrook
  20005 U.S. Highway 27   Clermont   FL     34711       RV       288                       1,255       468       100.0 %     100.0 %   $ 4,251     $ 3,574  
                                                                                                     
Lake Magic
  9600 Hwy 192 West   Clermont   FL     34714       RV       69                       471       163       100.0 %     100.0 %   $ 4,018     $ 3,933  
                                                                                                     
Southern Palms
  One Avocado Lane   Eustis   FL     32726       RV       120                       950       373       100.0 %     100.0 %   $ 4,016     $ 3,933  
                                                                                                     
Grand Island
  13310 Sea Breeze Lane   Grand Island   FL     32735       MH       35                       362       362       58.8 %     61.6 %(b)   $ 4,903     $ 4,527  
                                                                                                     
Sherwood Forest
  5302 W. Irlo Bronson Hwy   Kissimmee   FL     34746       MH       124                       767       767       94.3 %     95.0 %(b)   $ 4,847     $ 4,613  
                                                                                                     
Sherwood Forest RV
  5300 W. Irlo Bronson Hwy   Kissimmee   FL     34746       RV       107       43       149       513       143       100.0 %     100.0 %   $ 4,692     $ 4,574  
                                                                                                     
Tropical Palms(g)
  2650 Holiday Trail   Kissimmee   FL     34746       RV       59                       541                                
                                                                                                     
Coachwood Colony
  2610 Dogwood Place   Leesburg   FL     34748       MH       29                       202       202       90.1 %     92.1 %   $ 3,879     $ 3,687  
                                                                                                     
Mid-Florida Lakes
  199 Forest Dr.   Leesburg   FL     34788       MH       290                       1,225       1225       80.7 %     81.9 %(b)   $ 5,406     $ 5,204  
                                                                                                     
Southernaire
  1700 Sanford Road   Mt. Dora   FL     32757       MH       14                       108       108       84.3 %     86.1 %   $ 4,151     $ 4,051  
                                                                                                     
Oak Bend
  10620 S.W. 27th Ave.   Ocala   FL     34476       MH       62       3               262       262       89.3 %     88.9 %(b)   $ 4,330     $ 4,227  
                                                                                                     
Villas at Spanish Oaks
  3150 N.E. 36th Avenue   Ocala   FL     34479       MH       69                       459       459       86.5 %     86.5 %   $ 4,373     $ 4,176  
                                                                                                     
Winter Garden
  13905 W. Colonial Dr.   Winter Garden   FL     34787       RV       27                       350       159       100.0 %     100.0 %   $ 4,074     $ 3,827  
                                                                                                     
Gulf Coast (Tampa/Naples):
                                                                                                   
                                                                                                     
Toby’s RV
  3550 N.E. Hwy 70   Arcadia   FL     34266       RV       44                       379       281       100.0 %     100.0 %   $ 2,543     $ 2,333  
                                                                                                     
Manatee
  800 Kay Road NE   Bradenton   FL     34212       RV       42                       415       220       100.0 %     100.0 %   $ 4,806     $ 4,549  
                                                                                                     
Windmill Manor
  5320 53rd Ave. East   Bradenton   FL     34203       MH       49                       292       292       95.9 %     95.5 %   $ 5,417     $ 5,241  
                                                                                                     
Glen Ellen
  2882 Gulf to Bay Blvd   Clearwater   FL     33759       MH       12                       106       106       90.6 %     94.3 %   $ 4,722     $ 4,431  
                                                                                                     
Hillcrest
  2346 Druid Road East   Clearwater   FL     33764       MH       25                       278       278       93.9 %     93.9 %   $ 4,701     $ 4,491  
                                                                                                     
Holiday Ranch
  4300 East Bay Drive   Clearwater   FL     33764       MH       12                       150       150       89.3 %     92.7 %   $ 4,229     $ 4,125  
                                                                                                     
Silk Oak
  28488 US Highway 19 N   Clearwater   FL     33761       MH       19                       181       181       90.1 %     92.3 %   $ 4,728     $ 4,455  
                                                                                                     
Crystal Isles
  11419 W. Ft. Island Drive   Crystal River   FL     34429       RV       32                       260       53       100.0 %     100.0 %   $ 5,154     $ 4,385  
                                                                                                     
Lake Haven
  1415 Main Street   Dunedin   FL     34698       MH       48                       379       379       90.8 %     91.3 %   $ 6,482     $ 6,194  

19


Table of Contents

                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Fort Myers Beach Resort
  16299 San Carlos Blvd.   Fort Myers   FL     33908       RV       31                       306       89       100.0 %     100.0 %   $ 5,689     $ 5,520  
                                                                                                     
Gulf Air Resort
  17279 San Carlos Blvd. SW   Fort Myers   FL     33931       RV       25                       246       159       100.0 %     100.0 %   $ 4,775     $ 4,515  
                                                                                                     
Barrington Hills
  9412 New York Avenue   Hudson   FL     34667       RV       28                       392       259       100.0 %     100.0 %   $ 2,920     $ 2,678  
                                                                                                     
Down Yonder
  7001 N. 142nd Avenue   Largo   FL     33771       MH       50                       361       361       98.9 %     99.4 %   $ 6,113     $ 5,734  
                                                                                                     
East Bay Oaks
  601 Starkey Road   Largo   FL     33771       MH       40                       328       328       97.3 %     97.9 %   $ 4,762     $ 4,495  
                                                                                                     
Eldorado Village
  2505 East Bay Drive   Largo   FL     33771       MH       25                       227       227       97.4 %     99.6 %   $ 4,661     $ 4,442  
                                                                                                     
Shangri La
  249 Jasper Street N.W.   Largo   FL     33770       MH       14                       160       160       89.4 %     91.9 %   $ 5,263     $ 5,056  
                                                                                                     
Vacation Village
  6900 Ulmerton Road   Largo   FL     33771       RV       29                       293       182       100.0 %     100.0 %   $ 4,173     $ 3,942  
                                                                                                     
Pasco
  21632 State Road 54   Lutz   FL     33549       RV       27                       255       176       100.0 %     100.0 %   $ 3,522     $ 3,356  
                                                                                                     
Buccaneer
  2210 N. Tamiami Trail N.E.   N. Ft. Myers   FL     33903       MH       223       39       162       971       971       98.5 %     98.2 %   $ 5,805     $ 5,490  
                                                                                                     
Island Vista MHC
  3000 N. Tamiami Trail   N. Ft. Myers   FL     33903       MH       121                       616       616       84.7 %     100.4 %   $ 4,049     $ 3,834  
                                                                                                     
Lake Fairways
  19371 Tamiami Trail   N. Ft. Myers   FL     33903       MH       259                       896       896       99.4 %     99.6 %   $ 5,819     $ 5,559  
                                                                                                     
Pine Lakes
  10200 Pine Lakes Blvd.   N. Ft. Myers   FL     33903       MH       314                       584       584       100.0 %     100.0 %   $ 6,781     $ 6,595  
                                                                                                     
Pioneer Village
  7974 Samville Rd.   N. Ft. Myers   FL     33917       RV       90                       733       392       100.0 %     100.0 %   $ 3,890     $ 3,675  
                                                                                                     
The Heritage
  3000 Heritage Lakes Blvd.   N. Ft. Myers   FL     33917       MH       214       22       132       453       453       98.7 %     98.0 %(b)   $ 5,084     $ 4,930  
                                                                                                     
Country Place
  2601 Country Place Blvd.   New Port Richey   FL     34655       MH       82                       515       515       99.8 %     99.8 %   $ 4,905     $ 3,844  
                                                                                                     
Hacienda Village
  7107 Gibraltar Ave   New Port Richey   FL     34653       MH       66                       505       505       97.8 %     97.6 %   $ 4,773     $ 4,564  
                                                                                                     
Harbor View
  6617 Louisna Ave   New Port Richey   FL     34653       MH       69                       471       471       98.5 %     97.5 %   $ 3,993     $ 3,823  
                                                                                                     
Bay Lake Estates
  1200 East Colonia Lane   Nokomis   FL     34275       MH       34                       228       228       93.0 %     95.2 %   $ 6,150     $ 5,963  
                                                                                                     
Royal Coachman
  1070 Laurel Road East   Nokomis   FL     34275       RV       111                       546       430       100.0 %     100.0 %   $ 6,042     $ 5,804  
                                                                                                     
Windmill Village
  16131 N. Cleveland Ave.   N. Ft. Myers   FL     33903       MH       69                       491       491       91.6 %     93.1 %   $ 4,723     $ 4,575  
                                                                                                     
Silver Dollar
  12515 Silver Dollar Drive   Odessa   FL     33556       RV       412                       385       385       100.0 %     100.0 %   $ 4,776     $ 4,420  
                                                                                                     
Terra Ceia
  9303 Bayshore Road   Palmetto   FL     34221       RV       18                       203       127       100.0 %     100.0 %   $ 3,555     $ 3,449  
                                                                                                     
Lakes at Countrywood
  745 Arbor Estates Way   Plant City   FL     33565       MH       122                       424       424       92.7 %     92.0 %(b)   $ 3,959     $ 3,785  
                                                                                                     
Meadows at Countrywood
  745 Arbor Estates Way   Plant City   FL     33565       MH       140       13       110       799       799       95.4 %     94.9 %(b)   $ 4,699     $ 4,510  
                                                                                                     
Oaks at Countrywood
  745 Arbor Estates Way   Plant City   FL     33565       MH       44                       168       168       76.2 %     76.8 %(b)   $ 3,984     $ 3,804  
                                                                                                     
Harbor Lakes
  3737 El Jobean Road #294   Port Charlotte   FL     33953       RV       80                       528       298       100.0 %     100.0 %   $ 4,470     $ 4,221  
                                                                                                     
Gulf View
  10205 Burnt Store Road   Punta Gorda   FL     33950       RV       78                       206       47       100.0 %     100.0 %   $ 4,328     $ 3,950  
                                                                                                     
Tropical Palms MHC
  17100 Tamiami Trail   Punta Gorda   FL     33955       MH       50                       297       297       86.5 %     85.2 %   $ 3,240     $ 3,167  
                                                                                                     
Winds of St. Armands No
  4000 N. Tuttle Ave.   Sarasota   FL     34234       MH       74                       471       471       94.9 %     94.7 %   $ 5,951     $ 5,364  
                                                                                                     
Winds of St. Armands So
  3000 N. Tuttle Ave.   Sarasota   FL     34234       MH       61                       306       306       99.3 %     99.3 %   $ 5,915     $ 5,610  
                                                                                                     
Topics
  13063 County Line Road   Spring Hill   FL     34609       RV       35                       230       195       100.0 %     100.0 %   $ 2,889     $ 2,739  
                                                                                                     
Pine Island
  5120 Stringfellow Road   St. James City   FL     33956       RV       31                       363       75       100.0 %     100.0 %     5009.85       4700.69  
                                                                                                     
Bay Indies
  950 Ridgewood Ave   Venice   FL     34285       MH       210                       1,309       1309       93.3 %     95.8 %   $ 6,683     $ 6,419  
                                                                                                     
Ramblers Rest
  1300 North River Rd.   Venice   FL     34293       RV       117                       647       437       100.0 %     100.0 %   $ 4,677     $ 4,350  
                                                                                                     
Sixth Avenue
  39345 6th Avenue   Zephyrhills   FL     33542       MH       14                       134       134       91.0 %     90.3 %   $ 2,436     $ 2,343  
                                                                                                     
                                                                                                     
Total Florida Market:
                                6,797       342       1468       35,183       28,239       93.6 %     94.1 %   $ 4,925     $ 4,616  
                                                                                                     
                                                                                                     
California
                                                                                                   
                                                                                                     
Northern California:
                                                                                                   
                                                                                                     
Monte del Lago
  13100 Monte del Lago   Castroville   CA     95012       MH       54                       310       310       96.8 %     93.2 %(b)   $ 12,282     $ 11,759  
                                                                                                     
Colony Park
  3939 Central Avenue   Ceres   CA     95307       MH       20                       186       186       90.9 %     89.8 %   $ 6,713     $ 6,881  
                                                                                                     
Four Seasons
  3138 West Dakota   Fresno   CA     93722       MH       40                       242       242       88.4 %     88.0 %   $ 4,163     $ 4,065  
                                                                                                     
Tahoe Valley
  1175 Melba Drive   Lake Tahoe   CA     96150       RV       86       20       200       413       0                          

20


Table of Contents

                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Sea Oaks
  1675 Los Osos Valley Rd., #221   Los Osos   CA     93402       MH       18                       125       125       98.4 %     98.4 %   $ 6,012     $ 5,861  
                                                                                                     
Coralwood
  331 Coralwood   Modesto   CA     95356       MH       22                       194       194       78.9 %     85.1 %   $ 8,433     $ 8,083  
                                                                                                     
Concord Cascade
  245 Aria Drive   Pacheco   CA     94553       MH       31                       283       283       100.0 %     100.0 %   $ 7,682     $ 7,495  
                                                                                                     
San Francisco RV
  700 Palmetto Ave   Pacifica   CA     94044       RV       12                       182       0                          
                                                                                                     
Quail Meadows
  5901 Newbrook Drive   Riverbank   CA     95367       MH       20                       146       146       96.6 %     98.6 %   $ 8,238     $ 8,039  
                                                                                                     
California Hawaiian
  3637 Snell Avenue   San Jose   CA     95136       MH       50                       418       418       99.3 %     99.0 %   $ 10,209     $ 9,920  
                                                                                                     
Sunshadow
  1350 Panoche Avenue   San Jose   CA     95122       MH       30                       121       121       98.3 %     97.5 %   $ 9,884     $ 9,444  
                                                                                                     
Village of the Four Seasons
  200 Ford Road   San Jose   CA     95138       MH       30                       271       271       95.2 %     92.6 %   $ 9,348     $ 8,847  
                                                                                                     
Westwinds (4 Properties)
  500 Nicholson Lane   San Jose   CA     95134       MH       88                       723       723       92.1 %     92.3 %   $ 11,034     $ 10,584  
                                                                                                     
Laguna Lake
  1801 Perfumo Canyon Road   San Luis Obispo   CA     93405       MH       100                       290       290       100.0 %     99.7 %   $ 5,514     $ 5,406  
                                                                                                     
Contempo Marin
  400 Yosemite Road   San Rafael   CA     94903       MH       63                       396       396       97.2 %     98.2 %   $ 8,482     $ 8,311  
                                                                                                     
DeAnza Santa Cruz
  2395 Delaware Avenue   Santa Cruz   CA     95060       MH       30                       198       198       93.9 %     94.9 %   $ 10,165     $ 9,676  
                                                                                                     
Santa Cruz Ranch RV Resort
  917 Disc Drive   Scotts Valley   CA     95066       RV       7                       106       0                              
                                                                                                     
Royal Oaks
  415 Akers Drive N.   Visalia   CA     93291       MH       20                       149       149       90.6 %     92.6 %   $ 5,215     $ 4,953  
                                                                                                     
Southern California:
                                                                                                   
                                                                                                     
Date Palm Country Club
  36-200 Date Palm Drive   Cathedral City   CA     92234       MH       232       3       24       538       538       98.3 %     98.1 %   $ 10,694     $ 10,240  
                                                                                                     
Date Palm RV
  36-100 Date Palm Drive   Cathedral City   CA     92234       RV       (f )                     140       0                          
                                                                                                     
Pacific Dunes Ranch
  1205 Silver Spur Place   Oceana   CA     93445       RV       48                       215       0                          
                                                                                                     
Rancho Mesa
  450 East Bradley Ave.   El Cajon   CA     92021       MH       20                       158       158       65.8 %     70.3 %   $ 11,259     $ 10,839  
                                                                                                     
Rancho Valley
  12970 Hwy 8 Business   El Cajon   CA     92021       MH       19                       140       140       97.9 %     95.0 %   $ 11,191     $ 10,922  
                                                                                                     
Royal Holiday
  4400 W Florida Ave   Hemet   CA     92545       MH       22                       179       179       66.5 %     57.5 %   $ 4,860     $ 4,770  
                                                                                                     
Las Palmas
  1025 S. Riverside Ave.   Rialto   CA     92376       MH       18                       136       136       100.0 %     100.0 %   $ 5,452     $ 5,175  
                                                                                                     
Parque La Quinta
  350 S. Willow Ave. #120   Rialto   CA     92376       MH       19                       166       166       99.4 %     100.0 %   $ 5,407     $ 5,172  
                                                                                                     
Meadowbrook
  8301 Mission Gorge Rd.   Santee   CA     92071       MH       43                       338       338       97.9 %     98.2 %   $ 8,926     $ 9,065  
                                                                                                     
Lamplighter
  10767 Jamacha Blvd.   Spring Valley   CA     91978       MH       32                       270       270       96.7 %     94.8 %   $ 11,471     $ 11,213  
                                                                                                     
Santiago Estates
  13691 Gavina Ave. #632   Sylmar   CA     91342       MH       113       9               300       300       100.0 %     100.0 %   $ 10,555     $ 10,067  
                                                                                                     
                                                                                                     
Total California Market
                                1,287       32       224       7,333       6,277       93.4 %     93.1 %   $ 8,466     $ 8,199  
                                                                                                     
                                                                                                     
Arizona
                                                                                                   
                                                                                                     
Countryside RV
  2701 S. Idaho Rd   Apache Junction   AZ     85219       RV       53                       560       317       100.0 %     100.0 %   $ 2,931     $ 2,843  
                                                                                                     
Golden Sun RV
  999 W Broadway Ave   Apache Junction   AZ     85220       RV       33                       329       239       100.0 %     100.0 %   $ 2,845     $ 2,738  
                                                                                                     
Casita Verde RV
  2200 N. Trekell Rd.   Casa Grande   AZ     85222       RV       14                       192       104       100.0 %     100.0 %   $ 2,222     $ 2,148  
                                                                                                     
Fiesta Grande RV
  1511 East Florence Blvd.   Casa Grande   AZ     85222       RV       77                       767       520       100.0 %     100.0 %   $ 2,610     $ 2,546  
                                                                                                     
Foothills West RV
  10167 N. Encore Dr.   Casa Grande   AZ     85222       RV       16                       188       134       100.0 %     100.0 %   $ 2,199     $ 2,106  
                                                                                                     
Monte Vista
  8865 E. Baseline Road   Mesa   AZ     85209       RV       142       56       515       832       763       100.0 %     100.0 %   $ 5,111     $ 4,756  
                                                                                                     
Viewpoint
  8700 E. University   Mesa   AZ     85207       RV       332       55       467       1,954       1517       100.0 %     100.0 %   $ 4,695     $ 4,528  
                                                                                                     
Venture In
  270 N. Clark Rd.   Show Low   AZ     85901       RV       26                       389       276       100.0 %     100.0 %   $ 2,699     $ 2,561  
                                                                                                     
Paradise
  10950 W. Union Hill Drive   Sun City   AZ     85373       RV       80                       950       816       100.0 %     100.0 %   $ 3,764     $ 3,823  
                                                                                                     
Araby
  6649 E. 32nd. St.   Yuma   AZ     85365       RV       25                       337       294       100.0 %     100.0 %   $ 3,015     $ 2,850  
                                                                                                     
Cactus Gardens
  10657 S. Ave. 9-E   Yuma   AZ     85365       RV       43                       430       292       100.0 %     100.0 %   $ 2,057     $ 1,962  
                                                                                                     
Capri RV
  3380 South 4th Ave   Yuma   AZ     85365       RV       20                       303       236       100.0 %     100.0 %   $ 2,791     $ 2,668  
                                                                                                     
Desert Paradise
  10537 South Ave., 9E   Yuma   AZ     85365       RV       26                       260       128       100.0 %     100.0 %   $ 2,076     $ 1,980  
                                                                                                     
Foothill
  12705 E. South Frontage Rd.   Yuma   AZ     85367       RV       18                       180       65       100.0 %     100.0 %   $ 2,115     $ 2,011  
                                                                                                     
Mesa Verde
  3649 & 3749 South 4th Ave.   Yuma   AZ     85365       RV       28                       345       310       100.0 %     100.0 %   $ 2,637     $ 2,272  
                                                                                                     
Suni Sands
  1960 East 32nd Street   Yuma   AZ     85365       RV       34                       336       191       100.0 %     100.0 %   $ 2,539     $ 2,426  
                                                                                                     
Casa del Sol East II
  10960 N. 67th Avenue   Glendale   AZ     85304       MH       29                       239       239       84.5 %     78.7 %   $ 6,733     $ 6,564  
                                                                                                     
Casa del Sol East III
  10960 N. 67th Avenue   Glendale   AZ     85304       MH       28                       236       236       81.8 %     82.6 %   $ 6,720     $ 6,496  
                                                                                                     
Palm Shadows
  7300 N. 51st. Avenue   Glendale   AZ     85301       MH       33                       294       294       82.7 %     81.3 %   $ 5,257     $ 4,960  

21


Table of Contents

                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Hacienda de Valencia
  201 S. Greenfield Rd.   Mesa   AZ     85206       MH       51                       365       365       98.4 %     93.7 %   $ 5,897     $ 5,659  
                                                                                                     
The Highlands at Brentwood
  120 North Val Vista Drive   Mesa   AZ     85213       MH       45                       268       268       99.3 %     96.3 %   $ 6,551     $ 6,242  
                                                                                                     
The Mark
  625 West McKellips   Mesa   AZ     85201       MH       60       4               410       410       62.9 %     57.6 %   $ 5,383     $ 5,146  
                                                                                                     
Apollo Village
  10701 N. 99th Ave.   Peoria   AZ     85345       MH       29       3               236       236       92.4 %     91.5 %(b)   $ 5,393     $ 5,247  
                                                                                                     
Casa del Sol West I
  11411 N. 91st Avenue   Peoria   AZ     85345       MH       31                       245       245       94.3 %     93.5 %   $ 6,293     $ 6,103  
                                                                                                     
Carefree Manor
  19602 N. 32nd Street   Phoenix   AZ     85050       MH       16                       130       130       93.1 %     80.8 %   $ 4,929     $ 4,868  
                                                                                                     
Central Park
  205 West Bell Road   Phoenix   AZ     85023       MH       37                       293       293       99.0 %     95.6 %   $ 5,901     $ 5,810  
                                                                                                     
Desert Skies
  19802 N. 32 Street   Phoenix   AZ     85024       MH       24                       165       165       100.0 %     98.8 %   $ 5,130     $ 4,999  
                                                                                                     
Sunrise Heights
  17801 North 16th Street   Phoenix   AZ     85022       MH       28                       199       199       94.0 %     91.0 %   $ 5,657     $ 5,420  
                                                                                                     
Whispering Palms
  19225 N. Cave Creek Rd.   Phoenix   AZ     85024       MH       15                       116       116       94.8 %     95.7 %   $ 4,507     $ 4,368  
                                                                                                     
Sedona Shadows
  6770 W. U.S. Hwy 89A   Sedona   AZ     86336       MH       48       6       10       198       198       100.0 %     99.5 %   $ 7,074     $ 6,702  
                                                                                                     
The Meadows
  2401 W. Southern Ave.   Tempe   AZ     85282       MH       60                       391       391       94.4 %     90.0 %   $ 6,171     $ 5,942  
                                                                                                     
Fairview Manor
  3115 N. Fairview Avenue   Tucson   AZ     85705       MH       28                       235       235       80.9 %     80.0 %   $ 4,636     $ 4,533  
                                                                                                     
                                                                                                     
Total Arizona Market
                                1,529       124       992       12,372       10,222       95.4 %     94.0 %   $ 4,329     $ 4,165  
                                                                                                     
                                                                                                     
Colorado
                                                                                                   
                                                                                                     
Hillcrest Village
  1600 Sable Boulevard   Aurora   CO     80011       MH       72                       601       601       81.0 %     76.9 %   $ 6,672     $ 6,540  
                                                                                                     
Cimarron
  12205 North Perry   Broomfield   CO     80020       MH       50                       327       327       82.6 %     84.1 %   $ 6,483     $ 6,351  
                                                                                                     
Holiday Village
  3405 Sinton Road   Co. Springs   CO     80907       MH       38                       240       240       75.8 %     78.3 %   $ 6,678     $ 6,697  
                                                                                                     
Bear Creek
  3500 South King Street   Denver   CO     80236       MH       12                       122       122       91.8 %     92.6 %   $ 6,498     $ 6,212  
                                                                                                     
Holiday Hills
  2000 West 92nd Avenue   Denver   CO     80260       MH       99                       736       736       83.3 %     83.8 %   $ 6,525     $ 6,397  
                                                                                                     
Golden Terrace
  17601 West Colfax Ave.   Golden   CO     80401       MH       32                       265       265       82.6 %     84.2 %   $ 7,211     $ 6,949  
                                                                                                     
Golden Terrace South
  17601 West Colfax Ave.   Golden   CO     80401       MH       15                       80       80       67.5 %     72.5 %   $ 7,080     $ 6,864  
                                                                                                     
Golden Terrace South RV
  17801 West Colfax Ave.   Golden   CO     80401       RV       (f )                     80       0                          
                                                                                                     
Golden Terrace West
  17601 West Colfax Ave.   Golden   CO     80401       MH       39       7               316       316       81.3 %     81.0 %   $ 7,049     $ 6,776  
                                                                                                     
Pueblo Grande
  999 Fortino Blvd. West   Pueblo   CO     81008       MH       33                       251       251       84.1 %     88.0 %   $ 4,005     $ 3,826  
                                                                                                     
Woodland Hills
  1500 W. Thornton Pkwy.   Thorton   CO     80260       MH       55                       434       434       80.2 %     82.7 %   $ 6,208     $ 5,902  
                                                                                                     
                                                                                                     
Total Colordao Market
                                445       7       0       3,452       3,372       81.0 %     82.4 %   $ 6,441     $ 6,251  
                                                                                                     
                                                                                                     
Northeast
                                                                                                   
                                                                                                     
Waterford
  205 Joan Drive   Bear   DE     19701       MH       159                       731       731       95.5 %     95.2 %(b)   $ 6,134     $ 5,915  
                                                                                                     
Whispering Pines
  32045 Janice Road   Lewes   DE     19958       MH       67       2               393       393       82.4 %     85.8 %   $ 4,580     $ 4,343  
                                                                                                     
Mariners Cove
  35356 Sussex Lane #1   Millsboro   DE     19966       MH       101                       375       375       95.7 %     94.9 %(b)   $ 6,923     $ 6,734  
                                                                                                     
Aspen Meadows
  303 Palace Lane   Rehoboth   DE     19971       MH       46                       200       200       100.0 %     100.0 %   $ 5,117     $ 4,921  
                                                                                                     
Camelot Meadows
  303 Palace Lane   Rehoboth   DE     19971       MH       61                       301       301       99.7 %     99.0 %   $ 4,854     $ 4,598  
                                                                                                     
McNicol
  303 Palace Lane   Rehoboth   DE     19971       MH       25                       93       93       98.9 %     98.9 %   $ 4,565     $ 4,434  
                                                                                                     
Sweetbriar
  83 Big Burn Lane   Rehoboth   DE     19958       MH       38                       146       146       98.6 %     98.6 %   $ 4,677     $ 4,485  
                                                                                                     
Old Chatham RV
  310 Old Chatham Road   South Dennis   MA     02660       RV       47       11               312       265       100.0 %     100.0 %   $ 3,625     $ 3,434  
                                                                                                     
Mount Desert Narrows
  1219 State Highway 3   Bar Harbor   ME     04609       RV       90       12               206       0                              
                                                                                                     
Patten Pond
  1470 Bucksport Road   Ellsworth   ME     04605       RV       43       60               137       2       100.0 %           $ 2,450          
                                                                                                     
Pinehurst RV Park
  7 Oregon Avenue, P.O. Box 174   Old Orchard Beach   ME     04064       RV       58                       550       511       100.0 %     100.0 %   $ 2,700     $ 2,501  
                                                                                                     
Narrows Too
  1150 Bar Harbor Road   Trenton   ME     04605       RV       42                       207       3       100.0 %           $ 3,165          
                                                                                                     
Scenic
  1314 Tunnel Rd.   Asheville   NC     28805       MH       28                       172       172       94.2 %     78.0 %   $ 3,537     $ 3,435  
                                                                                                     
Waterway RV
  850 Cedar Point Blvd.   Cedar Point   NC     28584       RV       27                       336       332       100.0 %     100.0 %   $ 3,220     $ 2,969  
                                                                                                     
Twin Lakes
  1618 Memory Lane   Chocowinity   NC     27817       RV       132       8       54       400       305       100.0 %     100.0 %   $ 2,611     $ 2,439  
                                                                                                     
Lake Myers RV
  2862 US Highway 64 West   Mocksville   NC     27028       RV       74                       425       282       100.0 %     100.0 %   $ 2,046     $ 1,993  
                                                                                                     
Goose Creek
  350 Red Barn Road   Newport   NC     28570       RV       92       6       51       598       605       100.0 %     100.0 %   $ 3,227     $ 3,039  

22


Table of Contents

                                                                                                     
                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Sandy Beach RV
  677 Clement Hill Road   Contoocook   NH     03229       RV       40                       190       114       100.0 %     100.0 %   $ 3,188     $ 3,050  
                                                                                                     
Tuxbury Resort
  88 Whitehall Road   South Hampton   NH     03827       RV       193       100               305       212       100.0 %     100.0 %   $ 2,982     $ 2,969  
                                                                                                     
Alpine Lake
  78 Heath Road   Corinth   NY     12822       RV       200       54               500       258       100.0 %     100.0 %   $ 2,697     $ 2,608  
                                                                                                     
Lake George Escape
  175 E. Schroon River Road, P.O. Box 431   Lake George   NY     12845       RV       178       30               576       21       100.0 %         $ 4,898          
                                                                                                     
Lake George Schroon Valley
  1730 Schroon River Rd   Warrensburg   NY     12885       RV       151                       151       0             (a)                
                                                                                                     
Greenwood Village
  370 Chapman Boulevard   Manorville   NY     11949       MH       79       14       7       512       512       100.0 %     100.0 %   $ 6,865     $ 6,516  
                                                                                                     
Brennan Beach
  80 Brennan Beach   Pulaski   NY     13142       RV       201                       1,377       1173       100.0 %     100.0 %   $ 1,977     $ 1,714  
                                                                                                     
Green Acres
  8785 Turkey Ridge Road   Breinigsville   PA     18031       MH       149                       595       595       91.9 %     93.3 %   $ 6,584     $ 6,315  
                                                                                                     
Spring Gulch
  475 Lynch Road   New Holland   PA     17557       RV       114                       420       119       100.0 %     100.0 %   $ 3,709     $ 3,711  
                                                                                                     
Appalachian
  60 Motel Drive   Shartlesville   PA     19554       RV       86       30       200       357       0             100.0 %         $ 2,693  
                                                                                                     
Inlet Oaks
  5350 Highway 17   Murrells Inlet   SC     29576       MH       35                       178       178       94.9 %     94.9 %   $ 3,545     $ 3,354  
                                                                                                     
Meadows of Chantilly
  4200 Airline Parkway   Chantilly   VA     22021       MH       82                       500       500       93.4 %     90.8 %   $ 9,625     $ 9,381  
                                                                                                     
                                                                                                     
Total Northeast Market
                                2,638       327       312       11,243       8,398       97.9 %     97.1 %   $ 4,212     $ 4,065  
                                                                                                     
                                                                                                     
Midwest
                                                                                                   
                                                                                                     
O’Connell’s
  970 Green Wing Road   Amboy   IL     61310       RV       286       100       600       668       355       100.0 %     100.0 %   $ 2,632     $ 2,497  
                                                                                                     
Willow Lake Estates
  161 West River Road   Elgin   IL     60123       MH       111                       617       617       68.2 %     71.3 %   $ 9,225     $ 9,223  
                                                                                                     
Golf Vista Estates
  25807 Firestone Drive   Monee   IL     60449       MH       144       4               408       408       94.6 %     98.0 %(b)   $ 7,379     $ 6,713  
                                                                                                     
Twin Mills RV
  1675 W SR 120   Howe   IN     46746       RV       137       5       50       501       232       100.0 %     100.0 %   $ 2,042     $ 1,922  
                                                                                                     
Lakeside
  7089 N. Chicago Road   New Carlisle   IN     46552       RV       13                       91       65       100.0 %     100.0 %   $ 2,187     $ 2,069  
                                                                                                     
Oak Tree Village
  254 Sandalwood Ave.   Portage   IN     46368       MH       76                       361       361       70.6 %     73.4 %   $ 5,036     $ 4,836  
                                                                                                     
Creekside
  5100 Clyde Pk. Ave. SW   Wyoming   MI     49509       MH       29                       165       165       64.2 %     67.3 %   $ 5,722     $ 5,582  
                                                                                                     
Caledonia
  8425 Hwy 38   Caledonia   WI     53108       RV       76                       247                                      
                                                                                                     
Fremont
  E. 6506 Highway 110   Fremont   WI     54940       RV       98       5               325       64       100.0 %     100.0 %   $ 2,750     $ 2,595  
                                                                                                     
Yukon Trails
  N2330 Co Rd. HH   Lyndon Station   WI     53944       RV       150       30               214       119       100.0 %     100.0 %   $ 1,616     $ 1,520  
                                                                                                     
Tranquil Timbers
  3668 Grondin Road   Sturgeon Bay   WI     54235       RV       125                       270       129       100.0 %     100.0 %   $ 1,719     $ 1,649  
                                                                                                     
Arrowhead
  W1530 Arrowhead Road   Wisconsin Dells   WI     53965       RV       166       40       200       377       153       100.0 %     100.0 %   $ 1,578     $ 1,512  
                                                                                                     
                                                                                                     
Total Midwest Market
                                1,411       184       850       4,244       2,668       90.7 %     91.8 %   $ 3,808     $ 3,647  
                                                                                                     
                                                                                                 
Nevada, Utah, New Mexico
                                                                                               
                                                                                                     
Bonanza
  3700 East Stewart Ave   Las Vegas   NV     89110       MH       43                       353       353       63.5 %     62.3 %   $ 6,053     $ 5,925  
                                                                                                     
Boulder Cascade
  1601 South Sandhill Rd   Las Vegas   NV     89104       MH       39                       299       299       77.3 %     78.3 %   $ 6,599     $ 6,396  
                                                                                                     
Cabana
  5303 East Twain   Las Vegas   NV     89122       MH       37                       263       263       98.5 %     98.9 %   $ 6,566     $ 6,404  
                                                                                                     
Flamingo West
  8122 West Flamingo Rd.   Las Vegas   NV     89147       MH       37                       258       258       99.6 %     99.2 %   $ 7,216     $ 6,887  
                                                                                                     
Villa Borega
  1111 N. Lamb Boulevard   Las Vegas   NV     89110       MH       40                       293       293       84.0 %     86.0 %   $ 6,714     $ 6,405  
                                                                                                     
Westwood Village
  1111 N. 2000 West   Farr West   UT     84404       MH       46                       314       314       94.3 %     94.3 %(b)   $ 4,295     $ 4,191  
                                                                                                     
All Seasons
  290 N. Redwood Rd   Salt Lake City   UT     84116       MH       19                       121       121       83.5 %     84.3 %   $ 5,321     $ 5,173  
                                                                                                     
                                                                                                 
Total Nevada, Utah, New Mexico Market
                            261       0       0       1,901       1,901       85.8 %     86.2 %   $ 6,109     $ 5,912  
                                                                                                 
                                                                                                     
Northwest
                                                                                                   
                                                                                                     
Casa Village
  14 Goldust Dr   Billings   MT     59102       MH       63                       490       490       73.5 %     73.3 %   $ 4,232     $ 4,102  
                                                                                                     
Mt. Hood
  65000 E Highway 26   Welches   OR     97067       RV       115       30       202       436       106       100.0 %     100.0 %   $ 5,229     $ 4,830  
                                                                                                     
Shadowbrook
  13640 S.E. Hwy 212   Clackamas   OR     97015       MH       21                       156       156       97.4 %     96.2 %   $ 7,456     $ 7,242  
                                                                                                     
Falcon Wood Village
  1475 Green Acres Road   Eugene   OR     97408       MH       23                       183       183       86.9 %     86.3 %   $ 5,766     $ 5,605  
                                                                                                     
Quail Hollow
  2100 N.E. Sandy Blvd.   Fairview   OR     97024       MH       21                       137       137       94.2 %     94.2 %   $ 7,314     $ 7,083  
                                                                                                     
Kloshe Illahee
  2500 S. 370th Street   Federal Way   WA     98003       MH       50                       258       258       98.8 %     98.8 %   $ 8,640     $ 8,509  
                                                                                                     
                                                                                                 
Total Northwest Market
                            293       30       202       1,660       1,330       91.8 %     91.5 %   $ 6,439     $ 6,229  
                                                                                                 
                                                                                                     
Texas
                                                                                                   
                                                                                                     
Lakewood
  4525 Graham Road   Harlingen   TX     78552       RV       30                       301       107       100.0 %     100.0 %   $ 1,970     $ 1,886  

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                                                    New
                         
                                                    Total
                         
                                              Total
    Number
    Annual
    Annual
             
                                  Develo-
          Number
    of Annual
    Site
    Site
    Annual
    Annual
 
                                  Pable
          of Sites
    Sites
    Occupancy
    Occupancy
    Rent
    Rent
 
                            Acres
    Acres
    Expansion
    as of
    as of
    as of
    as of
    as of
    as of
 
Property
  Address   City   State   ZIP     MH/RV     (c)     (d)     Sites(e)     12/31/08     12/31/08     12/31/08     12/31/07     12/31/08     12/31/07  
 
                                                                                                     
Paradise Park RV
  1201 N. Expressway 77   Harlingen   TX     78552       RV       60                       563       306       100.0 %     100.0 %   $ 2,965     $ 2,858  
                                                                                                     
Sunshine RV
  1900 Grace Avenue   Harlingen   TX     78550       RV       84                       1,027       409       100.0 %     100.0 %   $ 2,380     $ 2,257  
                                                                                                     
Paradise South
  9909 N. Mile 2 West Rd.   Mercedes   TX     78570       RV       49                       493       172       100.0 %     100.0 %   $ 2,080     $ 1,999  
                                                                                                     
Fun n Sun RV
  1400 Zillock Rd   San Benito   TX     78586       RV       135       40               1,435       635       100.0 %     100.0 %   $ 2,880     $ 2,780  
                                                                                                     
Southern Comfort
  1501 South Airport Drive   Weslaco   TX     78596       RV       40                       403       330       100.0 %     100.0 %   $ 2,658     $ 2,539  
                                                                                                     
Tropic Winds
  1501 N Loop 499   Harlingen   TX     78550       RV       112       74               531       107       100.0 %     100.0 %   $ 2,778     $ 2,644  
                                                                                                     
Country Sunshine
  1601 South Airport Road   Weslaco   TX     78596       RV       37                       390       190       100.0 %     100.0 %   $ 2,638     $ 2,499  
                                                                                                     
                                                                                                     
Total Texas Market
                                547       114       0       5,143       2,256       100.00 %     100.00 %   $ 2,544     $ 2,433  
                                                                                                     
                                                                                         
Grand Total All Markets
                    15,208       1,160       4,048       82,531       64,663       92.17 %     92.24 %   $ 5,253     $ 5,057  
                                                                                         
 
 
(a) Represents Properties acquired in 2008.
 
(b) The process of filling Expansion Sites at these Properties is ongoing. A decrease in occupancy may reflect development of additional Expansion Sites.
 
(c) Acres are approximate. Acreage for some recent acquisitions was estimated based upon 10 sites per acre.
 
(d) Acres are approximate. There can be no assurance that developable acres will be developed. Development is contingent on many factors including, but not limited to, cost, ability to subdivide, accessibility, infrastructure needs, zoning, entitlement and topography.
 
(e) Expansion sites are approximate and only represent sites that could be developed and is further dependent upon necessary approvals. Certain Properties with expansion sites noted may have vacancy and therefore, expansion sites may not be added.
 
(f) Acres for this RV park are included in the acres for the adjacent manufactured home community listed directly above this Property.
 
(g) Property not operated by the Company during all of 2008. Property is leased to a third party operator or closed.
 
The following table sets forth certain information relating to membership campground Properties owned as of December 31, 2008:
 
                                                 
                                      Total
 
                                      Number
 
                                      of Sites
 
                          Developable
    Expansion
    as of
 
Property
  Address   City   State   ZIP   Acres(a)     Acres(b)     Sites(c)     12/31/08  
 
Hidden Cove Outdoor Resort
  687 Country Road 3916   Arley   AL   35541     81       60       200       79  
Verde Valley
  6400 Thousand Trails Rd, SP # 16   Cottonwood   AZ   86326     273       129       515       352  
Cultus Lake (Canada)
  1855 Columbia Valley Hwy   Lindell Beach   BC   V2R 4W6     15                       178  
Idyllwild
  24400 Canyon Trail Drive   Idyllwild   CA   92549     191       52       120       287  
Lake Minden
  1256 Marcum Rd   Nicolaus   CA   95659     165       82       540       323  
Lake of the Springs
  14152 French Town Rd   Oregon House   CA   95962     954       507       1,014       541  
Morgan Hill
  12895 Uvas Rd   Morgan Hill   CA   95037     62                       339  
Oakzanita
  11053 Highway 79   Descanso   CA   91916     145       5               146  
Palm Springs
  77500 Varner Rd   Palm Desert   CA   92211     35                       401  
Pio Pico
  14615 Otay Lakes Rd   Jamul   CA   91935     176       10               512  
Ponderosa
  7291 Highway 49   Lotus   CA   95651     22                       170  
Rancho Oso
  3750 Paradise Rd   Santa Barbara   CA   93105     310       40               187  
Russian River
  33655 Geysers Rd   Cloverdale   CA   95425     41                       135  
San Benito
  16225 Cienega Rd   Paicines   CA   95043     199       23               523  
Snowflower
  41776 Yuba Gap Dr   Emigrant Gap   CA   95715     551       200               268  
Soledad Canyon
  4700 Crown Valley Rd   Acton   CA   93510     273       45       182       1,251  
Turtle Beach
  703 E Williamson Rd   Manteca   CA   95337     39                       79  
Wilderness Lakes
  30605 Briggs Rd   Menifee   CA   92584     73                       529  
Yosemite Lakes
  31191 Harden Flat Rd   Groveland   CA   95321     403       30       111       299  
Orlando
  2110 US Highway 27 S   Clermont   FL   34714     270       30       136       850  

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                                      Total
 
                                      Number
 
                                      of Sites
 
                          Developable
    Expansion
    as of
 
Property
  Address   City   State   ZIP   Acres(a)     Acres(b)     Sites(c)     12/31/08  
 
Peace
  2555 US Highway 17   South Wauchula   FL   33873     72       38               454  
Three Flags RV Resort
  1755 E State Rd 44   Wildwood   FL   34785     23                       221  
Pine Country
  5710 Shattuck Road   Belvidere   IL   61008     131                       126  
Horsehoe Lakes
  12962 S. 225 W.   Clinton   IN   47842     289       96       96       123  
Indian Lakes
  7234 E. SR Highway 46   Batesville   IN   47006     545       159       318       1,000  
Diamond Caverns Resort
  1878 Mammoth Cave Pkwy   Park City   KY   42160     714       350       469       220  
Gateway to Cape Cod
  90 Stevens Rd PO Box 217   Rochester   MA   02770     80                       194  
Sturbridge
  19 Mashapaug Rd   Sturbridge   MA   01566     223                       155  
Moody Beach
  266 Post Road   Moody   ME   04054     48                       203  
Bear Cave Resort
  4085 N. Red Bud Trail   Buchanan   MI   49107     26       10               136  
Saint Claire
  1299 Wadhams Rd   Saint Claire   MI   48079     210       100               229  
Forest Lake
  192 Thousand Trails Dr   Advance   NC   27006     306       81               305  
Green Mountain Park
  2495 Dimmette Rd   Lenoir   NC   28645     1077       400       360       447  
Lake Gaston
  561 Fleming Dairy Road   Littleton   NC   27850     69                       235  
Chestnut Lake
  631 Chestnut Neck Rd   Port Republic   NJ   08241     32                       185  
Lake & Shore
  545 Corson Tavern Rd   Ocean View   NJ   08230     162                       401  
Sea Pines
  US Route #9 Box 1535   Swainton   NJ   08210     75                       549  
Las Vegas
  4295 Boulder Highway   Las Vegas   NV   89121     11                       217  
Rondout Valley Resort
  105 Mettachonts Rd   Accord   NY   12404     184       94               398  
Kenisee Lake
  2021 Mill creek Rd   Jefferson   OH   44047     143       50               119  
Wilmington
  1786 S.R. 380   Wilmington   OH   45177     109       41               169  
Pacific City
  30000 Sandlake Rd   Cloverdale   OR   97112     105                       307  
Seaside Resort
  1703 12th Ave   Seaside   OR   97138     80                       251  
South Jetty
  05010 South Jetty Rd   Florence   OR   97439     57                       204  
Thousand Trails Bend
  17480 S Century Dr   Bend   OR   97707     289       100       145       351  
Whaler’s Rest Resort
  50 SE 123rd St   South Beach   OR   97366     39                       170  
Circle M
  2111 Millersville Road   Lancaster   PA   17603     103                       380  
Gettysburg Farm
  6200 Big Mountain Rd   Dover   PA   17315     124                       265  
Hershey Preserve
  493 S. Mt. Pleasant Rd   Lebanon   PA   17042     196       20               297  
PA Dutch County
  185 Lehman Road   Manheim   PA   17545     102                       269  
Scotrun
  PO Box 428 Route 611   Scotrun   PA   18355     66                       178  
Timothy Lake South
  RR #6,Box 6627 Timothy Lake Rd   East Stroudsburg   PA   18301     65                       327  
Timothy Lake North
  RR #6,Box 6627 Timothy Lake Rd   East Stroudsburg   PA   18301     98                       323  
Carolina Landing
  120 Carolina Landing Dr   Fair Play   SC   29643     73                       192  
The Oaks at Point South
  1292 Campground Rd   Yemassee   SC   29945     10                       93  
Cherokee Landing
  PO Box 37   Middleton   TN   38052     254       124               339  
Natchez Trace
  1363 Napier Rd   Hohenwald   TN   38462     672       140               531  
Bay Landing
  2305 Highway 380 W   Bridgeport   TX   76426     443       235               293  
Colorado River
  1062 Thousand Trails Lane   Columbus   TX   78934     218       51               132  
Lake Conroe
  11720 Old Montgomery Rd   Willis   TX   77318     129       30       300       363  
Lake Tawakoni
  1246 Rains Co. Rd 1470   Point   TX   75472     480       11               320  
Lake Texoma
  209 Thousand Trails Dr   Gordonville   TX   76245     201       79               301  
Lake Whitney
  417 Thousand Trails Dr   Whitney   TX   76692     403       158               261  
Medina Lake
  215 Spettle Rd   Lakehills   TX   78063     208       50               387  
Chesapeake Bay
  12014 Trails Lane   Gloucester   VA   23061     282       80               392  
Harbor View
  15 Harbor View Circle   Colonial Beach   VA   22443     76                       146  
Lynchburg
  405 Mollies Creek Rd   Gladys   VA   24554     170       59               222  
Virginia Landing
  40226 Upshur Neck Rd   Quinby   VA   23423     839       178               233  
Williamsburg
  4301 Rochambeau Drive   Williamsburg   VA   23188     65                       211  
Birch Bay
  8418 Harborview Rd   Blaine   WA   98230     31                       246  
Cascade Resort
  34500 SE 99th St   Snoqualmie   WA   98065     20                       163  
Chehalis
  2228 Centralia-Alpha Rd   Chehalis   WA   98532     309       85               360  
Crescent Bar Resort
  9252 Crescent Bar Rd NW   Quincy   WA   98848     14                       115  
La Conner
  16362 Snee Oosh Rd   La Conner   WA   98257     106       5               319  
Leavenworth
  20752-4 Chiwawa Loop Rd   Leavenworth   WA   98826     300       50               266  
Little Diamond
  1002 McGowen Rd   Newport   WA   99156     360       119               520  
Long Beach
  2215 Willows Rd   Seaview   WA   98644     17                       144  

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                                      Total
 
                                      Number
 
                                      of Sites
 
                          Developable
    Expansion
    as of
 
Property
  Address   City   State   ZIP   Acres(a)     Acres(b)     Sites(c)     12/31/08  
 
Mt. Vernon
  5409 N. Darrk Ln   Bow   WA   98232     311       200       600       251  
Oceana Resort
  2733 State Route 109   Oceana City   WA   98569     16                       84  
Paradise Resort
  173 Salem Plant Rd   Silver Creek   WA   98585     60                       214  
Thunderbird Resort
  26702 Ben Howard Rd   Monroe   WA   98272     45       2               136  
Grandy Creek
  7370 Russell Rd   Concrete   WA   98237     63                       179  
                                                 
                      16,306       4,408       5,106       24,270  
                                                 
 
 
(a) Acres are approximate.
 
(b) Acres are approximate. There can be no assurance that developable acres will be developed. Development is contingent on many factors including, but not limited to, cost, ability to subdivide, accessibility, infrastructure needs, zoning, entitlement and topography.
 
(c) Expansion sites are approximate and only represent sites that could be developed and is further dependent upon necessary approvals. Certain Properties with expansion sites noted may have vacancy and therefore, expansion sites may not be added.
 
Item 3.   Legal Proceedings
 
California Rent Control Litigation
 
As part of the Company’s effort to realize the value of its Properties subject to rent control, the Company has initiated lawsuits against several municipalities in California. The Company’s goal is to achieve a level of regulatory fairness in California’s rent control jurisdictions, and in particular those jurisdictions that prohibit increasing rents to market upon turnover. Regulations in California allow tenants to sell their homes for a premium representing the value of the future discounted rent-controlled rents. In the Company’s view, such regulation results in a transfer of the value of the Company’s stockholders’ land, which would otherwise be reflected in market rents, to tenants upon the sales of their homes in the form of an inflated purchase price that cannot be attributed to the value of the home being sold. As a result, in the Company’s view, the Company loses the value of its asset and the selling tenant leaves the Property with a windfall premium. The Company has discovered through the litigation process that certain municipalities considered condemning the Company’s Properties at values well below the value of the underlying land. In the Company’s view, a failure to articulate market rents for sites governed by restrictive rent control would put the Company at risk for condemnation or eminent domain proceedings based on artificially reduced rents. Such a physical taking, should it occur, could represent substantial lost value to stockholders. The Company is cognizant of the need for affordable housing in the jurisdictions, but asserts that restrictive rent regulation does not promote this purpose because the benefits of such regulation are fully capitalized into the prices of the homes sold. The Company estimates that the annual rent subsidy to tenants in these jurisdictions may be in excess of $15 million. In a more well balanced regulatory environment, the Company would receive market rents that would eliminate the subsidy and homes would trade at or near their intrinsic value.
 
In connection with such efforts, the Company entered into a settlement agreement with the City of Santa Cruz, California and that, pursuant to the settlement agreement, the City amended its rent control ordinance to exempt the Company’s Property from rent control as long as the Company offers a long term lease which gives the Company the ability to increase rents to market upon turnover and bases annual rent increases on the CPI. The settlement agreement benefits the Company’s stockholders by allowing them to receive the value of their investment in this Property through vacancy decontrol while preserving annual CPI based rent increases in this age-restricted Property.
 
The Company has filed two lawsuits in federal court against the City of San Rafael, challenging its rent control ordinance on constitutional grounds. The Company believes that one of those lawsuits was settled by the City agreeing to amend the ordinance to permit adjustments to market rent upon turnover. The City subsequently rejected the settlement agreement. The Court initially found the settlement agreement was binding on

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the City, but then reconsidered and determined to submit the claim of breach of the settlement agreement to a jury. In October 2002, the first case against the City went to trial, based on both breach of the settlement agreement and the constitutional claims. A jury found no breach of the settlement agreement; the Company then filed motions asking the Court to rule in its favor on that claim, notwithstanding the jury verdict. The Court postponed decision on those motions and on the constitutional claims, pending a ruling on certain property rights issues by the United States Supreme Court.
 
The Company also had pending a claim seeking a declaration that the Company could close the Property and convert it to another use which claim was not tried in 2002. The United States Supreme Court issued the property rights rulings in 2005 and subsequently on January 27, 2006, the Court hearing the San Rafael cases issued a ruling that granted the Company’s motion for leave to amend to assert alternative takings theories in light of the United States Supreme Court’s decisions. The Court’s ruling also denied the Company’s post trial motions related to the settlement agreement and dismissed the park closure claim without prejudice to the Company’s ability to reassert such claim in the future. As a result, the Company filed a new complaint challenging the City’s ordinance as violating the takings clause and substantive due process. The City of San Rafael filed a motion to dismiss the amended complaint. On December 5, 2006, the Court denied portions of the City’s motion to dismiss that had sought to eliminate certain of the Company’s taking claims and substantive due process claims. The Company’s claims against the City were tried in a bench trial during April 2007. On July 26, 2007, the United States District Court for the Northern District of California issued Preliminary Findings of Facts and Legal Standards, Preliminary Conclusions of Law and Request for Further Briefing (“Preliminary Findings”) in this matter. The Company filed the Preliminary Findings on Form 8-K on August 2, 2007. In August 2007, the Company and the City filed the further briefs requested by the Court. On January 29, 2008, the Court issued its Findings of Facts, Conclusions of Law and Order Thereon (the “Order”). The Company filed the Order on Form 8-K on January 31, 2008. On March 14, 2008, the Company filed a petition for attorneys’ fees incurred in the amount of approximately $6,800,000 plus costs of approximately $1,274,000. The City also filed a petition for attorneys’ fees incurred in the amount of approximately $763,000 plus costs of approximately $58,000 in connection with the jury verdict that found no breach of the settlement agreement (as described above). While the City alleges it is the prevailing party on the settlement agreement issue, the Company asserts that the outcome of the entirety of the case finding the ordinance unconstitutional means that the Company is the prevailing party in the case. The parties have submitted briefs with respect to the petitions for attorneys’ fees and costs, which remain pending before the court and there can be no assurances as to the outcome of these petitions.
 
The Company’s efforts to achieve a balanced regulatory environment incentivize tenant groups to file lawsuits against the Company seeking large damage awards. The homeowners association at Contempo Marin (“CMHOA”), a 396 site Property in San Rafael, California, sued the Company in December 2000 over a prior settlement agreement on a capital expenditure pass-through after the Company sued the City of San Rafael in October 2000 alleging its rent control ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion for summary judgment on an issue that permits the Company to collect only $3.72 out of a monthly pass-through amount of $7.50 that the Company believed had been agreed to by the CMHOA in a settlement agreement. The CMHOA continued to seek damages from the Company in this matter. The Company reached a settlement with the CMHOA in this matter which allows the Company to recover $3.72 of the requested monthly pass-through and does not provide for the payment of any damages to the CMHOA. Both the CMHOA and the Company brought motions to recover their respective attorneys’ fees in the matter, which motions were heard by the Court in January 2007. On January 12, 2007, the Court granted CMHOA’s motion for attorneys’ fees in the amount of $347,000 and denied the Company’s motion for attorneys’ fees. These fees have been fully accrued by the Company as of December 31, 2006. The Company appealed both decisions. On September 19, 2008, the Court of Appeal affirmed the attorneys’ fees rulings. The Company filed a Petition for a Rehearing of that appellate decision. On October 17, 2008, the Court of Appeal issued an order modifying its original opinion in certain respects without changing its judgment. The Company petitioned the California Supreme Court for review of the decision, which was denied. Accordingly, the Company will pay the CMHOA’s attorneys’ fees as previously ordered by the trial court and, to the extent required, incurred on appeal. The Company believes that such lawsuits will be a consequence of the Company’s efforts to change rent control since tenant groups actively desire to preserve the premium value of their homes in addition to the discounted rents


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provided by rent control. The Company has determined that its efforts to rebalance the regulatory environment despite the risk of litigation from tenant groups are necessary not only because of the $15 million annual subsidy to tenants, but also because of the condemnation risk.
 
In June 2003, the Company won a judgment against the City of Santee in California Superior Court (case no. 777094). The effect of the judgment was to invalidate, on state law grounds, two (2) rent control ordinances the City of Santee had enforced against the Company and other property owners. However, the Court allowed the City to continue to enforce a rent control ordinance that predated the two invalid ordinances (the “prior ordinance”). As a result of the judgment the Company was entitled to collect a one-time rent increase based upon the difference in annual adjustments between the invalid ordinance(s) and the prior ordinance and to adjust its base rents to reflect what the Company could have charged had the prior ordinance been continually in effect. The City of Santee appealed the judgment. The Court of Appeal and California Supreme Court refused to stay enforcement of these rent adjustments pending appeal. After the City was unable to obtain a stay, the City and the tenant association each sued the Company in separate actions alleging the rent adjustments pursuant to the judgment violate the prior ordinance (Case Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments, refunds of amounts paid, and penalties and damages in these separate actions. On January 25, 2005, the California Court of Appeal reversed the judgment in part and affirmed it in part with a remand. The Court of Appeal affirmed that one ordinance was unlawfully adopted and therefore void and that the second ordinance contained unconstitutional provisions. However, the Court ruled the City had the authority to cure the issues with the first ordinance retroactively and that the City could sever the unconstitutional provisions in the second ordinance. On remand, the trial court was directed to decide the issue of damages to the Company from these ordinances, which the Company believes is consistent not only with the Company receiving the economic benefit of invalidating one of the ordinances, but also consistent with the Company’s position that it is entitled to market rent and not merely a higher amount of regulated rent. The remand action was tried to the court in the third quarter of 2007. On January 25, 2008, the trial court issued a preliminary ruling determining that the Company had not incurred any damages from these ordinances and actions primarily on the grounds that the ordinances afforded the Company a fair rate of return. The Company sought clarification of this ruling. On April 9, 2008, the court issued a final statement of decision that included a clarification stating that the constitutional issues were not resolved on the merits and that the court had not determined that the ordinances afforded the Company a fair rate of return outside the remand period. The trial court granted a motion for restitution filed by the City in Case No. GIE 020524. The Company filed a notice of appeal on July 2, 2008. In order to avoid further trial and the related expenses, the Company agreed to a stipulated judgment, which requires the Company to put into escrow after entry of the judgment, pending appeal, funds sufficient to pay the judgment with prejudgment interest while preserving the Company’s appellate rights. The parties also disputed whether the trial court’s decision to award restitution encompassed an award of prejudgment interest, as to which the parties submitted additional briefs to the trial court for decision. On October 31, 2008, the court awarded the City some but not all of the prejudgment interest it sought. The stipulated judgment was entered on November 5, 2008, and the Company deposited into the escrow the amounts required by the judgment and continues to deposit monthly disputed amounts until the disputes are resolved on appeal. The appeal is proceeding and briefing will commence after the superior court has filed the supplemental record on appeal. The tenant association continued to seek damages, penalties and fees in their separate action based on the same claims made on the tenants’ behalf by the City in the City’s case. The Company moved for judgment on the pleadings in the tenant association’s case on the ground that the tenant association’s case is moot in light of the stipulated judgment in the City’s case. On November 6, 2008, the Court granted the Company’s motion for judgment on the pleadings without leave to amend. On February 9, 2009, the tenant association filed a notice of intention to move for new trial in which it stated that it intends to move the Court to set aside the order granting defendant’s motion for judgment on the pleadings. That notice remains pending.
 
In addition, the Company has sued the City of Santee in federal court alleging all three of the ordinances are unconstitutional under the Fifth and Fourteenth Amendments to the United States Constitution. Thus, it is the Company’s position that the ordinances are subject to invalidation as a matter of law in the federal court action. Separately, the Federal District Court granted the City’s Motion for Summary Judgment in the Company’s federal court lawsuit. This decision was based not on the merits, but on procedural grounds, including that the Company’s claims were moot given its success in the state court case. The Company appealed the decision, and


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on May 3, 2007 the United States Court of Appeals for the Ninth Circuit affirmed the District Court’s decision on procedural grounds. The Company intends to continue to pursue an adjudication of its rights on the merits in Federal Court through claims that are not subject to such procedural defenses.
 
In October 2004, the United States Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of Appeals case that upheld the standard that a regulation must substantially advance a legitimate state purpose in order to be constitutionally viable under the Fifth Amendment. On May 24, 2005 the United States Supreme Court reversed the Ninth Circuit Court of Appeals in an opinion that clarified the standard of review for regulatory takings brought under the Fifth Amendment. The Supreme Court held that the heightened scrutiny applied by the Ninth Circuit is not the applicable standard in a regulatory takings analysis, but is an appropriate factor for determining if a due process violation has occurred. The Court further clarified that regulatory takings would be determined in significant part by an analysis of the economic impact of the regulation. The Company believes that the severity of the economic impact on its Properties caused by rent control will enable it to continue to challenge the rent regulations under the Fifth Amendment and the due process clause.
 
As a result of the Company’s efforts to achieve a level of regulatory fairness in California, a commercial lending company, 21st Mortgage Corporation, a Delaware corporation, sued MHC Financing Limited Partnership. Such lawsuit asserts that certain rent increases implemented by the partnership pursuant to the rights afforded to the property owners under the City of San Jose’s rent control ordinance were invalid or unlawful. 21st Mortgage has asserted that it should benefit from the vacancy control provisions of the City’s ordinance as if 21st Mortgage were a “homeowner” and contrary to the ordinance’s provision that rents may be increased without restriction upon termination of the homeowners’ tenancy. In each of the disputed cases, the Company believes it had terminated the tenancy of the homeowner (21st Mortgage’s borrower) through the legal process. The Court, in granting 21st Mortgage’s motion for summary judgment, has indicated that 21st Mortgage may be a “homeowner” within the meaning of the ordinance. The Company does not believe that 21st Mortgage can show that it has ever applied for tenancy, entered into a rental agreement or been accepted as a homeowner in the communities. A bench trial in this matter concluded in January 2008 with the trial court determining that the Company had validly exercised its rights under the rent control ordinance, that the Company had not violated the ordinance and that 21st Mortgage was not entitled to the benefit of rent control protection in the circumstances presented. In April 2008, the Company filed a petition for attorneys’ fees and costs. On August 22, 2008, the Court granted the Company $0.4 million in attorneys’ fees and costs. On October 20, 2008, the Company entered a Post-Judgment Agreement with 21st Mortgage pursuant to which 21st Mortgage paid the Company $0.4 million in attorneys’ fees and costs that the court had awarded, and the parties agreed to let the trial court’s judgment stand, to otherwise end the litigation, and exchanged releases.
 
Countryside at Vero Beach
 
On January 12, 2006, the Company was served with a complaint filed in Indian River County Circuit Court on behalf of a purported class of homeowners at Countryside at Vero Beach. The complaint includes counts for alleged violations of the Florida Mobile Home Act and the Florida Deceptive and Unfair Trade Practices Act, and claims that the Company required homeowners to pay water and sewer impact fees, either to the Company or to the County, “as a condition of initial or continued occupancy in the Park”, without properly disclosing the fees in advance and notwithstanding the Company’s position that all such fees were fully paid in connection with the settlement agreement described above. On February 8, 2006, the Company served its motion to dismiss the complaint. In May 2007, the Court granted the Company’s motion to dismiss, but also allowed the plaintiff to amend the complaint. The plaintiff filed an amended complaint, which the Company has also moved to dismiss. Before any ruling on the Company’s motion to dismiss the amended complaint, the plaintiff asked for and received leave to file a second amended complaint, which the plaintiff filed on April 11, 2008. On May 1, 2008, the Company filed an answer and a motion for summary judgment. The motion for summary judgment was denied with leave to resubmit the motion after further discovery. On or about February 4, 2009, the Company accepted the Plaintiff’s offer to voluntarily dismiss the case with prejudice in exchange for the Company’s waiver of any claim for attorneys’ fees.


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Colony Park
 
On December 1, 2006, a group of tenants at the Company’s Colony Park Property in Ceres, California filed a complaint in the California Superior Court for Stanislaus County alleging that the Company has failed to properly maintain the Property and has improperly reduced the services provided to the tenants, among other allegations. The Company has answered the complaint by denying all material allegations and filed a counterclaim for declaratory relief and damages. The case will proceed in Superior Court because the Company’s motion to compel arbitration was denied and the denial was upheld on appeal. Discovery has commenced. The Company has filed a motion for summary adjudication of various of the plaintiffs’ claims and allegations, which is scheduled for hearing on November 19, 2008. The Court has set a trial date for August 4, 2009. The Company believes that the allegations in the first amended complaint are without merit, and intends to vigorously defend the lawsuit.
 
California’s Department of Housing and Community Development (“HCD”) issued a Notice of Violation dated August 21, 2006 regarding the sewer system at Colony Park. The notice ordered the Company to replace the Property’s sewer system or show justification from a third party explaining why the sewer system does not need to be replaced. The Company has provided such third party report to HCD and believes that the sewer system does not need to be replaced. Based upon information provided by the Company to HCD to date, HCD has indicated that it agrees that the entire system does not need to be replaced.
 
Hurricane Claim Litigation
 
On June 22, 2007 the Company filed suit, in the Circuit Court of Cook County, Illinois (Case No. 07CH16548), against its insurance carriers, Hartford Fire Insurance Company, Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, regarding a coverage dispute arising from losses suffered by the Company as a result of hurricanes that occurred in Florida in 2004 and 2005. The Company also brought claims against Aon Risk Services, Inc. of Illinois, the Company’s insurance broker, regarding the procurement of appropriate insurance coverage for the Company. The Company is seeking declaratory relief establishing the coverage obligations of its carriers, as well as a judgment for breach of contract, breach of the covenant of good faith and fair dealing, unfair settlement practices and, as to Aon, for failure to provide ordinary care in the selling and procuring of insurance. The claims involved in this action exceed $11 million.
 
In response to motions to dismiss, the trial court dismissed: (1) the requests for declaratory relief as being duplicative of the claims for breach of contract and (2) certain of the breach of contract claims as being not ripe until the limits of underlying insurance policies have been exhausted. On or about January 28, 2008, the Company filed its Second Amended Complaint. Aon filed a motion to dismiss the Second Amended Complaint in its entirety as against Aon, and the insurers moved to dismiss portions of the Second Amended Complaint as against them. The insurers’ motion was denied and they have now answered the Second Amended Complaint. Aon’s motion was granted, with leave granted to the Company to file an amended pleading containing greater factual specificity. The Company did so by adding to the Second Amended Complaint a new Count VII against Aon, which the Company filed on August 15, 2008. Aon then answered the new Count VII in part and moved to strike certain of its allegations. The Court left Count VII undisturbed, except for ruling that the Company’s alternative claim that Aon was negligent in carrying out its duty to give notice to certain of the insurance carriers on the Company’s behalf should be re-pleaded in the form of a breach of contract theory. On February 2, 2009, the Company filed such a claim in the form of a new Count VIII against Aon. Written discovery proceedings have commenced.
 
Since filing the lawsuit, the Company has received additional payments from Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, of approximately $2.6 million. In January 2008 the Company entered a settlement with Hartford Fire Insurance Company pursuant to which Hartford paid the Company the remaining disputed limits of Hartford’s insurance policy, in the amount of approximately $516,000, and the Company dismissed and released Hartford from additional claims for interest and bad faith claims handling.


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California and Washington Wage Claim Class Actions
 
On October 16, 2008, the Company was served with a class action lawsuit in California state court filed by a single named plaintiff. The suit alleges that, at the time of the PA Transaction, the Company and other named defendants willfully failed to pay former California employees of Privileged Access and its affiliates (“PA”) who became employees of the Company all of the wages they earned during their employment with PA, including accrued vacation time. The suit also alleges that the Company improperly “stripped” those employees of their seniority. The suit asserts claims for alleged violation of the California Labor Code; alleged violation of the California Business & Professions Code and for alleged unfair business practices; alleged breach of contract; alleged breach of the duty of good faith and fair dealing; and for alleged unjust enrichment. The complaint seeks, among other relief, compensatory and statutory damages; restitution; pre-judgment and post-judgment interest; attorney’s fees, expenses and costs; penalties; and exemplary and punitive damages. The complaint does not specify a dollar amount sought. On December 18, 2008, the Company filed a demurrer seeking dismissal of the complaint in its entirety without leave to amend. The hearing on the demurrer is set for March 13, 2009. The plaintiff’s responsive brief is not yet due. The Company will vigorously defend the lawsuit.
 
On December 16, 2008, the Company was served with a class action lawsuit in Washington state court filed by a single named plaintiff, represented by the same counsel as the plaintiff in the California class action. The complaint asserts on behalf of a putative class of Washington employees of PA who became employees of the Company substantially similar allegations as are alleged in the California class action. The Company’s response to the complaint is not yet due and the Company has not yet filed a response. The Company will vigorously defend the lawsuit.
 
Brennan Beach
 
The Law Enforcement Division of the New York Department of Environmental Compliance (“DEC”) has investigated certain allegations relating to the operation of the onsite wastewater treatment plant and the use of adjacent wetlands at Brennan Beach, which is located in Pulaski, New York. The allegations included assertions of unlawful point source discharges, permit discharge exceedances, and placing material in a wetland buffer area without a permit. Representatives of the Company attended meetings with the DEC in November 2007, April 2008, May 2008 and June 2008, at which the alleged violations were discussed, and the Company has cooperated with the DEC investigation. No formal notices have been issued to the Company asserting specific violations, but the DEC has indicated that it believes the Company is responsible for certain of the alleged violations. As a result of discussions with the DEC, the Company has agreed to enter into a civil consent order pursuant to which the Company will pay a penalty of $50,000 and undertake an environmental benefit project at a cost of $150,000 in connection with the alleged violations. The consent order is being prepared by the DEC pursuant to that agreement and the amounts expected to be paid under the consent order were accrued as property operating expenses during the quarter ended June 30, 2008.
 
Appalachian RV
 
The U.S. Environmental Protection Agency (“EPA”) has undertaken an investigation of potential lead contamination at Appalachian RV, which is located in Shartlesville, Pennsylvania, reportedly stemming from observations of remnants of old auto battery parts at the Property. In late November and early December 2007, the EPA conducted an assessment by taking samples of surface soil, sediment, surface water, and well water at the Property. The Company is cooperating with the EPA.
 
In March 2008, the EPA issued a report regarding the findings of the sampling (“EPA Report”). The EPA Report found no elevated concentrations of lead in either the sediment samples, surface water samples, or well water samples. However, out of the more than 800 soil samples the EPA took, which were collected from locations throughout the Property, the EPA Report identified elevated levels of lead in 61 samples.
 
Following issuance of the EPA Report, the EPA sent the Company a Notice of Potential Liability for a cleanup of the elevated lead levels at the Property, and a proposed administrative consent order seeking the Company’s agreement to conduct such a cleanup. On April 9, 2008, the Company submitted a response


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suggesting that the Company conduct additional soil testing, which the EPA approved, to determine what type of cleanup might be appropriate.
 
The EPA also advised the Company that, because elevated arsenic levels were detected at six locations at the Property during the EPA’s testing for lead, at the suggestion of the Agency for Toxic Substances and Disease Registry (ATSDR), the EPA further analyzed for potentially elevated arsenic levels the samples it previously collected. As a result of that analysis, the Company engaged a laboratory to analyze those samples for elevated arsenic levels. In light of these results, the additional soil testing the Company is conducting will test for arsenic as well as lead.
 
The additional soil testing commenced in July 2008 and was completed in August 2008. Based on the results of the additional soil testing, the Company entered a contract with an environmental consulting company to remediate the site and, with the permission of the EPA, submitted a notice of intent to remediate the site under the supervision of the Pennsylvania Department of Environmental Protection. The contaminated soil has been excavated and stockpiled, will be delivered to facilities approved for receiving such contaminated waste, and has been replaced at the property by clean fill.
 
In addition, the local township in which the Property is located issued a notice of violation regarding the operation of the wastewater system with respect to various sites at the Property. The Company is in discussions with the Township regarding connecting portions of the Property to the Township’s sewer system, resolving the issues raised by the notice of violation, and eliminating or reducing any potential penalties associated with the notice of violation. While the outcome is still uncertain, the amount of eventual penalties, if any, is not expected to be material.
 
As a result of these circumstances, the Company decided not to open the Property until these issues can be resolved. In addition, although the potential costs of addressing the environmental issues at the Property are uncertain, based upon information to date, a liability of approximately $0.4 million for future estimated costs is accrued as of December 31, 2008. Based on the information currently available to the Company, the Company expects to be able to re-open the Property in time for the 2009 season.
 
Gulf View in Punta Gorda
 
In 2004, the Company acquired ownership of various property owning entities, including an entity owning a property called Gulf View, in Punta Gorda, Florida. Gulf View continues to be held in a special purpose entity. At the time of acquisition of the entity owning Gulf View, it was financed with a secured loan that was cross-collateralized and cross-defaulted with a loan on another property whose ownership entity was not acquired. At the time of acquisition, the Operating Partnership guaranteed certain obligations relating to exceptions from the non-recourse nature of the loans. Because of certain penalties associated with repayment of these loans, the loans have not been restructured and the terms and conditions remain the same today. The approximate outstanding amount of the loan secured by Gulf View is $1.4 million and of the crossed loan secured by the other property is $5.5 million. The Company is not aware of any notice of default regarding either of the loans; however, should the owner of the cross-collateralized property default, the special purpose entity owning Gulf View and the Operating Partnership may be impacted to the extent of their obligations.
 
Florida Utility Operations
 
The Company received notice from the Florida Department of Environmental Protection (“DEP”) that as a result of a compliance inspection it is alleging violations of Florida law relating to the operation of onsite water plants and wastewater treatment plants at seven properties in Florida. The alleged violations relate to record keeping and reporting requirements, physical and operating deficiencies and permit compliance. The Company has investigated each of the alleged violations, including a review of a third party operator hired to oversee such operations. The Company met with the DEP in November 2007 to respond to the alleged violations and as a follow-up to such meeting provided a written response to the DEP in December 2007. In light of the Company’s written response, in late January 2008 the DEP conducted a follow-up compliance inspection at each of the seven properties. In early March 2008, the DEP provided the Company comments in connection with the follow-up inspection, which made various recommendations and raised certain additional alleged violations


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similar in character to those alleged after the initial inspection. The Company has investigated and responded to the additional alleged violations. While the outcome of this investigation remains uncertain, the Company expects to resolve the issues raised by the DEP by entering into a consent decree in which the Company will agree to make certain improvements in its facilities and operations to resolve the issues and pay certain costs and penalties associated with the violations. In August 2008, the DEP provided the Company a proposed consent order for resolving the issues raised by the DEP, the details of which the Company negotiated with the DEP. On December 2, 2008, a Consent Order was entered resolving the issues raised by the DEP. Pursuant to the Consent Order, the Company paid $5,000 for costs incurred by the DEP. The Company also agreed to pay a penalty of $113,499, which is subject to reduction in the event the Company elects to perform “in-kind” capital improvement projects that the DEP approves. The Company has proposed one such project and may propose another, subject to DEP approval. Accordingly, the amount of the $113,499 penalty that the Company will ultimately be required to pay is not yet certain. The Company also replaced its third party operator hired to oversee onsite water and wastewater operations at each of the seven properties. The Company is evaluating the costs of any improvements to its facilities, which would be capital expenditures depreciated over the estimated useful life of the improvement. During the course of this investigation, one permit for operation of a wastewater treatment plant expired. The Company applied for renewal of the permit and expects the DEP to grant the application after certain determinations and capital improvements are made. In the meantime, the Company is permitted to operate the wastewater treatment plant pursuant to the Consent Order.
 
Other
 
The Company is involved in various other legal proceedings arising in the ordinary course of business. Such proceedings include, but are not limited to, notices, consent decrees, additional permit requirements and other similar enforcement actions by governmental agencies relating to the Company’s water and wastewater treatment plants and other waste treatment facilities. Additionally, in the ordinary course of business, the Company’s operations are subject to audit by various taxing authorities. Management believes that all proceedings herein described or referred to, taken together, are not expected to have a material adverse impact on the Company. In addition, to the extent any such proceedings or audits relate to newly acquired Properties, the Company considers any potential indemnification obligations of sellers in favor of the Company.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.


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PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol ELS. On February 18, 2009, the reported closing price per share of ELS common stock on the NYSE was $33.80 and there were approximately 10,376 beneficial holders of record. The high and low sales prices and closing sales prices on the NYSE and distributions for our common stock during 2008 and 2007 are set forth in the table below:
 
                                 
                      Distributions
 
    Close     High     Low     Declared  
 
2008
                               
1st Quarter
  $ 49.37     $ 52.26     $ 39.77     $ 0.200  
2nd Quarter
    44.00       53.64       43.62       0.200  
3rd Quarter
    53.03       56.00       40.93       0.200  
4th Quarter
    38.36       52.90       22.64       0.200  
2007
                               
1st Quarter
  $ 54.01     $ 59.67     $ 51.00     $ 0.150  
2nd Quarter
    52.19       56.47       49.60       0.150  
3rd Quarter
    51.80       54.25       43.79       0.150  
4th Quarter
    45.67       55.65       43.72       0.150  
 
Issuer Purchases of Equity Securities
 
                             
                  Total Number of Shares
  Maximum Number of
      Total Number
    Average Price
    Purchased as Part of
  Shares that May Yet
      of Shares
    Paid per
    Publicly Announced
  be Purchased Under
Period
    Purchased(a)     Share(a)     Plans or Programs   the Plans or Programs
 
  10/1/08-10/31/08                 None   None
  11/1/08-11/30/08       6,831     $ 33.38     None   None
  12/1/08-12/31/08       11,217     $ 36.36     None   None
 
 
(a) Of the common stock repurchased from November 1, 2008 through December 31, 2008, 18,048 shares were repurchased at the open market price and represent common stock surrendered to the Company to satisfy income tax withholding obligations due as a result of the vesting of Restricted Share Grants. Certain executive officers of the Company may from time to time adopt non-discretionary, written trading plans that comply with Commission Rule 10b5-1, or otherwise monetize their equity-based compensation. Commission Rule 10b5-1 provides executives with a method to monetize their equity-based compensation in an automatic and non-discretionary manner over time.


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Item 6.   Selected Financial Data
 
The following table sets forth selected financial and operating information on a historical basis. The historical operating data has been derived from the historical financial statements of the Company. The following information should be read in conjunction with all of the financial statements and notes thereto included elsewhere in this Form 10-K.
 
Equity LifeStyle Properties, Inc.
 
Consolidated Historical Financial Information
 
                                         
    (1)Years Ended December 31,  
    2008     2007     2006     2005     2004  
    (Amounts in thousands, except for per share and property data)  
 
Property Operations:
                                       
Community base rental income
  $ 245,833     $ 236,933     $ 225,815     $ 213,280     $ 204,190  
Resort base rental income
    111,876       102,372       89,925       74,371       54,661  
Right-to-use annual payments(2)
    19,667                          
Right-to-use contracts current period, gross(2)
    10,951                          
Right-to-use contracts, deferred, net of prior period amortization(2)
    (10,611 )                        
Utility and other income
    41,633       36,849       30,643       27,367       24,496  
                                         
Property operating revenues
    419,349       376,154       346,383       315,018       283,347  
Property operating and maintenance
    152,363       127,342       116,179       103,832       91,812  
Real estate taxes
    29,457       27,429       26,246       24,671       22,723  
Sales and marketing, gross(2)
    7,116                          
Sales and marketing, deferred commissions, net(2)
    (3,644 )                        
Property management
    25,451       18,385       17,079       15,919       12,852  
                                         
Property operating expenses (exclusive of depreciation shown separately below)
    210,743       173,156       159,504       144,422       127,387  
                                         
Income from property operations
    208,606       202,998       186,879       170,596       155,960  
Home Sales Operations:
                                       
Gross revenues from inventory home sales
    21,845       33,333       61,247       66,014       47,404  
Cost of inventory home sales
    (24,069 )     (30,713 )     (54,498 )     (57,471 )     (41,577 )
                                         
Gross (loss) profit from inventory home sales
    (2,224 )     2,620       6,749       8,543       5,827  
Brokered resale revenues, net
    1,094       1,528       2,129       2,714       2,176  
Home selling expenses
    (5,776 )     (7,555 )     (9,836 )     (8,838 )     (8,630 )
Ancillary services revenues, net
    1,197       2,436       3,027       2,227       2,280  
                                         
(Loss) income from home sales operations & other
    (5,709 )     (971 )     2,069       4,646       1,653  
Other Income (Expenses):
                                       
Interest income
    3,095       1,732       1,975       1,406       1,391  
Income from other investments, net(3)
    17,006       22,476       20,102       16,609       3,475  
General and administrative
    (20,617 )     (15,591 )     (12,760 )     (13,624 )     (9,243 )
Rent control initiatives
    (1,555 )     (2,657 )     (1,157 )     (1,081 )     (2,412 )
Interest and related amortization
    (99,406 )     (103,070 )     (103,161 )     (100,712 )     (91,154 )
Loss on early debt retirement(4)
    (24 )                 (20,630 )      
Depreciation on corporate assets
    (390 )     (437 )     (410 )     (804 )     (1,657 )
Depreciation on real estate assets and other costs
    (66,193 )     (63,554 )     (60,276 )     (55,608 )     (47,467 )
                                         
Total other expenses, net
    (168,084 )     (161,101 )     (155,687 )     (174,444 )     (147,067 )
Income before minority interests, equity in income of unconsolidated joint ventures, gain on sale of property and discontinued operations
    34,813       40,926       33,261       798       10,546  
(Income) loss allocated to Common OP Units
    (4,265 )     (5,322 )     (4,267 )     1,329       (565 )
Income allocated to Perpetual Preferred OP Units(5)
    (16,144 )     (16,140 )     (16,138 )     (13,974 )     (11,284 )
Equity in income of unconsolidated joint ventures
    3,753       2,696       3,583       6,508       3,739  
                                         
Income (loss) before gain on sale of properties and other, and discontinued operations
    18,157       22,160       16,439       (5,339 )     2,436  
                                         
Gain on sale of properties and other
                            2  
                                         
Income (loss) from continuing operations
    18,157       22,160       16,439       (5,339 )     2,438  
                                         
Discontinued Operations:
                                       
Discontinued operations
    257       289       520       1,927       2,750  
Depreciation on discontinued operations
                (84 )     (410 )     (1,427 )


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Equity LifeStyle Properties, Inc.
 
Consolidated Historical Financial Information (continued)
 
                                         
    (1)Years Ended December 31,  
    2008     2007     2006     2005     2004  
    (Amounts in thousands, except for per share and property data)  
 
(Loss) gain on sale of discontinued properties and other
    (79 )     12,036       (192 )     2,279       636  
Minority interests on discontinued operations
    (32 )     (2,383 )     (51 )     (790 )     (371 )
                                         
Income from discontinued operations
    146       9,942       193       3,006       1,588  
                                         
Net income (loss) available for Common Shares
  $ 18,303     $ 32,102     $ 16,632     $ (2,333 )   $ 4,026  
                                         
Earnings per Common Share — Basic:
                                       
Income (loss) from continuing operations
  $ 0.74     $ 0.92     $ 0.70     $ (0.23 )   $ 0.11  
Income from discontinued operations
  $ 0.01     $ 0.41     $ 0.01     $ 0.13     $ 0.07  
Net income (loss) available for Common Shares
  $ 0.75     $ 1.33     $ 0.71     $ (0.10 )   $ 0.18  
Earnings per Common Share — Fully Diluted:
                                       
Income (loss) from continuing operations
  $ 0.74     $ 0.90     $ 0.68     $ (0.23 )   $ 0.10  
Income from discontinued operations
  $ 0.01     $ 0.41     $ 0.01     $ 0.13     $ 0.07  
Net income (loss) available for Common Shares
  $ 0.75     $ 1.31     $ 0.69     $ (0.10 )   $ 0.17  
Distributions declared per Common Share outstanding
  $ 0.80     $ 0.60     $ 0.30     $ 0.10     $ 0.05  
Weighted average Common Shares outstanding — basic
    24,466       24,089       23,444       23,081       22,849  
Weighted average Common OP Units outstanding
    5,674       5,870       6,165       6,285       6,067  
Weighted average Common Shares outstanding — fully diluted
    30,498       30,414       30,241       29,366       29,465  
Balance Sheet Data:
                                       
Real estate, before accumulated depreciation(6)
  $ 2,491,021     $ 2,396,115     $ 2,337,460     $ 2,152,567     $ 2,035,790  
Total assets
    2,091,647       2,033,695       2,055,831       1,948,874       1,886,289  
Total mortgages and loans
    1,662,403       1,659,392       1,717,212       1,638,281       1,653,051  
Minority interests(5)
    217,521       217,776       212,794       209,379       134,771  
Stockholders’ equity
    78,713       70,941       47,118       32,516       31,844  
Other Data:
                                       
Funds from operations(7)
  $ 97,615     $ 92,752     $ 82,367     $ 52,827     $ 54,448  
Total Properties (at end of period)
    309       311       311       285       275  
Total sites (at end of period)
    112,074       112,779       112,956       106,337       102,178  
 
 
(1) See the Consolidated Financial Statements of the Company contained in this Form 10-K. Certain revenue amounts reported in previously issued statements of operations have been reclassified in the attached statements of operations due to the Company’s expansion of the related revenue activity.
 
Property operations and home sale operations are discussed in Item 7 contained in this Form 10-K.
 
(2) New activity starting on August 14, 2008 due to the PA Transaction. See Privileged Access discussion in Item 7 contained in this form 10K.
 
(3) Between November 10, 2004 and August 13, 2008, Income from other investments, net included rental income from the lease of membership Properties to Thousand Trails (“TT”) or its subsequent owner, Privileged Access. On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access, which included the operations of TT. The lease of membership Properties to TT was terminated upon closing. As a result of the lease termination, beginning August 14, 2008, Income from other investments, net no longer included rental income from the lease of membership Properties. See Note 2 (j) in the Notes to Consolidated Financial Statements contained in this Form 10-K.
 
(4) On December 2, 2005, we refinanced approximately $293 million of secured debt maturing in 2007 with an effective interest rate of 6.8% per annum. This refinanced debt was secured by two cross-collateralized loan pools consisting of 35 Properties. The transaction generated approximately $337 million in proceeds from loans secured by individual mortgages on 20 Properties. The blended interest rate on the refinancing was approximately 5.3% per annum, and the loans mature in 2015. Transaction costs resulting from early debt retirement were approximately $20.0 million.

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(5) During 2005, we issued $25 million of 8.0625% Series D and $50 million of 7.95% Series F Cumulative Redeemable Perpetual Preference Units to institutional investors. Proceeds were used to pay down amounts outstanding under the Company’s lines of credit.
 
(6) We believe that the book value of the Properties, which reflects the historical costs of such real estate assets less accumulated depreciation, is less than the current market value of the Properties.
 
(7) Refer to Item 7 contained in this Form 10-K for information regarding why we present funds from operations and for a reconciliation of this non-GAAP financial measure to net income.
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with “Selected Financial Data” and the historical Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
 
2008 Accomplishments
 
  •  Acquired substantially all of the assets and certain liabilities of Privileged Access for an unsecured note payable of $2.0 million.
 
  •  Raised annual dividend to $0.80 per share in 2008, up from $0.60 per share in 2007.
 
  •  Paid off 28 maturing mortgages totaling approximately $245.8 million, funded with approximately $231.0 million of new and refinanced debt on 15 properties.
 
Overview and Outlook
 
Occupancy in our Properties as well as our ability to increase rental rates directly affects revenues. Our revenue streams are predominantly derived from customers renting our sites on a long-term basis.
 
We have approximately 64,900 annual sites, approximately 8,800 seasonal sites, which are leased to customers generally for three to six months, and approximately 8,800 transient sites, occupied by customers who lease sites on a short-term basis. The revenue from seasonal and transient sites is generally higher during the first and third quarters. We expect to service over 100,000 customers at our transient sites and we consider this revenue stream to be our most volatile. It is subject to weather conditions, gas prices, and other factors affecting the marginal RV customer’s vacation and travel preferences. Finally, we have approximately 24,300 sites designated as right-to-use sites which are utilized to service the approximately 120,000 customers who own right-to-use contracts. We also have interests in Properties containing approximately 5,200 sites for which revenue is classified as Equity in income from unconsolidated joint ventures in the Consolidated Statements of Operations.
 
                 
    Total Sites as of Dec. 31,  
    2008     2007  
    (Rounded to 000s)  
 
Community sites(1)
    44,800       44,800  
Resort sites:
               
Annual
    20,100       20,100  
Seasonal
    8,800       8,700  
Transient
    8,800       8,800  
Right-to-use
    24,300       24,100  
Joint Ventures(2)
    5,200       6,300  
                 
      112,000       112,800  
                 
 
 
(1) Includes 655 sites from discontinued operations for each of the years ending December 31, 2008 and 2007.
 
(2) Joint Venture income is included in Equity in income of unconsolidated joint ventures.


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Our home sales volumes and gross profits have been declining since 2005. We believe that the disruption in the site-built housing market may be contributing to the decline in our home sales operations as potential customers are not able to sell their existing site-built homes as well as increased price sensitivity for seasonal and second homebuyers. We believe that our potential customers are also having difficulty obtaining financing on resort homes, resort cottages and RV purchases. The continued decline in homes sales activity in 2008 has resulted in our decision to significantly reduce our new home sales operation during the last couple months of 2008 and until such time as new home sales markets improve. We believe that renting our vacant new homes may represent an attractive source of occupancy and potentially convert to a new homebuyer in the future. We also believe that some customers that are capable of purchasing are opting instead to rent due to the current economic environment.
 
One trend emerging in 2008 in light of the economic environment was simplification in both financial and social interactions. We have adjusted our business to respond to our customers’ desire to spend more wisely and preserve capital while still engaging in an active and vibrant lifestyle. These changes include new membership and affinity products in our resort Properties and a focus on smaller, more energy efficient and more affordable homes in our manufactured home Properties. We have also adjusted our business model with the introduction of low-cost internet and alternate distribution channels that focus on the installed base of almost eight million RV owners.
 
RV manufacturers and dealers experienced the second year of declining volumes in 2008 with current monthly activity reflecting precipitous declines over the prior year. Availability of financing for both floor plan inventory and retail customers has been severely constrained and there is little hope for improvement in 2009. Although industry experts are predicting shipments of approximately 180,000 RV units in 2009, down from the estimated 237,000 in 2008, the current annualized run rate is less than 100,000 units. As with the decline experienced by the manufactured home industry, the remaining participants’ survival depends on their ability to react to the new environment. We believe that the aggregate demand for housing in 2009 will be negatively impacted by job losses, economic uncertainty and dislocation in the credit markets, while the huge overhang of supply would continue to negatively impact pricing of both for sale and for rent housing. With this backdrop we believe 2009 will present more challenges than 2008; however, we also believe we are well positioned to continue delivering stable performance.
 
In response to recent market disruptions, legislators and financial regulators implemented a number of mechanisms designed to add stability to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions, assistance by the banking authorities in arranging acquisitions of weakened banks and broker-dealers, implementation of programs by the Federal Reserve to provide liquidity to the commercial paper markets and temporary prohibitions on short sales of certain financial institution securities. On October 3, 2008, the then President of the United States signed into law the EESA. The EESA provided the U.S. Secretary of Treasury with the authority to establish TARP, to purchase from financial institutions up to $700 billion of residential or commercial mortgages and any securities, obligations, or other instruments that are based on, or related to, such mortgages, that in each case was originated or issued on or before March 14, 2008, as well as any other financial instrument that the U.S. Secretary of Treasury, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, upon transmittal of such determination, in writing, to the appropriate committees of the U.S. Congress. In addition, the U.S. Secretary of Treasury has the authority to establish a program to guarantee, upon request from a financial institution, the timely payment of principal and interest on these financial assets.
 
As of February 19, 2009, the U.S. Treasury had announced the establishment of the CPP, the TIP, the SSFIP, the AGP and the AIFP under TARP as well as the HASP which partially uses TARP money. The CPP is a voluntary program designed to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under this program, the U.S. Treasury is authorized to purchase up to $250 billion of senior preferred shares in qualifying domestically-controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities. As of February 19, 2009, the U.S. Treasury had invested approximately $196 billion in 416 publicly-traded and private banking organizations under the CPP. The TIP is intended to prevent significant


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market disruptions that could result from a loss of confidence in a particular financial institution. The U.S. Treasury will determine whether a financial institution is eligible for the program on a case by case basis. As of February 19, 2009, the U.S. Treasury had invested $40 billion in two banking organizations under the TIP. The SSFIP is intended to provide stability and prevent disruption to financial markets that could result from the failure of a systemically significant institution. The U.S. Treasury will consider whether an institution is systemically significant and at substantial risk of failure, and thereby eligible for the SSFIP, on a case by case basis. As of February 19, 2009, the U.S. Treasury had invested $40 billion in one institution under the SSFIP, an insurance company; however, banks are also eligible for the SSFIP. The AGP is designed to provide guarantees for assets held by systemically significant financial institutions that face a high risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. The U.S. Treasury will determine the eligibility of participants and the allocation of resources on a case-by-case basis. In a report to Congress, the U.S. Treasury stated that it may use this program in coordination with a broader guarantee involving one or more other U.S. government agencies. As of February 19, 2009, the U.S. Treasury had invested $0 under the AGP. The HASP is intended to offer assistance to homeowners who are making a good faith effort to stay current on their mortgage payments and is designed to prevent the destructive impact of foreclosures on families and communities. As of February 19, 2009, the U.S. Treasury had invested $0 under the HASP. The objective of the AIFP is to prevent a significant disruption of the American automotive industry, in order to maintain market stability and minimize the negative effects of such a disruption on the economy of the United States. The U.S. Treasury will determine the eligibility of participants and the allocation of resources on a case-by-case basis. As of February 19, 2009, the U.S. Treasury had invested $23.7 billion in two automotive companies and two financing companies that, among other business lines, provide consumer automotive loans.
 
On February 17, 2009, President Obama signed the ARRA into law, which is more commonly known as the economic stimulus or economic recovery package. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, that are in addition to those previously announced by the U.S. Treasury, until the institution has repaid the U.S. Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the recipient’s appropriate regulatory agency.
 
On July 30, 2008, the Hope for Homeowners Act of 2008 (“H4H Act”), became law. Pursuant to the H4H Act, a new, temporary, voluntary program within the Federal Housing Administration, (“FHA”), was enacted to support FHA-insured mortgages to distressed borrowers. This program, which is effective from October 1, 2008 to September 30, 2011, is intended to enable certain distressed borrowers to refinance their mortgages into FHA-insured loans.
 
In 2008, the Federal Reserve also initiated a number of other programs for the purpose of improving the broader financial markets including establishing a $1.8 trillion commercial paper funding facility and a $200 billion facility to finance consumer asset-backed securities.
 
Further, in an effort to provide additional liquidity to financial institutions, the Federal Reserve has provided primary dealers with access to the Federal Reserve’s discount window and, in a limited number of cases, arranged financing for certain holding entities. For example, American International Group, a large New York based insurance company, accepted a loan of more than $100 billion from the Federal Reserve Bank of New York to avoid insolvency.
 
On November 25, 2008, the Federal Reserve announced that it will purchase $100 billion in direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. The Federal Reserve stated that it is taking such action with the expectation that its investments will reduce the cost and increase availability of credit for residential mortgages, thereby supporting the general residential housing market and, in turn, the overall financial markets. The purchases of direct obligations began during the first week of December 2008.
 
During 2008, the FDIC also initiated programs in an effort to restore confidence and functioning in the banking system and attempt to reduce foreclosures through loan modifications. Specifically, the FDIC adopted


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the Temporary Liquidity Guarantee Program, which has two primary components: the Debt Guarantee Program, by which the FDIC will guarantee the payment of certain newly issued senior unsecured debt, and the Transaction Account Guarantee Program, by which the FDIC will guarantee up to an unlimited amount certain transaction accounts bearing no or minimal interest (e.g. NOW accounts paying no more than 0.50% interest), until December 31, 2009. The FDIC also raised the deposit insurance limits to $250,000 up from $100,000 through December 31, 2009. Additionally, in an effort to reduce the number of residential foreclosures, the FDIC encouraged the creation and adoption of uniform guidelines for loan modifications which include interest rate reduction, maturity extension and principal reduction.
 
The overall effects of these and other legislative and regulatory efforts on the financial markets is uncertain, and they may not have the intended stabilization effects. Should these or other legislative or regulatory initiatives fail to stabilize and add liquidity to the financial markets, our business, financial condition, results of operations and prospects could be materially and adversely affected. Even if legislative or regulatory initiatives or other efforts successfully stabilize and add liquidity to the financial markets, we may need to modify our strategies, businesses or operations, and we may incur increased capital requirements and constraints or additional costs in order to satisfy new regulatory requirements or to compete in a changed business environment. It is uncertain what effects recently enacted or future legislation or regulatory initiatives will have on us. Given the volatile nature of the current market disruption and the uncertainties underlying efforts to mitigate or reverse the disruption, we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments and trends in new products and services, in the current or future environment. Our failure to do so could materially and adversely affect our business, financial condition, results of operations and prospects.
 
Privileged Access
 
As previously discussed, on August 14, 2008, the Company closed on the PA Transaction. Prior to the purchase, Privileged Access had a 12-year lease with the Company that terminated upon the closing of the transaction. At the closing of the transaction, Privileged Access put its excess cash of approximately $4.8 million into an escrow account for liabilities that Privileged Access has retained. The balance in the escrow account as of December 31, 2008 was approximately $3.2 million. The excess cash in the escrow account, if any, will be paid to the Company after a period of two years.
 
The preliminary purchase price allocation has been recorded as of August 14, 2008. The preliminary allocation does not include a receivable for the contingent cash in the escrow as the amount and timing of collection is currently uncertain. Further adjustments to the purchase price allocation may be necessary within the one-year allocation period allowed by FAS 141.
 
Privileged Access is owned by Mr. McAdams, the Company’s President since January 1, 2008. Privileged Access owned Thousand Trails (“TT”) from April 14, 2006 until August 13, 2008. The Company assumed TT’s operations in connection with the PA Transaction. TT’s primary business consists of selling right-to-use contracts that entitle the purchasers to use certain properties (the “Agreements”), a business that TT has been engaged in for almost 40 years. Our 82 Properties utilized to service the Agreements generally contain designated sites for the placement of recreational vehicles which service the customer base of approximately 120,000 families. The PA Transaction included all of the existing Agreements that require the customer to make annual payments to maintain the Agreement.
 
Several different Agreements are currently offered to new customers. These Agreements are generally distinguishable from each other by the number of Properties a customer can access. The Agreements generally grant the customer the contractual right-to-use designated space within the Properties on a continuous basis for up to 14 days. The Agreements are generally for three years and typically require nonrefundable upfront payments as well as annual payments.
 
Existing customers may be offered an upgrade Agreement from time-to-time. The upgrade Agreement is currently distinguishable from the new Agreement by (1) increased length of consecutive stay by 50 percent (i.e. up to 21 days); (2) ability to make earlier advance reservations (3) discounts on rental units and (4) access to additional properties, which may include discounts at non-membership RV Properties. Each upgrade requires


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an additional nonrefundable upfront payment. The Company may finance the upfront nonrefundable payment under any Agreement.
 
The PA Transaction also included the purchase of the operations of Resort Parks International (“RPI”) and Thousand Trails Management Services, Inc. (“TTMSI”). Since 1983, RPI has provided a member-only RV reciprocal camping program in North America. The RPI network offers access to 200 private RV resorts, 450 public RV campgrounds, cabins and hundreds of condominiums world wide. TTMSI manages approximately 200 public campgrounds for the U.S. Forest Service.
 
Refer to Note 12 — Transactions with Related Parties included in the Notes to Consolidated Financial Statements in this Form 10-K for a description of all agreements between the Company and Privileged Access.
 
Insurance
 
Approximately 70 Florida Properties suffered damage from the five hurricanes that struck the state during August and September 2004. As of February 3, 2009, the Company estimates its total claim to exceed $21.0 million. The Company has made claims for full recovery of these amounts, subject to deductibles. Through December 31, 2008, the Company has made total expenditures of approximately $18.0 million and expects to incur additional expenditures to complete the work necessary to restore the Properties to their pre-hurricanes condition. The Company has reserved approximately $2.0 million related to these expenditures ($0.7 million in 2005 and $1.3 million in 2004). Approximately $6.9 million of these expenditures have been capitalized per the Company’s capitalization policy through December 31, 2008.
 
The Company has received proceeds from insurance carriers of approximately $8.8 million through December 31, 2008. Approximately $0.6 million has been recognized as a gain on insurance recovery, which is net of approximately $0.3 million of legal fees and included in income from other investments, net, as of December 31, 2008. On June 22, 2007, the Company filed a lawsuit related to some of the unpaid claims against certain insurance carriers and its insurance broker. See Note 17 in the Notes to Consolidated Financial Statements contained in this Form 10-K for further discussion of this lawsuit.
 
Supplemental Property Disclosure
 
We provide the following disclosures with respect to certain assets:
 
  •  Tropical Palms — On July 15, 2008, Tropical Palms, a 541-site Property located in Kissimmee, Florida, was leased to a new operator for 12 years. The lease provides for an initial fixed annual lease payment of $1.6 million, which escalates at the greater of CPI or three percent. Percentage rent payments are provided for beginning in 2010, subject to gross revenue floors.


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Property Acquisitions, Joint Ventures and Dispositions
 
The following chart lists the Properties or portfolios acquired, invested in, or sold since January 1, 2007:
 
             
Property
  Transaction Date   Sites  
 
Total Sites as of January 1, 2007
    112,956  
Property or Portfolio (# of Properties in parentheses):
           
Pine Island RV Resort (1)
  August 3, 2007     363  
Santa Cruz Ranch RV (1)
  September 26, 2007     106  
Tuxbury Pond RV Resort (1)
  October 11, 2007     305  
Grandy Creek (1)
  January 14, 2008     179  
Lake George Schroon Valley Resort (1)
  January 23, 2008     151  
Expansion Site Development and other:
           
Sites added (reconfigured) in 2007
    75  
Sites added (reconfigured) in 2008
    99  
Dispositions:
           
Lazy Lakes (1)
  January 10, 2007     (100 )
Del Rey (1)
  July 6, 2007     (407 )
Holiday Village-Iowa (1)
  November 30, 2007     (519 )
Morgan Portfolio JV (5)
  2008     (1,134 )
             
Total Sites as of December 31, 2008
    112,074  
         
 
Since December 31, 2006, the gross investment in real estate increased from $2,337 million to $2,491 million as of December 31, 2008, due primarily to the aforementioned acquisitions and dispositions of Properties during the period.
 
Markets
 
The following table identifies our five largest markets by number of sites and provides information regarding our Properties (excludes Privileged Access and Properties owned through Joint Ventures).
 
                                 
                      Percent of Total
 
    Number of
          Percent of
    Property Operating
 
Major Market
  Properties     Total Sites     Total Sites     Revenues(1)  
 
Florida
    82       35,183       42.6 %     43.4 %
Arizona
    32       12,372       15.0 %     12.9 %
California
    29       7,333       8.9 %     17.2 %
Texas
    8       5,143       6.2 %     2.2 %
Colorado
    11       3,452       4.2 %     4.9 %
Other
    54       19,048       23.1 %     19.4 %
                                 
Total
    216       82,531       100.0 %     100.0 %
                                 
 
 
(1) Property operating revenues for this calculation excludes approximately $37.7 million of property operating revenue from Privileged Access properties.
 
Critical Accounting Policies and Estimates
 
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. We believe that the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.


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Long-Lived Assets
 
In accordance with the Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”), we allocate the purchase price of Properties we acquired on or prior to December 31, 2008 to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be available in connection with the acquisition or financing of the respective Property and other market data. We also consider information obtained about each Property as a result of our due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.
 
For business combinations for which the acquisition date is on or after January 1, 2009, the purchase price of Properties will be in accordance with Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”). SFAS No. 141R replaces SFAS No. 141 but retains the fundamental requirements set forth in SFAS No. 141 that the acquisition method of accounting (also known as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R replaces, with limited exceptions as specified in the statement, the cost allocation process in SFAS No. 141 with a fair value based allocation process.
 
We periodically evaluate our long-lived assets, including our investments in real estate, for impairment indicators. Our judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions and legal factors. Future events could occur which would cause us to conclude that impairment indicators exist and an impairment loss is warranted.
 
Real estate is recorded at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. We use a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen-year estimated life for building upgrades and a three-to-seven-year estimated life for furniture, fixtures and equipment. Used rental homes are depreciated based on its model year with a minimum of 15 years and new rental homes are depreciated using a 20-year estimated life from its model year down to a salvage value of 40% of the original costs. Depreciation on rental homes is included in ancillary services, net. In connection with the PA Transaction, we acquired approximately $2.0 million in used resort cottages. The used resort cottages are depreciated using a 20-year estimate life and are included in corporate and other depreciation.
 
The values of above-and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income over the remaining term of the associated lease. The value associated with in-place leases is amortized over the expected term, which includes an estimated probability of lease renewal. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that improve the asset and extend the useful life of the asset are capitalized over their estimated useful life.
 
Revenue Recognition
 
The Company accounts for leases with its customers as operating leases. Rental income is recognized over the term of the respective lease or the length of a customer’s stay, the majority of which are for a term of not greater than one year. We will reserve for receivables when we believe the ultimate collection is less than probable. Our provision for uncollectible rents receivable was approximately $1.5 million and $1.2 million as of December 31, 2008 and December 31, 2007, respectively.
 
The sales of right-to-use contracts are recognized in accordance with Staff Accounting Bulletin 104, Revenue Recognition in Consolidated Financial Statements, Corrected (“SAB 104”). The Company will recognize the upfront non-refundable payments over the estimated customer life which, based on historical attrition rates, the Company has estimated to be between one to 31 years. The current period sales of upfront non-refundable payments are reported on the Income Statement in the line item titled “Right-to-use contracts current period, gross.” The cumulative deferral of the upfront non-refundable payments are reported on the Balance Sheet in the line item titled “Deferred revenue — sale of right-to use contracts.” The deferral of current period sales, net of amortization of prior period sales, is reported on the Income Statement in the line item titled


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“Right-to-use contracts, deferred, net of prior period amortization.” The decision to recognize this revenue in accordance with SAB 104 was made after corresponding with the Office of the Chief Accountant at the SEC during September and October of 2008. The commissions paid on the sale of right-to-use contracts will be deferred and amortized over the same period as the related sales revenue. The current period commissions paid are reported on the Income Statement in the line item titled “Sales and marketing, gross.” The cumulative deferrals of commissions paid are reported on the Balance Sheet in the line item titled “Deferred commissions expense.” The deferral of current period commissions, net of amortization of prior period sales commissions is reported on the Income Statement in the line item titled “Sales and marketing, deferred commissions, net.”
 
Annual payments paid by customers under the terms of the right-to-use contracts are deferred and recognized ratably over the one-year period in which the services are provided.
 
Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred.
 
Allowance for Doubtful Accounts
 
Rental revenue from our tenants is our principal source of revenue and is recognized over the term of the respective lease or the length of a customer’s stay, the majority of which are for a term of not greater than one year. We monitor the collectibility of accounts receivable from our tenants on an ongoing basis. We will reserve for receivables when we believe the ultimate collection is less than probable and maintain an allowance for doubtful accounts. An allowance for doubtful accounts is recorded during each period and the associated bad debt expense is included in our property operating and maintenance expense in our Consolidated Statements of Operations. The allowance for doubtful accounts is netted against rent and other customer receivables, net on our consolidated balance sheets. Our provision for uncollectible rents receivable was approximately $1.5 million and $1.2 million as of December 31, 2008 and December 31, 2007, respectively.
 
We may also finance the sale of homes to our customers through loans (referred to as “Chattel Loans”). The valuation of an allowance for doubtful accounts for the Chattel Loans is calculated based on a comparison of the outstanding principal balance of each note compared to the N.A.D.A. (National Automobile Dealers Association) value and the current market value of the underlying manufactured home collateral. A bad debt expense is recorded in home selling expense in our Consolidated Statements of Operations. The allowance for doubtful accounts is netted against the notes receivables on our consolidated balance sheets. The allowance for these Chattel Loans as of December 31, 2008 and December 31, 2007 was $158,000 and $160,000, respectively.
 
Beginning August 14, 2008, as a result of the PA Transaction, the Company also began financing the nonrefundable upfront payments on sales of right-to-use contracts (“Contracts Receivable”). Based upon historical collection rates and current economic trends, when a sale is financed a reserve is established for a portion of the Contracts Receivable balance estimated to be uncollectible. The allowance and the rate at which the Company provides for losses on its Contracts Receivable could be increased or decreased in the future based on the Company’s actual collection experience.
 
Inventory
 
Inventory primarily consists of new and used Site Set homes and is stated, at the lower of cost or market after consideration of the N.A.D.A. Manufactured Housing Appraisal Guide and the current market value of each home included in the home inventory. Inventory sales revenues and resale revenues are recognized when the home sale is closed. Inventory is recorded net of an inventory reserve as of December 31, 2008 and December 31, 2007 of $0.5 million and $0.8 million, respectively. The expense for the inventory reserve is included in the cost of home sales in our Consolidated Statements of Operations.
 
Variable Interest Entities
 
In December 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46R”) — an interpretation of ARB 51. The objective of FIN 46R is to provide guidance on how to identify a variable interest entity (“VIE”) and determine when the


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assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate such entity if the company absorbs a majority of the entity’s expected losses or receives a majority of the entity’s expected residual returns if they occur, or both (i.e., the primary beneficiary). The Company will apply FIN 46R to all types of entity ownership (general and limited partnerships and corporate interests).
 
The Company will re-evaluate and apply the provisions of FIN 46R to existing entities if certain events occur which warrant re-evaluation of such entities. In addition, the Company will apply the provisions of FIN 46R to all new entities in the future. The Company also consolidates entities in which it has a controlling direct or indirect voting interest. The equity method of accounting is applied to entities in which the Company does not have a controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions. The cost method is applied when (i) the investment is minimal (typically less than 5%) and (ii) the Company’s investment is passive.
 
Effective January 1, 2008, the 100 percent owner of Privileged Access, Mr. Joe McAdams, became our President and we amended and restated the leases for the 81 Properties. Under generally accepted accounting principles, effective January 1, 2008, Mr. McAdams, Privileged Access and the Company are considered related parties. Due to the materiality of the leasing arrangement and the related party nature of the arrangement, the Company analyzed whether the operations of Privileged Access should be consolidated with ours for periods prior to the PA Transaction. We determined under FIN 46 that it was not appropriate to consolidate Privileged Access as we do not control Privileged Access and are not the primary beneficiary of Privileged Access. This conclusion required management to make complex judgments. As a result of the complex nature of the arrangements, on February 15, 2008, we submitted a letter to the Office of the Chief Accountant at the SEC describing the relationship and asking for the SEC’s concurrence with our conclusions that we should not consolidate the operations of Privileged Access. The SEC did not object to the Company’s conclusions as described in the letter.
 
Valuation of Financial Instruments
 
The valuation of financial instruments under Statement of Financial Accounting Standards No. 107, “Disclosures About Fair Value of Financial Instruments” (“SFAS No. 107”) and Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) requires us to make estimates and judgments that affect the fair value of the instruments. Where possible, we base the fair values of our financial instruments on listed market prices and third party quotes. Where these are not available, we base our estimates on other factors relevant to the financial instrument.
 
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosure about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), an amendment of SFAS No. 133. SFAS No. 161 is intended to enhance the disclosure framework in SFAS No. 133 by requiring objectives of using derivatives to be disclosed in terms of underlying risk and accounting designation. The statement requires a new tabular disclosure format as a way of providing a more complete picture of derivative positions and their effect during the reporting period. SFAS No. 161 was effective November 15, 2008 with early adoption recommended. The Company does not believe SFAS No. 161 will have an impact on the consolidated financial statements.
 
The Company currently does not have any financial instruments that require the application of SFAS No. 107, SFAS No. 133 or SFAS No. 161.
 
Stock-Based Compensation
 
The Company adopted the fair-value-based method of accounting for share-based payments effective January 1, 2003 using the modified prospective method described in FASB Statement No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure”. The Company adopted Statement of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”), “Share Based Payment” on July 1, 2005, which did not have a material impact on the Company’s results of operations or its financial position. The Company uses the


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Black-Scholes-Merton formula to estimate the value of stock options granted to employees, consultants and directors.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements with any unconsolidated investments or joint ventures that we believe have or are reasonably likely to have a material effect on our financial condition, results of operations, liquidity or capital resources.
 
Recent Accounting Pronouncements
 
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). The Statement identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with United States generally accepted accounting principles (“GAAP”). The purpose is to remove the focus of setting the GAAP hierarchy from the auditor and giving the entity the responsibility of setting the GAAP hierarchy. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not believe SFAS No. 162 will have an impact on the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS No. 160”), an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 seeks to improve uniformity and transparency in reporting of the net income attributable to non-controlling interests in the consolidated financial statements of the reporting entity. The statement requires, among other provisions, the disclosure, clear labeling and presentation of non-controlling interests in the Consolidated Balance Sheet and Consolidated Income Statement. SFAS No. 160 was effective on January 1, 2009 with early adoption prohibited. SFAS No. 160 will effect the presentation of minority interest within the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”). SFAS No. 141R replaces FASB Statement No. 141 but retains the fundamental requirements set forth in SFAS No. 141 that the acquisition method of accounting (also known as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R replaces, with limited exceptions as specified in the statement, the cost allocation process in SFAS No. 141 with a fair value based allocation process. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is not permitted. The Company believes that the impact SFAS No. 141R will have on our consolidated financial statements will depend on the size and nature of any business combination that is entered into after the implementation date.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption. The adoption of SFAS No. 159 is optional and the Company has elected not to adopt SFAS No. 159 for any of its financial assets and financial liabilities.


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Results of Operations
 
Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007
 
The following table summarizes certain financial and statistical data for the Property Operations for all Properties owned and operated for the same period in both years (“Core Portfolio”) and the Total Portfolio for the years ended December 31, 2008 and 2007 (amounts in thousands). The Core Portfolio may change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. The Core Portfolio in this comparison of the year ended December 31, 2008 to December 31, 2007 includes all Properties acquired on or prior to December 31, 2006 and which were owned and operated by the Company during the year ended December 31, 2008.
 
                                                                 
    Core Portfolio     Total Portfolio  
                Increase/
    %
                Increase/
    %
 
    2008     2007     (Decrease)     Change     2008     2007     (Decrease)     Change  
 
Community base rental income
  $ 245,833     $ 236,933     $ 8,900       3.8 %   $ 245,833     $ 236,933     $ 8,900       3.8 %
Resort base rental income
    98,884       95,895       2,989       3.1 %     111,876       102,372       9,504       9.3 %
Right-to-use annual payments
                            19,667             19,667       100.0 %
Right-to-use contracts current period, gross
                            10,951             10,951       100.0 %
Right-to-use contracts, deferred, net of prior period amortization
                            (10,611 )           (10,611 )     (100.0 )%
Utility and other income
    38,389       36,380       2,009       5.5 %     41,633       36,849       4,784       13.0 %
                                                                 
Property operating revenues
    383,106       369,208       13,898       3.8 %     419,349       376,154       43,195       11.5 %
Property operating and maintenance
    128,738       123,656       5,082       4.1 %     152,363       127,342       25,021       19.6 %
Real estate taxes
    27,434       27,046       388       1.4 %     29,457       27,429       2,028       7.4 %
Sales and marketing, gross
                            7,116             7,116       100.0 %
Sales and marketing, deferred commissions, net
                            (3,644 )           (3,644 )     (100.0 )%
Property management
    20,293       18,147       2,146       11.8 %     25,451       18,385       7,066       38.4 %
                                                                 
Property operating expenses
    176,465       168,849       7,616       4.5 %     210,743       173,156       37,587       21.7 %
                                                                 
Income from property operations
  $ 206,641     $ 200,359     $ 6,282       3.1 %   $ 208,606     $ 202,998     $ 5,608       2.8 %
                                                                 
 
Property Operating Revenues
 
The 3.8% increase in the Core Portfolio property operating revenues reflects (i) a 3.7% increase in rates for our community base rental income combined with a 0.1% increase in occupancy, (ii) a 3.1% increase in revenues for our core resort base income comprised of an increase of 6.9% in annual and 2.8% in seasonal resort revenue, offset by a decrease of 8.5% in transient core revenue, and (iii) an increase of 5.5% in core utility and other income primarily due to increased pass-throughs at certain Properties. The Total Portfolio property operating revenues increase of 11.5% was primarily due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. The right-to-use annual payments represent the annual payments earned on right-to-use contracts acquired in the PA Transaction or sold since the PA


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Transaction on August 14, 2008. The right-to-use contracts current period, gross represents all right-to-use contract sales since the PA Transaction. The right-to-use contracts, deferred represents the deferral of current period sales into future periods. See Note 2 (m) in the Notes to Consolidated Financial Statements contained in this Form 10-K.
 
Property Operating Expenses
 
The 4.5% increase in property operating expenses in the Core Portfolio reflects a 4.1% increase in property operating and maintenance expenses and a 11.8% increase in property management expenses. The Core property operating and maintenance expense increase is primarily due to payroll and utility expenses. Our Total Portfolio property operating and maintenance expenses increased by 21.7% due to the consolidation of the Properties formerly leased to Privileged Access beginning August 14, 2008 as a result of the PA Transaction. Total Portfolio sales and marketing expense, including commissions, are all related to the costs incurred for the sale of right-to-use contracts since the PA Transaction on August 14, 2008. Total Portfolio property management expenses primarily increased due to the PA Transaction and the increase in computer software costs. The sales and marketing, deferred commissions, net represents commissions on right-to-use contract sales deferred until future periods to match the deferral of the right-to-use contract sales.
 
Home Sales Operations
 
The following table summarizes certain financial and statistical data for the Home Sales Operations for the years ended December 31, 2008 and 2007 (amounts in thousands, except sales volumes).
 
                                 
    2008     2007     Variance     % Change  
 
Gross revenues from new home sales
  $ 19,013       31,116       (12,103 )     (38.9 )%
Cost of new home sales
    (21,219 )     (28,067 )     6,848       (24.4 )%
                                 
Gross (loss) profit from new home sales
    (2,206 )     3,049       (5,255 )     (172.4 )%
Gross revenues from used home sales
    2,832       2,217       615       27.7 %
Cost of used home sales
    (2,850 )     (2,646 )     (204 )     (7.7 )%
                                 
Gross loss profit from used home sales
    (18 )     (429 )     411       95.8 %
Brokered resale revenues, net
    1,094       1,528       (434 )     (28.4 )%
Home selling expenses
    (5,776 )     (7,555 )     1,779       23.5 %
Ancillary services revenues, net
    1,197       2,436       (1,239 )     (50.9 )%
                                 
Loss income from home sales operations and other
  $ (5,709 )   $ (971 )   $ (4,738 )     (488.0 )%
                                 
Home sales volumes:
                               
New home sales(1)
    378       440       (62 )     (14.1 )%
Used home sales(2)
    407       296       111       37.5 %
Brokered home resales
    786       967       (181 )     (18.7 %)
 
 
(1) Includes third party home sales of 71 and 45 for the years ended December 31, 2008 and 2007, respectively.
 
(2) Includes third party home sales of one and nine for the years ended December 31, 2008 and 2007, respectively.
 
Income from home sales operations decreased as a result of lower new and brokered resale volumes and lower gross profits per home sold and the write-off of inventory home rebate receivable. The decrease in home selling expenses is primarily due to lower sales volumes and decreased advertising costs. During the year ended December 31, 2008, the Company reclassified all of its new and used manufactured home inventory to Buildings and other depreciable property. The homes were reclassified as the Company expects to rent the homes due to the decline in home sales. Ancillary service revenues, net decreased by 50.9% primarily due to $1.2 million of depreciation on new and used rental homes.


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Rental Operations
 
During the year ended December 31, 2008, $57.8 million of manufactured home inventory, including reserves of approximately $0.8 million, was reclassified to Buildings and other depreciable property on our Consolidated Balance Sheets. The inventory moved included all new and used manufactured home inventory, which the Company is primarily renting. The following table summarizes certain financial and statistical data for manufactured home Rental Operations for the years ended December 31, 2008 and 2007 (dollars in thousands). Except as otherwise noted, the amounts below are included in Ancillary services revenue, net in the Home Sales Operations table in previous section.
 
                                 
    2008     2007     Variance     % Change  
 
Manufactured homes:
                               
New Home Revenues
  $ 3,433     $ 1,431     $ 2,002       139.9 %
Used Home Revenues
    6,050       4,622       1,428       30.9 %
                                 
Rental operations revenue(1)
    9,483       6,053       3,430       56.7 %
Property operating and maintenance
    1,434       720       714       99.2 %
Real estate taxes
    103       60       43       71.7 %
                                 
Rental operations expenses
    1,537       780       757       97.1 %
Income from rental operations
    7,946       5,273       2,673       50.7 %
Depreciation
    (1,222 )           (1,222 )     (100.0 )%
                                 
Income from rental operations, net of depreciation
  $ 6,724     $ 5,273     $ 1,451       27.5 %
                                 
Number of occupied rentals — new, end of period
    433       191       242       126.7 %
Number of occupied rentals — used, end of period
    799       716       83       11.6 %
 
 
(1) Approximately $7.2 million and $4.7 million as of December 31, 2008 and 2007, respectively, are included in Community base rental income in the Property Operations table.
 
The increase in rental operations revenue and expenses is primarily due to the increase in the number of occupied rentals. The increase in depreciation is due to the depreciation of the rental units starting during 2008 after being reclassified to Buildings and other depreciable property.
 
Other Income and Expenses
 
The following table summarizes other income and expenses for the years ended December 31, 2008 and 2007 (amounts in thousands).
 
                                 
    2008     2007     Variance     % Change  
 
Interest income
  $ 3,095     $ 1,732     $ 1,363       78.7 %
Income from other investments, net
    17,006       22,476       (5,470 )     (24.3 )%
General and administrative
    (20,617 )     (15,591 )     (5,026 )     (32.2 )%
Rent control initiatives
    (1,555 )     (2,657 )     1,102       41.5 %
Interest and related amortization
    (99,430 )     (103,070 )     3,640       3.5 %
Depreciation on corporate assets
    (390 )     (437 )     47       10.8 %
Depreciation on real estate assets
    (66,193 )     (63,554 )     (2,639 )     (4.2 )%
                                 
Total other expenses, net
  $ (168,084 )   $ (161,101 )   $ (6,983 )     (4.3 )%
                                 
 
Interest income is higher primarily due to interest income on Contracts Receivable purchased in the PA Transaction. Income from other investments, net decreased due to the reduction in Privileged Access lease payments of $4.6 million and a $0.9 million write off of a Privileged Access restatement bonus. General and administrative expense increased due to higher compensation cost increases, including the Long-term Inventive


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Plan, of $3.8 million and increased professional fees of $0.8 million. Rent control initiatives decreased as a result of the refunding of $0.4 million in legal fees from 21st Mortgage Corporation suit in 2008 as well as a decrease in trial activity compared to 2007 (see Note 17 in the Notes to Consolidated Financial Statements contained in this Form 10-K). Interest and related amortization decreased due to lower interest rates and amounts outstanding. Depreciation on real estate assets includes $0.8 million of unamortized lease costs expensed related to the termination of the Privileged Access leases.
 
Equity in Income of Unconsolidated Joint Ventures
 
For the year ended December 31, 2008, equity in income of unconsolidated joint ventures increased $1.1 million primarily due to a $0.6 million gain on the payoff of our share of seller financing in excess of our basis on one Lakeshore investment, and a gain of $1.6 million on the sale of our interest in four Morgan joint venture Properties. The increase was offset by distributions received in 2007 from three joint ventures relating to debt financings by the joint ventures. These distributions exceeded the Company’s basis and were included in income from unconsolidated joint ventures in 2007. In addition, 2007 included activity at nine former joint ventures, which have been purchased by the Company.
 
Comparison of Year Ended December 31, 2007 to Year Ended December 31, 2006
 
The following table summarizes certain financial and statistical data for the Property Operations for all Properties owned throughout both periods (“Core Portfolio”) and the Total Portfolio for the years ended December 31, 2007 and 2006 (amounts in thousands).
 
                                                                 
    Core Portfolio     Total Portfolio  
                Increase/
    %
                Increase/
    %
 
    2007     2006     (Decrease)     Change     2007     2006     (Decrease)     Change  
 
Community base rental income
  $ 232,917     $ 222,766     $ 10,151       4.6 %   $ 236,933     $ 225,815     $ 11,118       4.9 %
Resort base rental income
    88,654       83,876       4,778       5.7 %     102,372       89,925       12,447       13.8 %
Utility and other income
    34,572       29,751       4,821       16.2 %     36,849       30,643       6,206       20.3 %
                                                                 
Property operating revenues
    356,143       336,393       19,750       5.9 %     376,154       346,383       29,771       8.6 %
Property operating and maintenance
    118,418       112,054       6,364       5.7 %     127,342       116,179       11,163       9.6 %
Real estate taxes
    26,301       25,522       779       3.1 %     27,429       26,246       1,183       4.5 %
Property management
    17,466       16,560       906       5.5 %     18,385       17,079       1,306       7.6 %
                                                                 
Property operating expenses
    162,185       154,136       8,049       5.2 %     173,156       159,504       13,652       8.6 %
                                                                 
Income from property operations
  $ 193,958     $ 182,257     $ 11,701       6.4 %   $ 202,998     $ 186,879     $ 16,119       8.6 %
                                                                 
 
Property Operating Revenues
 
The 5.9% increase in the Core Portfolio property operating revenues reflects (i) a 4.2% increase in rates for our community base rental income combined with a 0.4% increase in occupancy, (ii) a 5.7% increase in revenues for our core resort base income, and (iii) an increase in utility income and other fees primarily due to the pass-through of higher utility rates, as well as an increase in the properties passing through utility costs as a separate line item to customers. Total Portfolio operating revenues increased due to site rental rate increases and our 2006 and 2007 acquisitions (see Note 5 in the Notes to Consolidated Financial Statements contained in this Form 10-K).


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Property Operating Expenses
 
The 5.2% increase in property operating expenses for the Core Portfolio reflects a 5.7% increase in property operating and maintenance due primarily to increases in utilities, repair and maintenance, payroll and insurance expenses. The increase in real estate taxes is in the Core Portfolio is generally due to higher property assessments on certain Properties. Property management expense for the Core Portfolio reflects costs of managing the Properties and is estimated based on a percentage of Property operating revenues. Total Portfolio operating expenses increased due to our 2006 and 2007 acquisitions, as well as increases in utilities and legal expenses. Property management expense for the Total Portfolio increased primarily due to 2006 and 2007 acquisitions and payroll increases.
 
Home Sales Operations
 
The following table summarizes certain financial and statistical data for the Home Sales Operations for the years ended December 31, 2007 and 2006 (amounts in thousands, except sales volumes).
 
                                 
    2007     2006     Variance     % Change  
 
Gross revenues from new home sales
  $ 31,116     $ 58,799     $ (27,683 )     (47.1 )%
Cost of new home sales
    (28,067 )     (52,394 )     24,327       46.4 %
                                 
Gross profit from new home sales
    3,049       6,405       (3,356 )     (52.4 )%
Gross revenues from used home sales
    2,217       2,448       (231 )     (9.4 )%
Cost of used home sales
    (2,646 )     (2,104 )     (542 )     (25.8 )%
                                 
Gross (loss) profit from used home sales
    (429 )     344       (773 )     (224.7 )%
Brokered resale revenues, net
    1,528       2,129       (601 )     (28.2 )%
Home selling expenses
    (7,555 )     (9,836 )     2,281       23.2 %
Ancillary services revenues, net
    2,436       3,027       (591 )     (19.5 )%
                                 
(Loss) income from home sales operations and other
  $ (971 )   $ 2,069     $ (3,040 )     (146.9 )%
                                 
Home sales volumes:
                               
New home sales(1)
    440       783       (343 )     (43.8 )%
Used home sales(2)
    296       370       (74 )     (20.0 )%
Brokered home resales
    967       1,255       (288 )     (22.9 %)
 
 
(1) Includes third party home sales of 45 and 79 for the years ended December 31, 2007 and 2006, respectively.
 
(2) Includes third party home sales of nine and 13 for the years ended December 31, 2007 and 2006, respectively.
 
Income from home sales operations decreased as a result of lower new, used and brokered resale volumes and lower gross profits per home sold. The decrease in home selling expenses is primarily due to lower sales volumes and decreased advertising costs. The decrease in ancillary service revenue relates primarily to an increase in community activity expenses and store expenses.


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Other Income and Expenses
 
The following table summarizes other income and expenses for the years ended December 31, 2007 and 2006 (amounts in thousands).
 
                                 
    2007     2006     Variance     % Change  
 
Interest income
  $ 1,732     $ 1,975     $ (243 )     (12.3 )%
Income from other investments, net
    22,476       20,102       2,374       11.8 %
General and administrative
    (15,591 )     (12,760 )     (2,831 )     (22.2 )%
Rent control initiatives
    (2,657 )     (1,157 )     (1,500 )     (129.6 )%
Interest and related amortization
    (103,070 )     (103,161 )     91       0.1 %
Depreciation on corporate assets
    (437 )     (410 )     (27 )     (6.6 )%
Depreciation on real estate assets
    (63,554 )     (60,276 )     (3,278 )     (5.4 )%
                                 
Total other expenses, net
  $ (161,101 )   $ (155,687 )   $ (5,414 )     (3.5 )%
                                 
 
Interest income decreased due to a $0.4 million decrease in interest income related to a loan to Privileged Access that was paid off in 2007, a decrease in home loan balances, offset by an increase in interest earned on an our tax-deferred exchange escrow accounts.
 
Income from other investments, net increased due to: a gain on insurance recovery of approximately $0.6 million, a one-time gain related to a defeasance transaction of approximately $1.1 million, a $2.3 million increase in ground lease income from Privileged Access, offset by one-time gains recognized in 2006 including a $1.0 million non-refundable deposit received upon termination of the contract for the sale of Del Rey and a $0.9 million gain on sale of our preferred partnership interest in College Heights, which was previously classified as other assets.
 
General and administrative expense increased primarily due to an increase in payroll costs due to increased salaries and bonuses and accrued expense related to the Long-Term Incentive Plan. Rent control initiatives increased primarily as a result of activity regarding the Contempo Marin and City of Santee trials (see Note 17 in the Notes to Consolidated Financial Statements contained in this Form 10-K).
 
Depreciation on real estate increased $3.3 million primarily relating to acquisitions.
 
Equity in Income of Unconsolidated Joint Ventures
 
For the year ended December 31, 2007, equity in income of unconsolidated joint ventures decreased $0.9 million primarily due to the distributions received from three joint ventures relating to debt financings by the joint ventures. These distributions exceeded the Company’s basis and were included in income from unconsolidated joint ventures. This was offset by the purchase of the remaining interest in Mezzanine Properties and the gain on sale of the property owned by Indian Wells joint venture in 2006.
 
Liquidity and Capital Resources
 
Liquidity
 
As of December 31, 2008, the Company had $45.3 million in cash and cash equivalents and $277 million available on its lines of credit. The Company expects to meet its short-term liquidity requirements, including its distributions, generally through its working capital, net cash provided by operating activities and availability under the existing lines of credit. The Company expects to meet certain long-term liquidity requirements such as scheduled debt maturities, property acquisitions and capital improvements by long-term collateralized and uncollateralized borrowings including borrowings under its existing lines of credit and the issuance of debt securities or additional equity securities in the Company, in addition to net cash provided by operating activities. The Company has approximately $75 million of scheduled debt maturities in 2009 (excluding scheduled principal payments on debt maturing in 2010 and beyond). The Company is currently evaluating refinancing options and expects to be able to satisfy the maturing debt with some combination of refinancing proceeds, net cash provided by operating activities and/or its available lines of credit. During 2008, we received financing


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proceeds from Fannie Mae secured by mortgages on individual manufactured home Properties. The terms of the Fannie Mae financings were relatively attractive as compared to other potential lenders. If financing proceeds are no longer available from Fannie Mae for any reason or if Fannie Mae terms are no longer attractive, it may adversely affect cash flow and our ability to service debt and make distributions to stockholders.
 
The table below summarizes cash flow activity for the years ended December 31, 2008, 2007 and 2006 (amounts in thousands).
 
                         
    For the Twelve Months Ended
 
    December 31,  
    2008     2007     2006  
 
Cash provided by operating activities
  $ 113,890     $ 122,791     $ 99,457  
Cash used in investing activities
    (33,104 )     (25,604 )     (67,086 )
Cash used in financing activities
    (41,259 )     (93,007 )     (31,376 )
                         
Net increase in cash
  $ 39,527     $ 4,180     $ 995  
                         
 
Operating Activities
 
Net cash provided by operating activities decreased $8.9 million for the year ended December 31, 2008 from $122.8 million for the year ended December 31, 2007. As discussed in “Results of Operations” above, this decrease reflects increases in property operating income and interest income, offset by an increase in depreciation expense, decreases in income from other investments, net, and home sales as discussed in “Results of Operations” above. Net cash provided by operating activities increased $23.3 million for the year ended December 31, 2007 from $99.5 million for the year ended December 31, 2006. This increase reflects increases in property operating income and income from other investments, net, offset by an increase in depreciation expense, general and administrative expense, and a decrease in home sales as discussed in “Results of Operations” above.
 
Investing Activities
 
Net cash used in investing activities reflects the impact of the following investing activities:
 
Acquisitions
 
During the year ended December 31, 2008, we completed the following transactions:
 
  •  On January 14, 2008, we acquired a 179-site Property known as Grandy Creek located on 63 acres near Concrete, Washington. The purchase price was $1.8 million and the Property was leased to Privileged Access from January 14, 2008 through August 14, 2008, upon the closure of the PA Transaction.
 
  •  On January 23, 2008, we acquired a 151-site resort Property known as Lake George Schroon Valley Resort on approximately 20 acres in Warrensburg, New York. The purchase price was approximately $2.1 million and was funded by proceeds from the tax-deferred exchange account established as a result of the November 2007 sale of Holiday Village-Iowa.
 
  •  On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access for an unsecured note payable of $2.0 million. Prior to the purchase, Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon closing. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. At closing of the transaction, approximately $4.8 million of Privileged Access cash was deposited into an escrow account for liabilities that Privileged Access has retained. In approximately two years, the excess cash in the escrow account, if any, will be paid to the Company.
 
2007 Acquisitions
 
During the year ended December 31, 2007, we acquired three Properties and acquired the remaining 75% interest in two joint ventures (see Note 5 in the Notes to Consolidated Financial Statements contained in this


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Form 10-K). The combined investment in real estate for the acquisitions and investments was approximately $36.1 million and was funded with new financing of $8.7 million, withdrawals of $18.1 million from our tax-deferred exchange account, and borrowings from our lines of credit.
 
2006 Acquisitions
 
During the year ended December 31, 2006, we acquired 40 Properties (see Note 5 in the Notes to Consolidated Financial Statements contained in this Form 10-K). The combined investment in real estate for these 40 Properties was approximately $162.6 million and was funded with the exchange of two all age properties, new financing of $47.1 million, debt assumed of $38.7 million, and borrowings from our lines of credit. We assumed rents received in advance of approximately $5.0 million, inventory of approximately $1.9 million, escrow deposits of $0.6 million, and other net payables of $0.4 million.
 
Dispositions
 
During the quarter ended June 30, 2008, the Company sold its 25% interest in the following properties, Newpoint in New Point, Virginia, Virginia Park in Old Orchard Beach, Maine, Club Naples in Naples, Florida, and Gwynn’s Island in Gwynn, Virginia, four properties held in the Morgan Portfolio, for approximately $2.1 million. A gain on sale of approximately $1.6 million was recognized. The Company also received approximately $0.3 million of escrowed funds related to the purchase of five Morgan Properties in 2005.
 
During year ended December 31, 2007, we sold three Properties for approximately $23.7 million. The Company recognized a gain of approximately $12.1 million. In order to partially defer the taxable gain on the sales, the sales proceeds, net of an eligible distribution of $2.4 million, were deposited in a tax-deferred exchange account. The proceeds from the sales were subsequently used in the like-kind acquisitions of four Properties.
 
During the year ended December 31, 2006, we exchanged two Properties located in Indiana as part of the Mid-Atlantic Portfolio acquisition (see Note 5 in the Notes to Consolidated Financial Statements contained in this Form 10-K). We recorded a loss on sale for this transaction of $0.2 million.
 
We currently have two all-age Properties held for disposition which are in various stages of negotiations for sale. We plan to reinvest the sale proceeds or reduce outstanding lines of credit.
 
The operating results of all properties sold or held for disposition have been reflected in the discontinued operations of the Consolidated Statements of Operations contained in this Form 10-K.
 
Notes Receivable Activity
 
The notes receivable activity during year ended December 31, 2008 of $1.3 million in cash inflow reflects net lending of $2.8 million from our Chattel Loans and no impact from our Contract Receivables. Contracts Receivable purchased in the PA Transaction contributed a net $19.6 million increase in non-cash inflow.
 
As of December 31, 2006, we had a note receivable from Privileged Access of approximately $12.3 million, which was repaid in full during 2007. The remaining 2007 notes receivable activity of $1.2 million in cash outflow reflects net lending from our Chattel Loans.
 
Investments in and distributions from unconsolidated joint ventures
 
During the year ended December 31, 2008, the Company invested approximately $5.7 million in its joint ventures to increase the Company’s ownership interest in Voyager RV Resort to 50% from 25%. The Company also received approximately $0.4 million held for the initial investment in one of the Morgan Properties.
 
During the year ended December 31, 2008, the Company received approximately $4.2 million in distributions from our joint ventures. Approximately $3.7 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $0.5 million were classified as a return of capital and were included in investing activities.


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During the year ended December 31, 2007, the Company invested approximately $2.7 million in developing one of the Bar Harbor joint venture Properties, which resulted in an increase of the Company’s ownership interest per the joint venture agreement. As of December 31, 2007, the Bar Harbor joint venture has been consolidated with the operations of the Company as the Company had determined that as of December 31, 2007 we are the primary beneficiary by applying the standards of FIN 46R. This consolidation had decreased the Company’s investment in joint venture approximately $11.1 million, with an offsetting increase in investment in real estate.
 
During the year ended December 31, 2007, the Company received approximately $5.2 million in distributions from our joint ventures. $5.1 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $0.1 million were classified as a return of capital and were included in investing activities and were related to refinancings at three of our joint venture Properties. Approximately $2.5 million of the distributions received exceeded the Company’s basis in its joint venture and as such were recorded in income from unconsolidated joint ventures.
 
During the year ended December 31, 2006, the Company invested approximately $1.1 million in five joint ventures owning five Properties located in Florida, Massachusetts, Maine and two in Virginia. The Company also invested approximately $1.6 million in developing one of the Bar Harbor joint venture Properties, which resulted in an increase of the Company’s ownership interest per the joint venture agreement.
 
During the year ended December 31, 2006, the Company received approximately $5.1 million in distributions from our joint ventures. $3.5 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $1.6 million were classified as a return of capital and were included in investing activities and related to our sale of the Property owned by the Indian Wells joint venture and the sale of our interest in the Blazing Star joint venture.
 
In addition, the Company recorded approximately $3.8 million, $2.7 million and $3.6 million of net income from joint ventures, net of $1.8 million, $1.4 million and $1.9 million of depreciation, in the years ended December 31, 2008, 2007 and 2006, respectively.
 
Due to the Company’s inability to control the joint ventures, the Company accounts for its investment in the joint ventures using the equity method of accounting.
 
Proceeds from sale of investment
 
During the year ended December 31, 2006, the Company sold its preferred partnership interest in College Heights for approximately $9.0 million. At the time of the sale, College Heights owned a portfolio of 11 Properties with approximately 1,900 sites located in Michigan, Ohio and Florida. The proceeds received represent a per site value of approximately $22,000.
 
Capital improvements
 
Capital expenditures for improvements are identified by the Company as recurring capital expenditures (“Recurring CapEx”), site development costs and corporate costs. Recurring CapEx was approximately $15.3 million, $16.0 million and $14.6 million for the years ended December 31, 2008, 2007 and 2006, respectively. Included in Recurring CapEx for the years ended 2008, 2007 and 2006 is approximately $0.1 million, $1.5 million and $2.0 million of costs incurred to replace hurricane damaged assets. Site development costs were approximately $11.2 million, $12.8 million and $17.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, and primarily represents costs to improve and upgrade Property infrastructure or amenities or costs to improve or develop specific sites within a Property. Reduction in site development costs is due to the decrease in new homes sales volume. Corporate costs such as computer hardware, office furniture and office improvements and expansion were $0.2 million, $0.6 million and $0.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.


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Financing Activities
 
Net cash used in financing activities reflects the impact of the following:
 
Mortgages and Credit Facilities
 
Financing, Refinancing and Early Debt Retirement
 
2008 Activity
 
During the year ended December 31, 2008, the Company closed on approximately $231.0 million of new financing, on 15 manufactured home properties, with a weighted average interest rate of 6.01%. We used the proceeds from the financing to pay-off approximately $245.8 million on 28 manufactured home properties, with a weighted average interest rate of 5.54%. The proceeds were also used to pay down amounts outstanding on our lines of credit.
 
2007 Activity
 
During the year ended December 31, 2007, the Company completed the following transactions:
 
  •  The Company repaid approximately $1.9 million of mortgage debt in connection with the sale of Lazy Lakes on January 10, 2007.
 
  •  In connection with the acquisition of Mesa Verde, during the first quarter of 2007, the Company assumed $3.5 million in mortgage debt bearing interest at 4.94% per annum and was repaid in May 2008.
 
  •  In connection with the acquisition of Winter Garden, during the second quarter of 2007, the Company assumed $4.0 million in mortgage debt bearing interest at 4.3% per annum and was repaid in August 2008.
 
  •  During the quarter ended September 30, 2007, the Company repaid the outstanding mortgage indebtedness on Ft. Myers Beach RV Resort of approximately $2.9 million.
 
  •  In September 2007, we amended our existing unsecured Lines of Credit (“LOC”) to expand our borrowing capacity from $275 million to $420 million. The lines of credit continue to accrue interest at LIBOR plus a maximum of 1.20% per annum, have a 0.15% facility fee, mature on June 30, 2010, and have a one-year extension option. Our current group of banks have committed up to $370 million on our $420 million borrowing capacity. We incurred commitment and arrangement fees of approximately $0.3 million to increase our borrowing capacity.
 
  •  During the quarter ended December 31, 2007, the Company paid off a $6.5 million mortgage that matured on Park City West RV Resort.
 
  •  The Company paid down $7.7 million of the mortgage debt on Tropical Palms RV Resort during the quarter ended December 31, 2007. The Tropical Palms RV Resort mortgage debt balance as of December 31, 2007 was approximately $12.0 million was repaid in July 2008.
 
2006 Activity
 
During the year ended December 31, 2006, the Company completed the following transactions:
 
  •  Assumed $25.9 million in mortgage debt on four of the eleven Properties related to the acquisition of the Mezzanine Portfolio. During the second and third quarters of 2006, this mortgage debt was defeased. Net proceeds of approximately $10.4 million were used to pay down the lines of credit. The four mortgages bear interest at weighted average interest rates ranging from 5.69% to 6.143% per annum and mature in 2016. In addition, we financed $47.1 million of mortgage debt to acquire the remaining seven Properties in the Mezzanine Portfolio. The seven mortgages bear interest at weighted average rates ranging from 5.70% to 5.72% per annum, and mature in April 2016.


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  •  Received $3.0 million and $2.9 million in mortgage debt proceeds as a result of meeting certain operational criteria at the Monte Vista Property and the Viewpoint Property, respectively. These proceeds were used to pay down the lines of credit.
 
  •  Renewed our unsecured debt. We replaced the term loan which had a remaining balance of $100 million maturing in 2007, and a $110 million line of credit maturing in August 2006 with a $225 million line of credit with a four-year maturity and one-year extension option. The new facility bears interest at the London Interbank Offered Rate (“LIBOR”) plus 1.20% per annum with a 0.15% facility fee per annum. The interest rate on the term loan was LIBOR plus 1.75% per annum and the $110 million line of credit had an interest rate of LIBOR plus 1.65% and had a 0.15% unused fee, both per annum. The interest rate on $75 million of the outstanding balance on the new line of credit is fixed at 6.38% per annum through mid-December 2007. We also renewed our $50 million line of credit which bears interest at LIBOR plus 1.20% per annum with a 0.20% facility fee per annum, and matures on June 29, 2010. The renewal increases our financial flexibility and lowers our credit spread.
 
  •  Acquired for $2.4 million land formerly subject to a ground lease previously classified as mortgage debt relating to the Golden Terrace South Property.
 
  •  Assumed $12.8 million in mortgage debt in connection with the acquisition of the remaining interests in four Diversified Properties. The four mortgages have a weighted average interest rate of approximately 5.5% per annum and a weighted average maturity of three years.
 
Secured Debt
 
As of December 31, 2008, our secured long-term debt balance was approximately $1.6 billion, with a weighted average interest rate in 2008 of approximately 5.9% per annum. The debt bears interest at rates between 5.0% and 10.0% per annum and matures on various dates mainly ranging from 2009 to 2019. Included in our debt balance are three capital leases with balances of approximately $6.7 million at December 31, 2008 and imputed interest rate of 13.1% per annum. Excluding scheduled principal amortization, we have approximately $75 million of long-term debt maturing in 2009 and approximately $215 million in 2010. The weighted average term to maturity for the long-term debt is approximately 5.7 years.
 
In February 2009, the Company refinanced two mortgages with a stated interest rate of 6.38% per annum for total proceeds of approximately $58.0 million.
 
Unsecured Debt
 
We have two unsecured lines of credit with maximum borrowing capacity of $350 million and $20 million which bear interest at a per annum rate of LIBOR plus a maximum of 1.20% per annum, have a 0.15% facility fee, mature on June 30, 2010, and have a one-year extension option. Throughout the year ended December 31, 2008, we borrowed $201.2 million and paid down $211.2 million on our lines of credit. The weighted average interest rate in 2008 for our unsecured debt was approximately 3.6% per annum. The balance outstanding as of December 31, 2008 was $93 million. As of February 19, 2009, approximately $370.0 million is available to be drawn on these combined lines of credit.
 
Other Loans
 
During 2007, we borrowed $4.3 million to finance our insurance premium payments. As of December 31, 2007, this loan had been paid off.
 
During 2006, the Company borrowed $3.6 million to finance its insurance premium payments. As of December 31, 2006, $0.3 million remained outstanding. This loan was paid off in January 2007 and beared interest at 5.30% per annum.
 
Certain of the Company’s mortgages and credit agreements contain covenants and restrictions including restrictions as to the ratio of secured or unsecured debt versus encumbered or unencumbered assets, the ratio of


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fixed charges-to-earnings before interest, taxes, depreciation and amortization (“EBITDA”), limitations on certain holdings and other restrictions.
 
Contractual Obligations
 
As of December 31, 2008, we were subject to certain contractual payment obligations as described in the table below (dollars in thousands):
 
                                                         
Contractual Obligations
  Total   2009(2)   2010(3)   2011   2012   2013   Thereafter
 
Long Term Borrowings(1)
  $ 1,660,898     $ 97,167     $ 323,814     $ 74,642     $ 20,618     $ 130,170     $ 1,014,487  
Weighted average interest rates
    5.89 %     6.04 %     5.91 %     5.78 %     5.73 %     5.74 %     5.70 %
 
 
(1) Balance excludes net premiums and discounts of $1.5 million. Balances include debt maturing and scheduled periodic principal payments.
 
(2) The Company is currently evaluating refinancing options and expects to be able to satisfy the maturing debt with some combination of refinancing proceeds, net cash provided by operating activities and/or its available lines of credit.
 
(3) Includes lines of credit repayments in 2010 of $93 million. We have an option to extend this maturity for one year to 2011.
 
Included in the above table are certain capital lease obligations totaling approximately $6.7 million. These agreements expire June 2009 and are paid semi-annually at an imputed interest rate of 13.1% per annum.
 
The Company does not include Preferred OP Unit distributions, interest expense, insurance, property taxes and cancelable contracts in the contractual obligations table above.
 
The Company leases land under non-cancelable operating leases at certain of the Properties expiring in various years from 2013 to 2054, with terms which require twelve equal payments per year plus additional rents calculated as a percentage of gross revenues. For the years ended December 31, 2008, ground lease rent was approximately $1.8 million and for the years ended December 2007 and 2006, ground lease rent was approximately $1.6 million. Minimum future rental payments under the ground leases are approximately $1.9 million for each of the next five years and approximately $20.5 million thereafter.
 
With respect to maturing debt, the Company has staggered the maturities of its long-term mortgage debt over an average of approximately 6 years, with no more than $580 million (which is due in 2015) in principal maturities coming due in any single year. The Company believes that it will be able to refinance its maturing debt obligations on a secured or unsecured basis; however, to the extent the Company is unable to refinance its debt as it matures, it believes that it will be able to repay such maturing debt from asset sales and/or the proceeds from equity issuances. With respect to any refinancing of maturing debt, the Company’s future cash flow requirements could be impacted by significant changes in interest rates or other debt terms, including required amortization payments.


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Equity Transactions
 
In order to qualify as a REIT for federal income tax purposes, the Company must distribute 90% or more of its taxable income (excluding capital gains) to its stockholders. The following regular quarterly distributions have been declared and paid to common stockholders and minority interests since January 1, 2006.
 
                         
    For the Quarter
    Stockholder Record
       
Distribution Amount Per Share
  Ending     Date     Payment Date  
 
$0.0750
    March 31, 2006       March 31, 2006       April 14, 2006  
$0.0750
    June 30, 2006       June 30, 2006       July 14, 2006  
$0.0750
    September 30, 2006       September 29, 2006       October 13, 2006  
$0.0750
    December 31, 2006       December 29, 2006       January 12, 2007  
                         
$0.1500
    March 31, 2007       March 30, 2007       April 13, 2007  
$0.1500
    June 30, 2007       June 29, 2007       July 13, 2007  
$0.1500
    September 30, 2007       September 28, 2007       October 12, 2007  
$0.1500
    December 31, 2007       December 28, 2007       January 11, 2008  
                         
$0.2000
    March 31, 2008       March 28, 2008       April 11, 2008  
$0.2000
    June 30, 2008       June 27, 2008       July 11, 2008  
$0.2000
    September 30, 2008       September 26, 2008       October 10, 2008  
$0.2000
    December 31, 2008       December 26, 2008       January 9, 2009  
 
2008 Activity
 
On November 11, 2008, the Company announced that in 2009 the annual distribution per common share will be $1.00 per share up from $0.80 per share in 2008 and $0.60 per share in 2007. This decision recognizes the Company’s investment opportunities and the importance of its dividend to its stockholders.
 
On December 31, 2008, September 30, 2008, June 30, 2008 and March 31, 2008, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units
 
During the year ended December 31, 2008, we received approximately $4.7 million in proceeds from the issuance of shares of common stock through stock option exercises and the Company’s Employee Stock Purchase Plan (“ESPP”).
 
2007 Activity
 
On December 28, 2007, September 28, 2007, June 29, 2007 and March 30, 2007, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units.
 
During the year ended December 31, 2007, we received approximately $3.7 million in proceeds from the issuance of shares of common stock through stock option exercises and the ESPP.
 
2006 Activity
 
On December 29, 2006, September 29, 2006, June 30, 2006 and March 31, 2006, the Operating Partnership paid distributions of 8.0625% per annum on the $150 million of Series D 8% Units and 7.95% per annum on the $50 million of Series F 7.95% Units.
 
During the year ended December 31, 2006, we received approximately $3.8 million in proceeds from the issuance of shares of common stock through stock option exercises and the ESPP


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Inflation
 
Substantially all of the leases at the Properties allow for monthly or annual rent increases which provide us with the opportunity to achieve increases, where justified by the market, as each lease matures. Such types of leases generally minimize the risks of inflation to the Company. In addition, our resort Properties are not generally subject to leases and rents are established for these sites on an annual basis. Our right-to-use contracts generally provide for an annual dues increase, but dues may be frozen under the terms of certain contracts if the customer is over 61 years old.
 
Funds From Operations
 
Funds from Operations (“FFO”) is a non-GAAP financial measure. We believe FFO, as defined by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), to be an appropriate measure of performance for an equity REIT. While FFO is a relevant and widely used measure of operating performance for equity REITs, it does not represent cash flow from operations or net income as defined by GAAP, and it should not be considered as an alternative to these indicators in evaluating liquidity or operating performance.
 
FFO is defined as net income, computed in accordance with GAAP, excluding gains or losses from sales of properties, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. The Company receives up-front non-refundable payments from the sale of right-to-use contracts. In accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and amortized over the estimated customer life. Although the NAREIT definition of FFO does not address the treatment of nonrefundable right-to-use payments, the Company believes that it is appropriate to adjust for the impact of the deferral activity in our calculation of FFO. The Company believes that FFO is helpful to investors as one of several measures of the performance of an equity REIT. The Company further believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. The Company believes that the adjustment to FFO for the net revenue deferral of upfront non-refundable payments and expense deferral of right-to-use contract commissions also facilitates the comparison to other equity REITs. Investors should review FFO, along with GAAP net income and cash flow from operating activities, investing activities and financing activities, when evaluating an equity REIT’s operating performance. The Company computes FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of our financial performance, or to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.


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The following table presents a calculation of FFO for the years ended December 31, 2008, 2007 and 2006 (amounts in thousands):
 
                         
    2008     2007     2006  
 
Computation of funds from operations:
                       
Net income available for Common Shares
  $ 18,303     $ 32,102     $ 16,632  
Income allocated to Common OP Units
    4,297       7,705       4,318  
Right-to-use contract sales, deferred, net
    10,611              
Right-to-use contract commissions, deferred, net
    (3,644 )            
Depreciation on real estate assets
    66,193       63,554       60,276  
Depreciation expense included in discontinued operations
                84  
Depreciation expense included in equity in income from joint ventures
    1,776       1,427       1,909  
Loss (gain) on sale of Properties
    79       (12,036 )     (852 )
                         
Funds from operations available for Common Shares
  $ 97,615     $ 92,752     $ 82,367  
                         
Weighted average Common Shares outstanding — fully diluted
    30,498       30,414       30,241  
                         
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our earnings, cash flows and fair values relevant to financial instruments are dependent on prevailing market interest rates. The primary market risk we face is long-term indebtedness, which bears interest at fixed and variable rates. The fair value of our long-term debt obligations is affected by changes in market interest rates. At December 31, 2008, approximately 94% or approximately $1.6 billion of our outstanding debt had fixed interest rates, which minimizes the market risk until the debt matures. For each increase in interest rates of 1% (or 100 basis points), the fair value of the total outstanding debt would decrease by approximately $86.9 million. For each decrease in interest rates of 1% (or 100 basis points), the fair value of the total outstanding debt would increase by approximately $92.1 million.
 
At December 31, 2008, approximately 6% or approximately $93.0 million of our outstanding debt was short-term and at variable rates. Earnings are affected by increases and decreases in market interest rates on this debt. For each increase/decrease in interest rates of 1% (or 100 basis points), our earnings would increase/decrease by approximately $0.9 million annually.
 
FORWARD-LOOKING STATEMENTS
 
This report includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used, words such as “anticipate,” “expect,” “believe,” “project,” “intend,” “may be” and “will be” and similar words or phrases, or the negative thereof, unless the context requires otherwise, are intended to identify forward-looking statements. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, but not limited to:
 
  •  in the age-qualified properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility;
 
  •  in the all-age properties, results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing, and competition from alternative housing options including site-built single-family housing;
 
  •  in the properties we recently started operating as a result of our acquisition of Privileged Access and all properties, our ability to control costs, property market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers;


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  •  our ability to maintain rental rates and occupancy with respect to properties currently owned or pending acquisitions;
 
  •  our assumptions about rental and home sales markets;
 
  •  the completion of pending acquisitions and timing with respect thereto;
 
  •  ability to obtain financing or refinance existing debt;
 
  •  the effect of interest rates;
 
  •  the effect of accounting for the sale of agreements to customers representing a right-to-use the properties previously leased by Privileged Access under Staff Accounting Bulletin No. 104, Revenue Recognition in Consolidated Financial Statements, Corrected; and
 
  •  other risks indicated from time to time in our filings with the Securities and Exchange Commission.
 
These forward-looking statements are based on management’s present expectations and beliefs about future events. As with any projection or forecast, these statements are inherently susceptible to uncertainty and changes in circumstances. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.
 
Item 8.  Financial Statements and Supplementary Data
 
See Index to Consolidated Financial Statements on page F-1 of this Form 10-K.
 
Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
The Company’s management, with the participation of the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal accounting officer), maintains a system of disclosure controls and procedures, designed to provide reasonable assurance that information the Company is required to disclose in the reports that the Company files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.
 
The Company’s management with the participation of the Chief Executive Officer and the Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2008. Based on that evaluation as of the end of the period covered by this annual report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to give reasonable assurances to the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated there under.
 
Changes in Internal Control Over Financial Reporting
 
There were no material changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2008.


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Report of Management on Internal Control Over Financial Reporting
 
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
As previously announced and discussed in this Form 10-K, we acquired substantially all of the assets and certain liabilities of Privileged Access on August 14, 2008 in the PA Transaction. We are in the process of integrating the operations of Privileged Access with those of the Company and incorporating the internal controls and procedures of Privileged Access into our internal control over financial reporting. We do not expect this acquisition to materially affect our internal control over financial reporting. The Company will report on its assessment of the combined operations within the one-year time period provided by the Sarbanes-Oxley Act of 2002 and the applicable SEC rules and regulations concerning business combinations. As a result, management excluded certain internal controls, primarily related to assets and property operating revenues of Privileged Access operations from its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008. Privileged Access operations included in the 2008 consolidated financial statements of the Company constituted approximately $40 million of assets as of December 31, 2008 and approximately $38 million property operating revenues for the year then ended.
 
Based on management’s assessment, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework.”
 
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 has been audited by the Company’s independent registered public accounting firm, as stated in their report on Page F-2 of the Consolidated Financial Statements.
 
Item 9B.  Other Information
 
Pursuant to the authority granted in the Stock Option and Award Plan, in November 2008 the Compensation Committee approved the annual award of stock options to be granted to the Chairman of the Board, the Compensation Committee Chairperson and Lead Director, the Executive Committee Chairperson, and the Audit Committee Chairperson and Audit Committee Financial Expert on February 2, 2009 for their services rendered in 2008. On February 2, 2009, Mr. Samuel Zell was awarded options to purchase 100,000 shares of common stock for services rendered as Chairman of the Board; Mrs. Sheli Rosenberg was awarded options to purchase 25,000 shares of common stock, which she elected to receive as 5,000 shares of restricted common stock, for services rendered as Lead Director and Chairperson of the Compensation Committee; Mr. Howard Walker was awarded options to purchase 15,000 shares of common stock, which he elected to receive as 3,000 shares of restricted common stock, for services rendered as Chairperson of the Executive Committee; and Mr. Philip Calian was awarded options to purchase 15,000 shares of common stock, which he elected to receive as 3,000 shares of restricted common stock, for services rendered as Audit Committee Financial Expert and Audit Committee Chairperson. One-third of the options to purchase common stock and the shares of restricted common stock covered by these awards vests on each of December 31, 2009, December 31, 2010 and December 31, 2011.


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PART III
 
Item 10 and 11.
 
Directors, Executive Officers and Corporate Governance, and Executive Compensation
 
The information required by Item 10 and 11 will be contained in the 2008 Proxy Statement and is therefore incorporated by reference, and thus Item 10 and 11 has been omitted in accordance with General Instruction G(3) to Form 10-K.
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information regarding securities authorized for issuance under equity compensation plans required by Item 12 follows:
 
                         
                Number of
 
                Securities
 
                Remaining Available
 
    Number of
          for Future Issuance
 
    Securities to be
          Under Equity
 
    Issued Upon
    Weighted-Average
    Compensation Plans
 
    Exercise of
    Exercise Price of
    (Excluding
 
    Outstanding
    Outstanding
    Securities
 
    Options, Warrants
    Options, Warrants
    Reflected in Column
 
    and Rights
    and Rights
    (a))
 
Plan Category
  (a)     (b)     (c)  
 
Equity compensation plans approved by security holders(1)
    953,772       34.92       1,099,242  
Equity compensation plans not approved by security holders(2)
    N/A       N/A       357,737  
                         
Total
    953,772       34.92       1,456,979  
 
 
(1) Includes shares of common stock under the Company’s Stock Option and Award Plan adopted in December 1992, and amended and restated from time to time, most recently amended effective March 23, 2001. The Stock Option and Award Plan and certain amendments thereto were approved by the Company’s stockholders.
 
(2) Represents shares of common stock under the Company’s Employee Stock Purchase Plan, which was adopted by the Board of Directors in July 1997, as amended in May 2006. Under the Employee Stock Purchase Plan, eligible employees make monthly contributions which are used to purchase shares of common stock at a purchase price equal to 85% of the lesser of the closing price of a share of common stock on the first or last trading day of the purchase period. Purchases of common stock under the Employee Stock Purchase Plan are made on the first business day of the next month after the close of the purchase period. Under New York Stock Exchange rules then in effect, stockholder approval was not required for the Employee Stock Purchase Plan because it is a broad-based plan available generally to all employees.
 
The information required by Item 403 of Regulation S-K “Security Ownership of Certain Beneficial Owners and Management” required by Item 12 will be contained in the 2008 Proxy Statement and is therefore incorporated by reference, and thus has been omitted in accordance with General Instruction G(3) to Form 10-K.
 
Items 13 and 14.   Certain Relationships and Related Transactions, and Director Independence, and Principal Accountant Fees and Services
 
The information required by Item 13 and Item 14 will be contained in the 2008 Proxy Statement and is therefore incorporated by reference, and thus Item 13 and 14 has been omitted in accordance with General Instruction G(3) to Form 10-K.


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PART IV
 
Item 15.  Exhibits and Financial Statements Schedules
 
  1.   Financial Statement
 
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
 
  2.   Financial Statement Schedules
 
See Index to Financial Statements and Schedules on page F-1 of this Form 10-K.
 
3. Exhibits:
 
In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
  •  should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
 
  •  have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
 
  •  may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
 
  •  were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
 
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about us may be found elsewhere in this Annual Report on Form 10-K and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
 
         
  2 (a)   Admission Agreement between Equity Financial and Management Co., Manufactured Home Communities, Inc. and MHC Operating Partnership
  3 .1(p)   Amended and Restated Articles of Incorporation of Equity Lifestyle Properties, Inc. effective May 15, 2007
  3 .4(r)   Second Amended and Restated Bylaws effective August 8, 2007
  3 .5(k)   Amended and Restated Articles Supplementary of Equity LifeStyle Properties, Inc. effective March 16, 2005
  3 .6(k)   Articles Supplementary of Equity LifeStyle Properties, Inc. effective June 23, 2005
  4     Not applicable
  9     Not applicable
  10 .3(b)   Agreement of Limited Partnership of MHC-De Anza Financing Limited Partnership
  10 .4(c)   Second Amended and Restated MHC Operating Limited Partnership Agreement of Limited Partnership, dated March 15, 1996
  10 .5(l)   Amendment to Second Amended and Restated Agreement of Limited Partnership for MHC Operating Limited Partnership, dated February 27, 2004
  10 .10(d)   Form of Manufactured Home Communities, Inc. 1997 Non-Qualified Employee Stock Purchase Plan
  10 .11(g)   Amended and Restated Manufactured Home Communities, Inc. 1992 Stock Option and Stock Award Plan effective March 23, 2001
  10 .12(f)   $110,000,000 Amended, Restated and Consolidated Promissory Note (DeAnza Mortgage) dated June 28, 2000


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  10 .19(h)   Agreement of Plan of Merger (Thousand Trails), dated August 2, 2004
  10 .20(h)   Amendment No. 1 to Agreement of Plan of Merger (Thousand Trails), dated September 30, 2004
  10 .21(h)   Amendment No. 2 to Agreement of Plan of Merger (Thousand Trails), dated November 9, 2004
  10 .22(h)   Thousand Trails Lease Agreement, dated November 10, 2004
  10 .27(n)   Credit Agreement ($225 million Revolving Facility) dated June 29, 2006
  10 .28(n)   Second Amended and Restated Loan Agreement ($50 million Revolving Facility) dated July 14, 2006
  10 .29(m)   Amended and Restated Thousand Trails Lease Agreement dated April 14, 2006
  10 .31(m)   Amendment No. 3 to Agreement and Plan of Merger (Thousand Trails) dated April 14, 2006
  10 .33(o)   Amendment of Non-Qualified Employee Stock Purchase Plan dated May 3, 2006
  10 .34(o)   Form of Indemnification Agreement
  10 .35(q)   Equity LifeStyle Properties, Inc. Long-Term Cash Incentive Plan dated May 15, 2007
  10 .36(q)   Equity LifeStyle Properties, Inc. Long-Term Cash Incentive Plan — Form of 2007 Award Agreement dated May 15, 2007
  10 .37(s)   First Amendment to Credit Agreement ($400 million Revolving Facility) dated September 21, 2007
  10 .38(s)   First Amendment to Second Amended and Restated Loan Agreement ($20 million Revolving Facility) dated September 21, 2007
  10 .39(t)   Second Amended and Restated Lease Agreement dated as of January 1, 2008 by and between Thousand Trails Operations Holding Company, L.P. and MHC TT Leasing Company, Inc.
  10 .41(t)   Employment Agreement dated as of January 1, 2008 by and between Joe McAdams and Equity LifeStyle Properties, Inc.
  10 .42(u)   First Amendment to Second Amended and Restated Lease Agreement dated as of March 1, 2008 between MHC TT Leasing Company, Inc. and Thousand Trails Operations Holding Company, L.P.
  10 .43(v)   Form of Trust Agreement Establishing Howard Walker Deferred Compensation Trust, dated December 8, 2000
  11     Not applicable
  12 (w)   Computation of Ratio of Earnings to Fixed Charges
  13     Not applicable
  14 (o)   Equity LifeStyle Properties, Inc. Business Ethics and Conduct Policy, dated July 2006
  16     Not applicable
  18     Not applicable
  21 (w)   Subsidiaries of the registrant
  22     Not applicable
  23 (w)   Consent of Independent Registered Public Accounting Firm
  24 .1(w)   Power of Attorney for Philip C. Calian dated February 20, 2009
  24 .2(w)   Power of Attorney for Howard Walker dated February 20, 2009
  24 .3(w)   Power of Attorney for Thomas E. Dobrowski dated February 20, 2009
  24 .4(w)   Power of Attorney for Gary Waterman dated February 23, 2009
  24 .5(w)   Power of Attorney for Donald S. Chisholm dated February 20, 2009
  24 .6(w)   Power of Attorney for Sheli Z. Rosenberg dated February 24, 2009
  24 .7(w)   Power of Attorney for Sam Zell dated February 20, 2009
  24 .8(w)   Power of Attorney for David J. Contis dated February 24, 2009
  31 .1(w)   Certification of Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002
  31 .2(w)   Certification of Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act Of 2002
  32 .1(w)   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
  32 .2(w)   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
 
The following documents are incorporated herein by reference.

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  (a)     Included as an exhibit to the Company’s Form S-11 Registration Statement, File No. 33-55994
  (b)     Included as an exhibit to the Company’s Report on Form 10-K dated December 31, 1994
  (c)     Included as an exhibit to the Company’s Report on Form 10-Q for the quarter ended June 30, 1996
  (d)     Included as Exhibit A to the Company’s definitive Proxy Statement dated March 28, 1997, relating to Annual Meeting of Stockholders held on May 13, 1997
  (e)     Included as an exhibit to the Company’s Form S-3 Registration Statement, filed November 12, 1999 (SEC File No. 333-90813)
  (f)     Included as an exhibit to the Company’s Report on Form 10-K dated December 31, 2000
  (g)     Included as Appendix A to the Company’s Definitive Proxy Statement dated March 30, 2001
  (h)     Included as an exhibit to the Company’s Report on Form 8-K dated November 16, 2004
  (i)     Included as an exhibit to the Company’s Report on Form 8-K dated November 22, 2004
  (j)     Included as an exhibit to the Company’s Report on Form 10-K dated December 31, 2004
  (k)     Included as an exhibit to the Company’s Report on Form 10-Q dated June 30, 2005
  (l)     Included as an exhibit to the Company’s Report on Form 10-K dated December 31, 2005
  (m)     Included as an exhibit to the Company’s Report on Form 8-K dated April 14, 2006
  (n)     Included as an exhibit to the Company’s Report on Form 10-Q dated June 30, 2006
  (o)     Included as an exhibit to the Company’s Report on Form 10-K dated December 31, 2006
  (p)     Included as an exhibit to the Company’s Report on Form 8-K dated May 18, 2007
  (q)     Included as an exhibit to the Company’s Report on Form 8-K dated May 15, 2007
  (r)     Included as an exhibit to the Company’s Report on Form 8-K dated August 8, 2007
  (s)     Included as an exhibit to the Company’s Report on Form 8-K dated September 21, 2007
  (t)     Included as an exhibit to the Company’s Report on Form 8-K dated January 4, 2008
  (u)     Included as an exhibit to the Company’s Report on Form 10-Q dated March 31, 2008
  (v)     Included as an exhibit to the Company’s Report on Form 8-K dated December 8, 2000, filed on September 25, 2008
  (w)     Filed herewith


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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
EQUITY LIFESTYLE PROPERTIES, INC.,
a Maryland corporation
 
     
Date: March 2, 2009
 
By: 
/s/  Thomas P. Heneghan

Thomas P. Heneghan
Chief Executive Officer
(Principal Executive Officer)
     
Date: March 2, 2009
 
By: 
/s/  Michael B. Berman

Michael B. Berman
Executive Vice President
  and Chief Financial Officer
(Principal Financial Officer
  and Principal Accounting Officer)


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Equity LifeStyle Properties, Inc. — Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
             
Name
 
Title
 
Date
 
         
/s/  Thomas P. Heneghan

Thomas P. Heneghan
  Chief Executive Officer and Director *Attorney-in-Fact   March 2, 2009
         
/s/  Michael B. Berman

Michael B. Berman
  Executive Vice President and Chief Financial Officer
*Attorney-in-Fact
  March 2, 2009
         
*Samuel Zell

Samuel Zell
  Chairman of the Board   March 2, 2009
         
*Howard Walker

Howard Walker
  Vice-Chairman of the Board   March 2, 2009
         
*Philip C. Calian

Philip C. Calian
  Director   March 2, 2009
         
*Donald S. Chisholm

Donald S. Chisholm
  Director   March 2, 2009
         
*Thomas E. Dobrowski

Thomas E. Dobrowski
  Director   March 2, 2009
         
*Sheli Z. Rosenberg

Sheli Z. Rosenberg
  Director   March 2, 2009
         
*Gary Waterman

Gary Waterman
  Director   March 2, 2009
         
*David J. Contis

David J. Contis
  Director   March 2, 2009


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INDEX TO FINANCIAL STATEMENTS
 
EQUITY LIFESTYLE PROPERTIES, INC.
 
         
   
Page
 
    F-2  
    F-3  
    F-4  
    F-5 and F-6  
    F-7  
    F-8  
    F-9  
    S-1  
    S-2  
 
Certain schedules have been omitted, as they are not applicable to the Company.


F-1


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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc.
 
We have audited Equity Lifestyle Properties, Inc’s (“Equity Lifestyle Properties”) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Equity Lifestyle Properties’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Item 9A. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include certain internal controls, primarily related to assets and property operating revenues of Privileged Access, which is included in the 2008 consolidated financial statements of Equity Lifestyle Properties and constituted approximately $40 million of assets as of December 31, 2008 and approximately $38 million of property operating revenues for the year then ended. Our audit of internal control over financial reporting of Equity Lifestyle Properties also did not include an evaluation of the internal control over financial reporting of the Privileged Access assets and property operating revenues.
 
In our opinion, Equity Lifestyle Properties maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2008, and the financial statement schedules listed in the Index at Item 15, of Equity Lifestyle Properties, and our report dated February 27, 2009, expressed an unqualified opinion thereon.
 
/s/  
Ernst & Young LLP
ERNST & YOUNG LLP
 
Chicago, Illinois
February 27, 2009


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Table of Contents

 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders of Equity Lifestyle Properties, Inc.
 
We have audited the accompanying consolidated balance sheets of Equity Lifestyle Properties, Inc. (“Equity Lifestyle Properties” or the “Company”), as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equity Lifestyle Properties at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Equity Lifestyle Properties’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2009 expressed an unqualified opinion thereon.
 
/s/  
Ernst & Young LLP
ERNST & YOUNG LLP
 
Chicago, Illinois
February 27, 2009


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Table of Contents

Equity LifeStyle Properties, Inc.
 
 
                 
    December 31,
    December 31,
 
    2008     2007  
    (Amounts in thousands, except for share data)  
 
ASSETS
Investment in real estate:
               
Land
  $ 541,979     $ 541,000  
Land improvements
    1,725,752       1,700,888  
Buildings and other depreciable property
    223,290       154,227  
                 
      2,491,021       2,396,115  
Accumulated depreciation
    (561,233 )     (494,211 )
                 
Net investment in real estate
    1,929,788       1,901,904  
Cash and cash equivalents
    45,312       5,785  
Notes receivable, net
    31,799       10,954  
Investment in joint ventures
    9,676       4,569  
Rents and other customer receivables, net
    1,040       1,156  
Deferred financing costs, net
    12,408       12,142  
Inventory, net
    12,934       63,526  
Deferred commission expense
    3,644        
Escrow deposits and other assets
    45,046       33,659  
                 
Total Assets
  $ 2,091,647     $ 2,033,695  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
               
Mortgage notes payable
  $ 1,569,403     $ 1,556,392  
Unsecured lines of credit
    93,000       103,000  
Accrued payroll and other operating expenses
    66,656       34,617  
Deferred revenue — sale of right-to-use contracts
    10,611        
Accrued interest payable
    8,335       9,164  
Rents and other customer payments received in advance and security deposits
    41,302       37,274  
Distributions payable
    6,106       4,531  
                 
Total Liabilities
    1,795,413       1,744,978  
Commitments and contingencies
               
Minority interests — Common OP Units and other
    17,521       17,776  
Minority interests — Perpetual Preferred OP Units
    200,000       200,000  
Stockholders’ Equity:
               
Preferred stock, $.01 par value 10,000,000 shares authorized; none issued
           
Common stock, $.01 par value 100,000,000 shares authorized for 2008 and 2007; 25,051,322 and 24,348,517 shares issued and outstanding for 2008 and 2007, respectively
    238       236  
Paid-in capital
    320,084       310,803  
Distributions in excess of accumulated earnings
    (241,609 )     (240,098 )
                 
Total stockholders’ equity
    78,713       70,941  
                 
Total Liabilities and Stockholders’ Equity
  $ 2,091,647     $ 2,033,695  
                 
 
The accompanying notes are an integral part of the financial statements.


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Table of Contents

Equity LifeStyle Properties, Inc.
 
 
                         
    2008     2007     2006  
    (Amounts in thousands,
 
    except per share data)  
 
Property Operations:
                       
Community base rental income
  $ 245,833     $ 236,933     $ 225,815  
Resort base rental income
    111,876       102,372       89,925  
Right-to-use annual payments
    19,667              
Right-to-use contracts current period, gross
    10,951              
Right-to-use contracts, deferred, net of prior period amortization
    (10,611 )            
Utility and other income
    41,633       36,849       30,643  
                         
Property operating revenues
    419,349       376,154       346,383  
Property operating and maintenance
    152,363       127,342       116,179  
Real estate taxes
    29,457       27,429       26,246  
Sales and marketing, gross
    7,116              
Sales and marketing, deferred commissions, net
    (3,644 )            
Property management
    25,451       18,385       17,079  
                         
Property operating expenses (exclusive of depreciation shown separately below)
    210,743       173,156       159,504  
                         
Income from property operations
    208,606       202,998       186,879  
Home Sales Operations:
                       
Gross revenues from inventory home sales
    21,845       33,333       61,247  
Cost of inventory home sales
    (24,069 )     (30,713 )     (54,498 )
                         
Gross (loss) profit from inventory home sales
    (2,224 )     2,620       6,749  
Brokered resale revenues, net
    1,094       1,528       2,129  
Home selling expenses
    (5,776 )     (7,555 )     (9,836 )
Ancillary services revenues, net
    1,197       2,436       3,027  
                         
(Loss) income from home sales operations & other
    (5,709 )     (971 )     2,069  
Other Income (Expenses):
                       
Interest income
    3,095       1,732       1,975  
Income from other investments, net
    17,006       22,476       20,102  
General and administrative
    (20,617 )     (15,591 )     (12,760 )
Rent control initiatives
    (1,555 )     (2,657 )     (1,157 )
Interest and related amortization
    (99,430 )     (103,070 )     (103,161 )
Depreciation on corporate assets
    (390 )     (437 )     (410 )
Depreciation on real estate assets
    (66,193 )     (63,554 )     (60,276 )
                         
Total other expenses, net
    (168,084 )     (161,101 )     (155,687 )
Income before minority interests, equity in income of unconsolidated joint ventures, and discontinued operations
    34,813       40,926       33,261  
Income allocated to Common OP Units
    (4,265 )     (5,322 )     (4,267 )
Income allocated to Perpetual Preferred OP Units
    (16,144 )     (16,140 )     (16,138 )
Equity in income of unconsolidated joint ventures
    3,753       2,696       3,583  
                         
Income before discontinued operations
    18,157       22,160       16,439  
                         
Discontinued Operations:
                       
Discontinued operations
    257       289       520  
Depreciation on discontinued operations
                (84 )
(Loss) gain on sale of discontinued real estate
    (79 )     12,036       (192 )
Income allocated to Common OP units from discontinued operations
    (32 )     (2,383 )     (51 )
                         
Income from discontinued operations
    146       9,942       193  
                         
Net income available for Common Shares
  $ 18,303     $ 32,102     $ 16,632  
                         
 
The accompanying notes are an integral part of the financial statements


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Table of Contents

Equity LifeStyle Properties, Inc.
 
Consolidated Statements of Operations
For the Years Ended December 31, 2008, 2007 and 2006
 
                         
    2008     2007     2006  
    (Amounts in thousands,
 
    except per share data)  
 
Earnings per Common Share — Basic:
                       
Income from continuing operations
  $ 0.74     $ 0.92     $ 0.70  
                         
Income from discontinued operations
  $ 0.01     $ 0.41     $ 0.01  
                         
Net income available for Common Shares
  $ 0.75     $ 1.33     $ 0.71  
                         
Earnings per Common Share — Fully Diluted:
                       
Income from continuing operations
  $ 0.74     $ 0.90     $ 0.68  
                         
Income from discontinued operations
  $ 0.01     $ 0.41     $ 0.01  
                         
Net income available for Common Shares
  $ 0.75     $ 1.31     $ 0.69  
                         
Distributions declared per Common Share outstanding
  $ 0.80     $ 0.60     $ 0.30  
                         
Tax status of Common Shares distributions deemed paid during the year:
                       
Ordinary income
  $ 0.80     $ 0.60     $ 0.30  
                         
Long-term capital gain
  $     $     $  
                         
Unrecaptured section 1250 gain
  $     $     $  
                         
Weighted average Common Shares outstanding — basic
    24,466       24,089       23,444  
                         
Weighted average Common Shares outstanding — fully diluted
    30,498       30,414       30,241  
                         
 
The accompanying notes are an integral part of the financial statements


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Table of Contents

Equity LifeStyle Properties, Inc.
 
 
                         
    2008     2007     2006  
    (Amounts in thousands)  
 
Preferred stock, $.01 par value
  $     $     $  
                         
Common stock, $.01 par value
                       
Balance, beginning of year
  $ 236     $ 229     $ 226  
Issuance of common stock through exercise of options
    2       7       3  
                         
Balance, end of year
  $ 238     $ 236     $ 229  
                         
Paid — in capital
                       
Balance, beginning of year
  $ 310,803     $ 304,483     $ 299,444  
Conversion of OP Units to common stock
    1,463       655       211  
Issuance of common stock through exercise of options
    3,205       2,577       2,741  
Issuance of common stock through employee stock purchase plan
    1,501       1,183       1,074  
Compensation expense related to stock options and restricted stock
    5,162       4,268       3,122  
Repurchase of common stock
    (600 )     (883 )     (926 )
Issuance costs
                (15 )
Adjustment for Common OP Unitholders in the Operating Partnership
    (1,450 )     (1,480 )     (1,168 )
                         
Balance, end of year
  $ 320,084     $ 310,803     $ 304,483  
                         
Deferred compensation
                       
Balance, beginning of year
  $     $     $  
Recognition of deferred compensation expense
                 
                         
Balance, end of year
  $     $     $  
                         
Distributions in excess of accumulated comprehensive earnings Balance, beginning of year
  $ (240,098 )   $ (257,594 )   $ (267,154 )
Net income
    18,303       32,102       16,632  
                         
Comprehensive income
    18,303       32,102       16,632  
                         
Distributions
    (19,814 )     (14,606 )     (7,072 )
                         
Balance, end of year
  $ (241,609 )   $ (240,098 )   $ (257,594 )
                         
 
The accompanying notes are an integral part of the financial statements


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Table of Contents

Equity LifeStyle Properties, Inc.
 
 
                         
    2008     2007     2006  
    (Amount in thousands)  
 
Cash Flows From Operating Activities
                       
Net income
  $ 18,303     $ 32,101     $ 16,632  
Adjustments to reconcile net income to cash provided by operating activities:
                       
Income allocated to minority interests
    20,369       23,845       20,456  
Loss (Gain) on sale of properties and other
    79       (12,036 )     192  
Gain on sale of investment
                (914 )
Depreciation expense
    68,700       65,419       62,581  
Amortization expense
    2,956       2,894       2,795  
Debt premium amortization
    (632 )     (1,608 )     (1,477 )
Equity in income of unconsolidated joint ventures
    (5,528 )     (4,123 )     (5,494 )
Distributions from unconsolidated joint ventures
    3,717       5,052       3,449  
Amortization of stock-related compensation
    5,162       4,268       3,122  
Revenue recognized from right-to-use contract sales
    (340 )            
Amortized commission expense related to right-to-use contract sales
    112              
Accrued long term incentive plan compensation
    1,098       685        
Increase (decrease) in provision for uncollectible rents receivable
    353       269       (294 )
Increase in inventory reserve
    63       250        
Changes in assets and liabilities:
                       
Rent and other customer receivables, net
    (236 )     (152 )     (147 )
Inventory
    (5,129 )     4,516       (8,059 )
Deferred commission expense
    (3,756 )            
Escrow deposits and other assets
    (1,208 )     (1,244 )     229  
Accrued payroll and other operating expenses
    1,564       82       2,188  
Deferred revenue — sales of right-to-use contracts
    10,951              
Rents received in advance and security deposits
    (2,708 )     2,573       4,198  
                         
Net cash provided by operating activities
    113,890       122,791       99,457  
                         
Cash Flows From Investing Activities
                       
Acquisition of rental properties
    (3,484 )     (24,774 )     (35,283 )
Acquisition of Privileged Access
    1,267              
Proceeds from disposition of rental properties
          23,261        
Proceeds from disposition of investment
                9,000  
Net tax-deferred exchange withdrawal (deposit)
    2,124       (2,294 )      
Joint Ventures:
                       
Investments in
    (5,545 )     (3,656 )     (2,734 )
Distributions from
    524       152       1,647  
Net (borrowings) repayments of notes receivable
    (1,274 )     11,091       (7,511 )
Improvements:
                       
Corporate
    (198 )     (618 )     (252 )
Rental properties
    (15,319 )     (15,970 )     (14,605 )
Site development costs
    (11,199 )     (12,796 )     (17,348 )
                         
Net cash used in investing activities
    (33,104 )     (25,604 )     (67,086 )
                         
Cash Flows From Financing Activities
                       
Net proceeds from stock options and employee stock purchase plan
    4,708       3,734       3,818  
Distributions to Common Stockholders, Common OP Unitholders, and Perpetual Preferred OP Unitholders
    (38,849 )     (32,013 )     (23,575 )
Stock repurchase and Unit redemption
    (600 )     (883 )     (926 )
Lines of credit:
                       
Proceeds
    201,200       126,200       193,600  
Repayments
    (211,200 )     (154,400 )     (200,100 )
Principal repayments on disposition
          (1,992 )      
Principal payments and mortgage debt payoff
    (224,442 )     (16,169 )     (16,751 )
New financing proceeds
    231,047             14,247  
Early debt retirement
          (17,174 )      
Debt issuance costs
    (3,123 )     (310 )     (1,689 )
                         
Net cash used in financing activities
    (41,259 )     (93,007 )     (31,376 )
                         
Net increase in cash and cash equivalents
    39,527       4,180       995  
Cash and cash equivalents, beginning of year
    5,785       1,605       610  
                         
Cash and cash equivalents, end of year
  $ 45,312     $ 5,785     $ 1,605  
                         
Supplemental Information:
                       
Cash paid during the period for interest
  $ 96,668     $ 101,206     $ 103,368  
Non-cash investing and financing activities:
                       
Real estate acquisition and disposition
                       
Mortgage debt assumed and financed on acquisition of real estate
          8,528       85,832  
Mezzanine and joint venture investments applied to real estate acquisition
          11,297       32,716  
Other assets and liabilities, net, acquired on acquisition of real estate
    36       932       2,295  
Proceeds from loan to pay insurance premiums
          4,344       3,638  
Inventory reclassified to Buildings and other depreciable property
    57,797              
Acquisition of operations of Privileged Access
                       
Assumption of assets and liabilities:
                       
Inventory
    2,139              
Escrow deposits and other assets
    12,344              
Accrued payroll and other operating expenses
    15,383              
Rents and other customer payments received in advance and security deposits
    19,799              
Notes receivable
    19,571              
Investment in real estate
    6,897              
Debt assumed and financed on acquisition
    7,037              
 
The accompanying notes are an integral part of the financial statements


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Table of Contents

Equity LifeStyle Properties, Inc.
 
 
Note 1 —  Organization of the Company and Basis of Presentation
 
Equity LifeStyle Properties, Inc., a Maryland corporation, together with MHC Operating Limited Partnership (the “Operating Partnership”) and other consolidated subsidiaries (“Subsidiaries”), is referred to herein as the “Company,” “ELS,” “we,” “us,” and “our.” The Company is a fully integrated owner and operator of lifestyle-oriented properties (“Properties”). The Company leases individual developed areas (“sites”) with access to utilities for placement of factory built homes, cottages, cabins or recreational vehicles (“RVs”). At certain Properties, the Company provides access to its sites through right-to-use or membership contracts. We believe that we have qualified for taxation as a real estate investment trust (“REIT”) for U.S. federal income tax purposes since our taxable year ended December 31, 1993. We plan to continue to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. We cannot, therefore, guarantee that we have qualified or will qualify in the future as a REIT. The determination that we are a REIT requires an analysis of various factual matters that may not be totally within our control and we cannot provide any assurance that the IRS will agree with our analysis. For example, to qualify as a REIT, at least 95% of our gross income must come from sources that are itemized in the REIT tax laws. We are also required to distribute to stockholders at least 90% of our REIT taxable income computed without regard to our deduction for dividends paid and our net capital gain. The fact that we hold our assets through the Operating Partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT qualification. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for us to remain qualified as a REIT. We do not believe, however, that any pending or proposed tax law changes would jeopardize our REIT qualification.
 
If we fail to qualify as a REIT, we would be subject to U.S. federal income tax at regular corporate rates. Also, unless the IRS granted us relief under certain statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. Even if the Company qualifies for taxation as a REIT, the Company is subject to certain foreign, state and local taxes on its income and property and U.S. federal income and excise taxes on its undistributed income.
 
The operations of the Company are conducted primarily through the Operating Partnership. The Company contributed the proceeds from its initial public offering and subsequent offerings to the Operating Partnership for a general partnership interest. In 2004, the general partnership interest was contributed to MHC Trust, a private REIT subsidiary owned by the Company. The financial results of the Operating Partnership and the Subsidiaries are consolidated in the Company’s consolidated financial statements. In addition, since certain activities, if performed by the Company, may cause us to earn income which is not qualifying for the REIT gross income tests, the Company has formed taxable REIT subsidiaries, as defined in the Code, to engage in such activities.
 
Several Properties acquired are wholly-owned by taxable REIT subsidiaries of the Company. In addition, Realty Systems, Inc. (“RSI”) is a wholly-owned taxable REIT subsidiary of the Company that is engaged in the business of purchasing, selling and leasing homes that are located in Properties owned and managed by the Company. RSI also provides brokerage services to customers at such Properties. Typically, customers move from a Property but do not relocate their homes. RSI may provide brokerage services, in competition with other local brokers, by seeking buyers for the homes. Subsidiaries of RSI also lease from the Operating Partnership certain real property within or adjacent to certain Properties consisting of golf courses, pro shops, stores and restaurants.
 
On August 14, 2008, the Company acquired substantially all of the assets and certain liabilities of Privileged Access, LP (“Privileged Access”) for an unsecured note payable of $2.0 million (the “PA Transaction”). Prior to the purchase, Privileged Access was the tenant under a 12-year lease with the Company for 82 Properties that terminated upon the closing of our acquisition. The $2.0 million unsecured note payable matures on August 14, 2010 and accrues interest at 10 percent per annum. See Note 12 in the Notes to Consolidated Financial Statements contained in this Form 10-K.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 1 —  Organization of the Company and Basis of Presentation (continued)
 
The limited partners of the Operating Partnership (the “Common OP Unitholders”) receive an allocation of net income that is based on their respective ownership percentage of the Operating Partnership that is shown on the Consolidated Financial Statements as Minority Interests — Common OP Units. As of December 31, 2008, the Minority Interests — Common OP Units represented 5,366,741 units of limited partnership interest (“OP Units”) which are convertible into an equivalent number of shares of the Company’s common stock. The issuance of additional shares of common stock or common OP Units changes the respective ownership of the Operating Partnership for both the Minority Interests and the Company.
 
Note 2 —  Summary of Significant Accounting Policies
 
(a)   Basis of Consolidation
 
The Company consolidates its majority-owned subsidiaries in which it has the ability to control the operations of the subsidiaries and all variable interest entities with respect to which the Company is the primary beneficiary. The Company also consolidates entities in which it has a controlling direct or indirect voting interest. All inter-company transactions have been eliminated in consolidation. The Company’s acquisitions on or prior to December 31, 2008 were all accounted for as purchases in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”). For business combinations for which the acquisition date is on or after January 1, 2009, the purchase price of Properties will be in accordance with Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”).
 
The Company has applied the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) — an interpretation of ARB 51. The objective of FIN 46R is to provide guidance on how to identify a variable interest entity (“VIE”) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate such entity if the company absorbs a majority of the entity’s expected losses or receives a majority of the entity’s expected residual returns if they occur, or both (i.e., the primary beneficiary). The Company has also applied Emerging Issues Task Force 04-5 — Accounting for investments in limited partnerships when the investor is the sole general partner and the limited partners have certain rights (“EITF 04-5”) which determines whether a general partner or the general partners as a group controls a limited partnership or similar entity and therefore should consolidate the entity. The Company will apply FIN 46R and EITF 04-5 to all types of entity ownership (general and limited partnerships and corporate interests).
 
The Company applies the equity method of accounting to entities in which the Company does not have a controlling direct or indirect voting interest or is not considered the primary beneficiary, but can exercise influence over the entity with respect to its operations and major decisions. The cost method is applied when (i) the investment is minimal (typically less than 5%) and (ii) the Company’s investment is passive.
 
As of December 31, 2007, the Bar Harbor joint venture was consolidated with the operations of the Company as the Company has determined that as of December 31, 2007 we were the primary beneficiary by applying the standards of FIN 46R.
 
(b)   Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


F-10


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
(c)   Markets
 
We manage all our operations on a property-by-property basis. Since each Property has similar economic and operational characteristics, the Company has one reportable segment, which is the operation of land lease Properties. The distribution of the Properties throughout the United States reflects our belief that geographic diversification helps insulate the portfolio from regional economic influences. We intend to target new acquisitions in or near markets where the Properties are located and will also consider acquisitions of Properties outside such markets.
 
(d)   Inventory
 
Inventory primarily consists of new and used Site Set homes and is stated at the lower of cost or market after consideration of the N.A.D.A. Manufactured Housing Appraisal Guide and the current market value of each home included in the home inventory. Inventory sales revenues and resale revenues are recognized when the home sale is closed. Inventory is recorded net of an inventory reserve as of December 31, 2008 and December 31, 2007 of $0.5 million and $0.8 million, respectively. The expense for the inventory reserve is included in the cost of home sales in our Consolidated Statements of Operations. Resale revenues are stated net of commissions paid to employees of $0.7 million and $0.8 million for the years ended December 31, 2008 and 2007, respectively. (See Note 7 in the Notes to Consolidated Financial Statements contained in this Form 10-K).
 
(e)   Real Estate
 
In accordance with SFAS No. 141, we allocate the purchase price of Properties we acquire to net tangible and identified intangible assets acquired based on their fair values. In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be available in connection with the acquisition or financing of the respective Property and other market data. We also consider information obtained about each Property as a result of our due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired.
 
Real estate is recorded at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. We use a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen-year estimated life for building upgrades and a three-to-seven-year estimated life for furniture, fixtures and equipment. Used rental homes are depreciated based on its model year with a minimum of 15 years and new rental homes are depreciated using a 20-year estimated life from its model year down to a salvage value of 40% of the original costs. Depreciation on rental homes is included in ancillary services, net. In connection with the PA Transaction, we acquired approximately $2.0 million in used resort cottages. The used resort cottages are depreciated using a 20-year estimate life and are included in corporate and other depreciation.
 
The values of above-and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income over the remaining term of the associated lease. The value associated with in-place leases is amortized over the expected term, which includes an estimated probability of lease renewal. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred and significant renovations and improvements that improve the asset and extend the useful life of the asset are capitalized over their estimated useful life.
 
We periodically evaluate our long-lived assets, including our investments in real estate, for impairment indicators. Our judgments regarding the existence of impairment indicators are based on factors such as operational performance, market conditions and legal factors. Future events could occur which would cause us to conclude that impairment indicators exist and an impairment loss is warranted.


F-11


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
For Properties to be disposed of, an impairment loss is recognized when the fair value of the Property, less the estimated cost to sell, is less than the carrying amount of the Property measured at the time the Company has a commitment to sell the Property and/or is actively marketing the Property for sale. A Property to be disposed of is reported at the lower of its carrying amount or its estimated fair value, less costs to sell. Subsequent to the date that a Property is held for disposition, depreciation expense is not recorded. The Company accounts for its Properties held for disposition in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Accordingly, the results of operations for all assets sold or held for sale have been classified as discontinued operations in all periods presented.
 
(f)   Identified Intangibles and Goodwill
 
We record acquired intangible assets and acquired intangible liabilities at their estimated fair value separate and apart from goodwill. We amortize identified intangible assets and liabilities that are determined to have finite lives over the period the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of the property or business acquired. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its estimated fair value.
 
The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. An impairment loss for an asset group is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets, unless the fair value of specific components of the reporting group are determinable without undue cost and effort.
 
As of December 31, 2008 and 2007, the carrying amounts of identified intangible assets, a component of “Escrow deposits and other assets” on our consolidated balance sheets, were approximately $4.2 million and $0, respectively. Amortization of identified intangibles assets was approximately $129,000 and $0 as of December 31, 2008 and 2007, respectively.
 
(g)   Cash and Cash Equivalents
 
We consider all demand and money market accounts and certificates of deposit with a maturity date, when purchased, of three months or less to be cash equivalents. The cash and cash equivalents as of December 31, 2008 and December 31, 2007 include approximately $0.4 million and $0 of restricted cash, respectively.
 
(h)   Notes Receivable
 
Notes receivable generally are stated at their outstanding unpaid principal balances net of any deferred fees or costs on originated loans, or unamortized discounts or premiums net of a valuation allowance. Interest income is accrued on the unpaid principal balance. Discounts or premiums are amortized to income using the interest method. In certain cases we finance the sales of homes to our customers (referred to as “Chattel Loans”) which loans are secured by the homes. The valuation allowance for the Chattel Loans is calculated based on a comparison of the outstanding principal balance of each note compared to the N.A.D.A. value and the current market value of the underlying manufactured home collateral.
 
Beginning August 14, 2008, as a result the PA Transaction, the Company also now provides financing for nonrefundable upfront payments on sales of right-to-use contracts (“Contracts Receivable”). Based upon


F-12


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
historical collection rates and current economic trends, when a sale is financed a reserve is established for a portion of the Contracts Receivable balance estimated to be uncollectible. The allowance and the rate at which the Company provides for losses on its Contracts Receivable could be increased or decreased in the future based on the Company’s actual collection experience. (See Note 8 in the Notes to Consolidated Financial Statements contained in this Form 10-K)
 
(i)   Investments in Joint Ventures
 
Investments in joint ventures in which the Company does not have a controlling direct or indirect voting interest, but can exercise significant influence over the entity with respect to its operations and major decisions, are accounted for using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of the equity in net income or loss from the date of acquisition and reduced by distributions received. The income or loss of each entity is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interests held by each investor. Differences between the carrying amount of the Company’s investment in the respective entities and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets, as applicable. (See Note 6 in the Notes to Consolidated Financial Statements contained in this Form 10-K)
 
(j)   Income from Other Investments, net
 
Income from other investments, net, primarily includes revenue relating to the Company’s former ground leases with Privileged Access of $15.8 million and $20.6 million for the years ended December 31, 2008 and 2007, respectively. The ground leases were terminated on August 14, 2008 due to the PA Transaction. The ground leases with Privileged Access were for approximately 24,300 sites at 82 of the Company’s Properties and were accounted for in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases. The income for the year ended December 31, 2008 includes an expense of $1.0 million of a lease restatement bonus paid to Privileged Access in January 2008. In 2007, income from other investments, net also includes a one-time gain of approximately $1.1 million earned in connection with a 2005 defeasance transaction.
 
(k)   Insurance Claims
 
The Properties are covered against fire, flood, property damage, earthquake, windstorm and business interruption by insurance policies containing various deductible requirements and coverage limits. Recoverable costs are classified in other assets as incurred. Insurance proceeds are applied against the asset when received. Recoverable costs relating to capital items are treated in accordance with the Company’s capitalization policy. The book value of the original capital item is written off once the value of the impaired asset has been determined. Insurance proceeds relating to the capital costs are recorded as income in the period they are received.
 
Approximately 70 Florida Properties suffered damage from the four hurricanes that struck the state during 2004 and 2005. As of February 3, 2009, the Company estimates its total claim to exceed $21.0 million. The Company has made claims for full recovery of these amounts, subject to deductibles. Through December 31, 2008, the Company has made total expenditures of approximately $18.0 million and expects to incur additional expenditures to complete the work necessary to restore the Properties to their pre-hurricanes condition. The Company has reserved approximately $2.0 million related to these expenditures ($0.7 million in 2005 and $1.3 million in 2004 ). Approximately $6.9 million of these expenditures have been capitalized per the Company’s capitalization policy through December 31, 2008.
 
The Company has received proceeds from insurance carriers of approximately $8.8 million through December 31, 2008. Approximately $0.6 million has been recognized as a gain on insurance recovery, which is


F-13


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
net of approximately $0.3 million of contingent legal fees and included in income from other investments, net, as of December 31, 2008.
 
On June 22, 2007, the Company filed a lawsuit related to some of the unpaid claims against certain insurance carriers and its insurance broker. See Note 17 in the Notes to Consolidated Financial Statements contained in this Form 10-K for further discussion of this lawsuit.
 
(l)   Fair Value of Financial Instruments
 
The Company’s financial instruments include short-term investments, notes receivable, accounts receivable, accounts payable, other accrued expenses, and mortgage notes payable. The fair values of all financial instruments, including notes receivable, were not materially different from their carrying values at December 31, 2008 and 2007.
 
(m)   Deferred Financing Costs, net
 
Deferred financing costs, net include fees and costs incurred to obtain long-term financing. The costs are being amortized over the terms of the respective loans on a level yield basis. Unamortized deferred financing fees are written-off when debt is retired before the maturity date. Upon amendment of the lines of credit, unamortized deferred financing fees are accounted for in accordance with, Emerging Issues Task Force No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements” (“EITF No. 98-14”). Accumulated amortization for such costs was $13.1 million and $10.3 million at December 31, 2008 and 2007, respectively.
 
(n)   Revenue Recognition
 
The Company accounts for leases with its customers as operating leases. Rental income is recognized over the term of the respective lease or the length of a customer’s stay, the majority of which are for a term of not greater than one year. We will reserve for receivables when we believe the ultimate collection is less than probable. Our provision for uncollectible rents receivable was approximately $1.5 million and $1.2 million as of December 31, 2008 and December 31, 2007, respectively.
 
The sales of right-to-use contracts are recognized in accordance with Staff Accounting Bulletin 104, Revenue Recognition in Consolidated Financial Statements, Corrected (“SAB 104”). The Company will recognize the upfront non-refundable payments over the estimated customer life which, based on historical attrition rates, the Company has estimated to be between one to 31 years. The current period sales of upfront non-refundable payments are reported on the Income Statement in the line item titled “Right-to-use contracts current period, gross.” The cumulative deferral of the upfront non-refundable payments are reported on the Balance Sheet in the line item titled “Deferred revenue — sale of right-to use contracts.” The deferral of current period sales, net of amortization of prior period sales, is reported on the Income Statement in the line item titled “Right-to-use contracts, deferred, net of prior period amortization.” The decision to recognize this revenue in accordance with SAB 104 was made after corresponding with the Office of the Chief Accountant at the SEC during September and October of 2008. The commissions paid on the sale of right-to-use contracts will be deferred and amortized over the same period as the related sales revenue. The current period commissions paid are reported on the Income Statement in the line item titled “Sales and marketing, gross.” The cumulative deferrals of commissions paid are reported on the Balance Sheet in the line item titled “Deferred commissions expense.” The deferral of current period commissions, net of amortization of prior period commissions is reported on the Income Statement in the line item titled “Sales and marketing, deferred commissions, net.”
 
Annual payments paid by customers under the terms of the right-to-use contracts are deferred and recognized ratably over the one-year period in which the services are provided.


F-14


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred.
 
(o)   Minority Interests
 
Net income is allocated to Common OP Unitholders based on their respective ownership percentage of the Operating Partnership. Such ownership percentage is calculated by dividing the number of Common OP Units held by the Common OP Unitholders (5,366,741 and 5,836,043 at December 31, 2008 and 2007, respectively) by the total OP Units held by the Common OP Unitholders and the Company. Issuance of additional shares of common stock or Common OP Units changes the percentage ownership of both the Minority Interests and the Company.
 
Due in part to the exchange rights (which provide for the conversion of common OP Units into shares of common stock on a one-for-one basis), such transactions and the proceeds there from are treated as capital transactions and result in an allocation between stockholders’ equity and Minority Interests to account for the change in the respective percentage ownership of the underlying equity of the Operating Partnership.
 
(p)   Income Taxes
 
Due to the structure of the Company as a REIT, the results of operations contain no provision for U.S. federal income taxes for the REIT. However, the Company may be subject to certain foreign, state and local income, excise or franchise taxes. The Company paid federal, foreign, state and local taxes of approximately $378,000 and $369,000 during the years ended December 31, 2008 and 2007, respectively, which includes taxes payable from activities managed through taxable REIT subsidiaries. As of December 31, 2008, net investment in real estate and notes receivable had a U.S. federal tax basis of approximately $1.5 billion and $32.3 million, respectively.
 
The Company adopted the provisions of FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) an interpretation of FASB Statement No. 109 “Accounting for Income Taxes,” on January 1, 2007. The adoption of FIN 48 resulted in no impact to the Company’s consolidated financial statements. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and Canada. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005.
 
(q)   Derivative Instruments and Hedging Activities
 
The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company currently does not have any derivative instruments.
 
(r)   Stock Compensation
 
The Company adopted the fair-value-based method of accounting for share-based payments pursuant to Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS No. 148”) and Statement of Financial Accounting Standards No. 123(R), “Share Based Payment” (“SFAS 123(R)”). The Company uses the Black-Scholes-Merton formula to estimate the value of stock options granted to employees (see Note 13 in the Notes to Consolidated Financial Statements contained in this Form 10-K).


F-15


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 2 —  Summary of Significant Accounting Policies (continued)
 
(s)   Recent Accounting Pronouncements
 
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). The Statement identifies the sources of accounting principles and framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with United States generally accepted accounting principles (“GAAP”). The purpose is to remove the focus of setting the GAAP hierarchy from the auditor and giving the entity the responsibility of setting the GAAP hierarchy. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not believe SFAS No. 162 will have an impact on the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS No. 160”), an amendment of Accounting Research Bulletin No. 51. SFAS No. 160 seeks to improve uniformity and transparency in reporting of the net income attributable to non-controlling interests in the consolidated financial statements of the reporting entity. The statement requires, among other provisions, the disclosure, clear labeling and presentation of non-controlling interests in the Consolidated Balance Sheet and Consolidated Income Statement. SFAS No. 160 is effective January 1, 2009 with early adoption prohibited. SFAS No. 160 will effect the presentation of minority interest within the consolidated financial statements.
 
In December 2007, the FASB issued Statement of Financial Accounting Standard No. 141R, “Business Combinations,” (“SFAS No. 141R”). SFAS No. 141R replaces FASB Statement No. 141 but retains the fundamental requirements set forth in SFAS No. 141 that the acquisition method of accounting (also known as the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R replaces, with limited exceptions as specified in the statement, the cost allocation process in SFAS No. 141 with a fair value based allocation process. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is not permitted. The Company believes that the impact SFAS No. 141R will have on our consolidated financial statements will depend on the size and nature of any business combination that is entered into after the implementation date.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 is optional and the Company has elected not to adopt SFAS No. 159 for any of its financial assets and financial liabilities.
 
(t)   Reclassifications
 
Certain 2006 and 2007 amounts have been reclassified to conform to the 2008 presentation. This reclassification had no material effect on the consolidated balance sheets or statement of operations of the Company.
 
Note 3 —  Earnings Per Common Share
 
Earnings per common share are based on the weighted average number of common shares outstanding during each year. Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS No. 128”)


F-16


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 3 —  Earnings Per Common Share (continued)
 
defines the calculation of basic and fully diluted earnings per share. Basic and fully diluted earnings per share are based on the weighted average shares outstanding during each year and basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. The conversion of OP Units has been excluded from the basic earnings per share calculation. The conversion of an OP Unit to a share of common stock has no material effect on earnings per common share.
 
The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31, 2008, 2007 and 2006 (amounts in thousands):
 
                         
    Years Ended December 31,  
    2008     2007     2006  
 
Numerators:
                       
Income from Continuing Operations:
                       
Income from continuing operations — basic
  $ 18,157     $ 22,160     $ 16,439  
Amounts allocated to dilutive securities
    4,265       5,322       4,267  
                         
Income from continuing operations — fully diluted
  $ 22,422     $ 27,482     $ 20,706  
                         
Income from Discontinued Operations:
                       
Income from discontinued operations — basic
  $ 146     $ 9,942     $ 193  
Amounts allocated to dilutive securities
    32       2,383       51  
                         
Income from discontinued operations — fully diluted
  $ 178     $ 12,325     $ 244  
                         
Net Income Available for Common Shares:
                       
Net income available for Common Shares — basic
  $ 18,303     $ 32,102     $ 16,632  
Amounts allocated to dilutive securities
    4,297       7,705       4,318  
                         
Net income available for Common Shares — fully diluted
  $ 22,600     $ 39,807     $ 20,950  
                         
Denominator:
                       
Weighted average Common Shares outstanding — basic
    24,466       24,089       23,444  
Effect of dilutive securities:
                       
Redemption of Common OP Units for Common Shares Shares
    5,674       5,870       6,165  
Employee stock options and restricted shares
    358       455       632  
                         
Weighted average Common Shares outstanding — fully diluted
    30,498       30,414       30,241  
                         
 
Note 4 —  Common Stock and Other Equity Related Transactions
 
On May 18, 2007 the stockholders approved the increase of authorized common stock from 50,000,000 to 100,000,000.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 4 —  Common Stock and Other Equity Related Transactions (continued)
 
The following table presents the changes in the Company’s outstanding common stock for the years ended December 31, 2008, 2007 and 2006 (excluding OP Units of 5,366,741, 5,836,043 and 6,090,068 outstanding at December 31, 2008, 2007, and 2006, respectively):
 
                         
    2008     2007     2006  
 
Shares outstanding at January 1,
    24,348,517       23,928,652       23,479,753  
Common stock issued through conversion of OP Units
    469,302       254,025       117,403  
Common stock issued through exercise of options
    169,367       143,841       155,031  
Common stock issued through stock grants
    50,000       18,000       170,500  
Common stock issued through ESPP and DRIP
    32,184       22,820       23,605  
Common stock repurchased and retired
    (18,048 )     (18,821 )     (17,640 )
                         
Shares outstanding at December 31,
    25,051,322       24,348,517       23,928,652  
                         
 
As of December 31, 2008 and 2007, the Company’s percentage ownership of the Operating Partnership was approximately 82.4% and 80.6%, respectively. The remaining approximately 17.6% and 19.4%, respectively, was owned by the Common OP Unitholders.
 
The following regular quarterly distributions have been declared and paid to common stockholders and Minority Interests since January 1, 2006:
 
             
    For the Quarter
  Stockholder
   
Distribution Amount Per Share
  Ending   Record Date   Payment Date
 
$0.0750
  March 31, 2006   March 31, 2006   April 14, 2006
$0.0750
  June 30, 2006   June 30, 2006   July 14, 2006
$0.0750
  September 30, 2006   September 29, 2006   October 13, 2006
$0.0750
  December 31, 2006   December 29, 2006   January 12, 2007
 
 
$0.1500
  March 31, 2007   March 30, 2007   April 13, 2007
$0.1500
  June 30, 2007   June 29, 2007   July 13, 2007
$0.1500
  September 30, 2007   September 28, 2007   October 12, 2007
$0.1500
  December 31, 2007   December 28, 2007   January 11, 2008
 
 
$0.2000
  March 31, 2008   March 28, 2008   April 11, 2008
$0.2000
  June 30, 2008   June 27, 2008   July 11, 2008
$0.2000
  September 30, 2008   September 26, 2008   October 10, 2008
$0.2000
  December 31, 2008   December 26, 2008   January 9, 2009
 
The Company adopted the 1997 Non-Qualified Employee Stock Purchase Plan (“ESPP”) in July 1997. Pursuant to the ESPP as amended on May 3, 2006, certain employees and directors of the Company may each annually acquire up to $250,000 of common stock of the Company. The aggregate number of shares of common stock available under the ESPP shall not exceed 1,000,000, subject to adjustment by the Company’s Board of Directors. The common stock may be purchased monthly at a price equal to 85% of the lesser of: (a) the closing price for a share of common stock on the last day of the offering period; and (b) the closing price for a share of common stock on the first day of the offering period. Shares of common stock issued through the ESPP for the years ended December 31, 2008 and 2007 were 31,770 and 21,677, respectively.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 5 —  Investment in Real Estate
 
Investment in Real Estate is comprised of (amounts in thousands):
 
Properties Held for Long Term
 
                 
    December 31,
    December 31,
 
    2008     2007  
 
Investment in real estate:
               
Land
  $ 539,702     $ 538,723  
Land improvements
    1,715,627       1,690,784  
Buildings and other depreciable property
    222,699       153,671  
                 
      2,478,028       2,383,178  
Accumulated depreciation
    (557,130 )     (490,108 )
                 
Net investment in real estate
  $ 1,920,898     $ 1,893,070  
                 
 
Properties Held for Sale
 
                 
    December 31,
    December 31,
 
    2008     2007  
 
Investment in real estate:
               
Land
  $ 2,277     $ 2,277  
Land improvements
    10,125       10,104  
Buildings and other depreciable property
    591       556  
                 
      12,993       12,937  
Accumulated depreciation
    (4,103 )     (4,103 )
                 
Net investment in real estate
  $ 8,890     $ 8,834  
                 
 
Land improvements consist primarily of improvements such as grading, landscaping and infrastructure items such as streets, sidewalks or water mains. Buildings and other depreciable property consist of permanent buildings in the Properties such as clubhouses, laundry facilities, maintenance storage facilities, rental units and furniture, fixtures and equipment. See Note 7 in the Notes to the Consolidated Financial Statements contained in this Form 10-K for disclosure regarding the reclassification of manufactured home inventory to Buildings and other depreciable property during the year ended December 31, 2008.
 
All acquisitions have been accounted for utilizing the purchase method of accounting and, accordingly, the results of operations of acquired assets are included in the statements of operations from the dates of acquisition. Certain purchase price adjustments may be made within one year following the acquisitions. We acquired all of these Properties from unaffiliated third parties. During the years ended December 31, 2008, 2007 and 2006, the Company acquired the following Properties (dollars in millions):
 
1) During the year ended December 31, 2008, we acquired the following Properties:
 
                                         
                  Real
          Net
 
Closing Date
 
Property
 
Location
  Total Sites     Estate     Debt     Equity  
 
January 14, 2008
  Grandy Creek   Concrete, WA     179     $ 1.8           $ 1.8  
January 23, 2008
  Lake George Schroon   Warrensburg, NY     151       2.1             2.1  
    Valley                                    


F-19


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 5 —  Investment in Real Estate (continued)
 
2) During the year ended December 31, 2007, we acquired the following Properties:
 
                                         
                  Real
          Net
 
Closing Date
 
Property
 
Location
  Total Sites     Estate     Debt     Equity  
 
January 29, 2007
  Mesa Verde(a)   Yuma, AZ     345     $ 5.9     $ 3.5     $ 2.4  
June 27, 2007
  Winter Garden(a)   Winter Garden, FL     350       10.9       4.0       6.9  
August 3, 2007
  Pine Island   St. James City, FL     363       6.5             6.5  
September 26, 2007
  Santa Cruz RV Ranch   Scotts Valley, CA     106       5.5             5.5  
October 11, 2007
  Tuxbury Resort   Amesbury, MA     305       7.3       1.1 (b)     6.1  
 
 
(a) Purchased remaining 75% interest in the two Diversified Investments joint venture Properties above, in which we had an existing 25% joint venture ownership interest of $0.7 million. The gross purchase price for Mesa Verde includes $0.3 million in prepaid rent.
 
(b) Net of approximately $0.1 million of market-to-market adjustment.
 
Investment in real estate also increased due to the consolidation of the Bar Harbor joint venture as of December 31, 2007. (See Note 6 in the Notes to Consolidated Financial Statements contained in this Form 10-K)
 
3) During the year ended December 31, 2006, we acquired the following Properties:
 
                                         
                  Real
          Net
 
Closing Date
 
Property
 
Location
  Total Sites     Estate(a)     Debt     Equity  
 
March 22, 2006
  Mezzanine Portfolio (a)   Various (11     5,057     $ 105.0     $ 73.0     $ 0.0  
        Properties)                                
April 14, 2006
  Thousand Trails Portfolio (b)   Various (2 Properties)     624       10.0             10.0  
April 25, 2006
  Mid-Atlantic Portfolio (c)   Various (7 Properties)     1,594       14.3             5.0  
June 13, 2006
  Tranquil Timbers (d)   Door County, WI     270       2.8             2.8  
December, 2006
  Diversified Portfolio (e)   Various (4 Properties)     1,660       20.5       12.8       7.7  
December 15, 2006
  Outdoor World Portfolio (f)   Various (15 Properties)     3,962       10.1             10.1  
 
 
(a) Purchased remaining interest in the Mezzanine Portfolio in which we had initially invested approximately $30.0 million to acquire preferred equity interests during the first quarter of 2004. The purchase price of $105.0 million included our existing investment of $32.2 million and our general partner investment of $1.4 million. Net working capital acquired included $3.2 million of rents received in advance and $0.4 million in other net payables. In connection with this acquisition we purchased $1.9 million of inventory. The acquisition was funded by new debt financing of $47.1 million and assumed debt of approximately $25.9 million.
 
(b) The purchase price includes certain personal property acquired from Privileged Access located throughout the Thousand Trails Portfolio. The Company leased back these Properties to Privileged Access between April 14, 2006 and August 13, 2008.
 
(c) The portfolio was acquired in exchange for $5.0 million in cash, and two Properties previously held for sale, located in Indiana. The Company provided short-term seller financing of $3.4 million at the time of closing which was repaid in full on August 21, 2006. Net working capital acquired included $0.6 million of rents received in advance. The Company leased all 1,594 sites in the portfolio to Privileged Access between April 25, 2006 and August 13, 2008.
 
(d) Net working capital acquired included approximately $0.2 million of rents received in advance.
 
(e) Purchased remaining 75% interest in four Diversified joint venture Properties in which we had an existing 25% joint venture ownership interest of $0.6 million. Net working capital acquired included $1.2 million of


F-20


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 5 — Investment in Real Estate (continued)
 
rents received in advance and $0.6 million of escrow deposits. A portion of the purchase price was funded by assumed debt of approximately $12.8 million.
 
(f) The Company leased all 3,962 sites in the portfolio to Privileged Access between December 15, 2006 and August 13, 2008..
 
We actively seek to acquire additional Properties and currently are engaged in negotiations relating to the possible acquisition of a number of Properties. At any time these negotiations are at varying stages which may include contracts to acquire certain Properties which are subject to satisfactory completion of our due diligence review.
 
As of December 31, 2008 and 2007, the Company has two Properties designated as held for disposition pursuant to SFAS No. 144. The Company determined that these Properties no longer met its investment criteria. As such, the results from operations of these two Properties are classified as income from discontinued operations. The Properties classified as held for disposition are listed in the table below.
 
             
Property
  Location   Sites  
 
Casa Village
  Billings, MT     490  
Creekside
  Wyoming, MI     165  
 
The remaining two Properties held for disposition were in various stages of negotiations and the Company expects to sell these Properties for proceeds greater than their net book value.
 
During the three years ended December 31, 2008, the Company sold the following Properties. The operating results have been reflected in discontinued operations.
 
  1)  On November 30, 2007, we sold Holiday Village, a 519-site all-age manufactured home Property in Sioux City, Iowa for approximately $2.6 million. A gain of sale of approximately $0.6 million was recognized in the fourth quarter of 2007.
 
  2)  On July 6, 2007, the Company sold Del Rey, a 407-site manufactured home Property in Albuquerque, New Mexico, for proceeds of approximately $13.0 million and recognized a gain on sale of approximately $6.9 million. The proceeds were deposited in a tax-deferred exchange account and the proceeds were subsequently used for the acquisition of Pine Island and Tuxbury Resort discussed above.
 
  3)  On January 10, 2007, the Company sold, Lazy Lakes, a 100-site resort Property in the Florida Keys for proceeds of approximately $7.7 million and recognized a gain on sale of approximately $4.6 million. The proceeds were deposited in a tax-deferred exchange account and were subsequently used for the acquisitions of Winter Garden and Mesa Verde discussed above.
 
  4)  During the year ended December 31, 2006, we exchanged two Properties located in Indiana as part of the Mid-Atlantic Portfolio acquisition. A loss on sale of approximately $0.2 million was recorded during the second quarter of 2006.


F-21


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 5 — Investment in Real Estate (continued)
 
 
The following table summarizes the combined results of operations of Properties held for sale or sold during the years ended December 31, 2008, 2007 and 2006 (amounts in thousands):
 
                         
    2008     2007     2006  
 
Rental income
  $ 2,121     $ 3,020     $ 3,920  
Utility and other income
    155       243       341  
                         
Property operating revenues
    2,276       3,263       4,261  
Property operating expenses
    (1,101 )     (1,972 )     (2,696 )
                         
Income from property operations
    1,175       1,291       1,565  
Income (loss) from home sales operations and other
    8       (65 )     15  
Interest and amortization
    (926 )     (937 )     (1,060 )
Depreciation
                (84 )
                         
Total other expenses
    (926 )     (937 )     (1,144 )
                         
(Loss) gain on sale
    (79 )     12,036       (192 )
Minority interest
    (32 )     (2,383 )     (51 )
                         
Net income
  $ 146     $ 9,942     $ 193  
                         
 
Note 6 —  Investment in Joint Ventures
 
During the year ended December 31, 2008, the Company invested approximately $5.7 million to acquire an additional 25% interest in Voyager RV Resort, increasing the Company’s ownership interest to 50%. The additional investment was determined on a total purchase price of $50.5 million and mortgage debt of $22.5 million. The Company exercised its option to acquire the remaining percentage of Bar Harbor joint venture from its joint venture partner. Under the formula provided for in the call option section of the joint venture agreement, no additional consideration was required to be paid to exercise the option and the Company now owns 100 percent of the three Bar Harbor Properties. The Company sold its 25% interest in the four Morgan Portfolio joint ventures known as New Point in New Point, Virginia, Virginia Park in Old Orchard Beach, Maine, Club Naples in Naples, Florida and Gwynn’s Island in Gwynn, Virginia, for a sales price of approximately $2.1 million. The sales price for the four Morgan Portfolio joint ventures was based on a total sales price of approximately $25.7 million net of mortgage debt of approximately $17.2 million. A gain on the sale of approximately $1.6 million was recognized. The Company also received approximately $0.4 million held for the initial investment in one of the Morgan Properties.
 
During the year ended December 31, 2008, the Company received approximately $4.2 million in distributions from our joint ventures. $3.7 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $0.5 million were classified as a return of capital and were included in investing activities and were related to the sale of the Companies 25% interest in four of our joint venture Properties. Approximately $2.7 million of the distributions received exceeded the Company’s basis in its joint venture and as such were recorded in income from unconsolidated joint ventures. Of these distributions, $0.6 million relates to the gain on the payoff of our share of seller financing in excess of our joint venture basis on one Lakeshore investment.
 
On February 13, 2009, the Company purchased the remaining 75% interest in the Diversified Portfolio joint venture Properties in which we had an existing 25% joint venture interest. The Properties are known as Robin Hill in Lenhartsville, Pennsylvania, Sun Valley in Bowmansville, Pennsylvania and Plymouth Rock in Elkhart Lake, Wisconsin. Also on February 13, 2009, the Company sold its 25% interest in the Diversified


F-22


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 6 —  Investment in Joint Ventures (contined)
 
Portfolio joint ventures known as Round Top, in Gettysburg, Pennsylvania and Pine Haven in Ocean View, New Jersey.
 
During the year ended December 31, 2007, the Company invested approximately $2.7 million in developing one of the Bar Harbor joint venture Properties, which resulted in an increase of the Company’s ownership interest per the joint venture agreement. As of December 31, 2007, the Bar Harbor joint venture had been consolidated with the operations of the Company as the Company had determined that as of December 31, 2007 we are the primary beneficiary by applying the standards of FIN 46R. This consolidation had decreased the Company’s investment in joint venture approximately $11.1 million, with an offsetting increase in investment in real estate.
 
During the year ended December 31, 2007, the Company received approximately $5.2 million in distributions from our joint ventures. $5.1 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $0.1 million were classified as a return of capital and were included in investing activities and were related to refinancings at three of our joint venture Properties. Approximately $2.5 million of the distributions received exceeded the Company’s basis in its joint venture and as such were recorded in income from unconsolidated joint ventures.
 
During the year ended December 31, 2006, the Company invested approximately $1.1 million in five joint ventures owning five Properties located in Florida, Massachusetts, Maine and two in Virginia. The Company also invested approximately $1.6 million in developing one of the Bar Harbor joint venture Properties, which resulted in an increase of the Company’s ownership interest per the joint venture agreement.
 
During the year ended December 31, 2006, the Company received approximately $5.1 million in distributions from our joint ventures. $3.5 million of these distributions were classified as return on capital and were included in operating activities. The remaining distributions of approximately $1.6 million were classified as a return of capital and were included in investing activities. The return of capital distributions related to our sale of the Property owned by Indian Wells joint venture and the sale of our interest in the Blazing Star joint venture.
 
The following table summarizes the Company’s investment in unconsolidated joint ventures (with the number of Properties shown parenthetically for the years ended December 31, 2008 and 2007, respectively):
 
                                                     
        Number
    Economic
    Investment as of     JV Income for Year Ended  
Investment
 
Location
 
of Sites
    Interest(a)     December. 31, 2008     December. 31, 2007     December. 31, 2008     December. 31, 2007  
 
Meadows Investments
  Various (2,2)     1,027       50 %   $ 406     $ 138     $ 838     $ 698  
Lakeshore Investments
  Florida (2,2)     342       90 %     110       61       890       276  
Voyager
  Arizona (1,1)     1,706       50 %(b)     8,953       3,368       470       313  
Maine Portfolio
  Maine (0,0)(c)                                   (505 )
Other Investments
  Various (5,10)(d)     2,088       25 %     207       1,002       1,555       1,914  
                                                     
          5,163             $ 9,676     $ 4,569     $ 3,753     $ 2,696  
                                                     
 
 
(a) The percentages shown approximate the Company’s economic interest as of December 31, 2008. The Company’s legal ownership interest may differ.
 
(b) Voyager joint venture primarily consists of a 50% interest in Voyager RV Resort. A 25% interest in the utility plant servicing the Property is included in Other Investments.
 
(c) As of December 31, 2007, the Bar Harbor joint venture was consolidated with the operations of the Company.


F-23


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 6 —  Investment in Joint Ventures (contined)
 
 
(d) During the year ended December 31, 2008, the Company received funds held for the initial investment in one of the Morgan Properties and sold its 25% interest in all four remaining Morgan Properties.
 
Note 7 —  Inventory
 
The following table sets forth Inventory as of the years ended December 31, 2008 and 2007 (amounts in thousands):
 
                 
    December 31, 2008     December 31, 2007  
 
New homes(1)
  $ 7,944     $ 51,083  
Used homes(2)
    312       10,912  
Other(3)
    5,143       2,361  
                 
Total inventory(4)
    13,399       64,356  
Inventory reserve
    (465 )     (830 )
                 
Inventory, net of reserves
  $ 12,934     $ 63,526  
                 
 
 
(1) Includes 253 and 860 new units for the years ended December 31, 2008 and 2007, respectively.
 
(2) Includes 27 and 978 used units for the years ended December 31, 2008 and 2007, respectively.
 
(3) Other inventory primarily consists of merchandise inventory. The increase in the balance since December 31, 2007 is primarily due to approximately $2.1 million of merchandise and other inventory acquired in connection with the PA Transaction.
 
(4) Includes $0.3 million of Properties currently held for sale as of December 31, 2008 and 2007.
 
During the year ended December 31, 2008, $57.8 million of manufactured home inventory, including reserves of approximately $0.8 million, was reclassified to Buildings and other depreciable property. The inventory reclassified is primarily rented to customers on an annual basis.
 
 
Note 8 —  Notes Receivable
 
As of December 31, 2008 and December 31, 2007, the Company had approximately $31.8 million and $11.0 million in notes receivable, respectively. As of December 31, 2008 and 2007, the Company has approximately $12.0 million and $10.6 million, respectively, in Chattel Loans receivable, which yield interest at a per annum average rate of approximately 8.8%, have an average term and amortization of 5 to 15 years, require monthly principal and interest payments and are collateralized by homes at certain of the Properties. These notes are recorded net of allowances of $158,000 and $160,000 as of December 31, 2008 and December 31, 2007, respectively. During the year ended December 31, 2008, approximately $1.5 million was repaid and an additional $4.3 million was loaned to customers.
 
In connection with the PA Transaction, we acquired approximately $19.6 million of Contracts Receivable. As of December 31, 2008, the Company had approximately $19.5 million of Contracts Receivables, including allowances of approximately $0.3 million plus discount amortization of approximately $0.3 million. These Contracts Receivables represent loans to customers who have purchased right-to-use contracts. The Contracts Receivable yield interest at a per annum average rate of 16.2%, have a weighted average term remaining of approximately four years and require monthly payments of principal and interest. During the period ended December 31, 2008, approximately $4.0 million was repaid and an additional $4.0 million was loaned to customers.


F-24


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 8 —  Notes Receivable (continued)
 
As of December 31, 2008 and 2007, the Company had approximately $0.4 million in notes which bear interest at a per annum rate of prime plus 0.5% and mature on December 31, 2011. The notes are collateralized with a combination of common OP Units and partnership interests in certain joint ventures.
 
 
Note 9 — Long-Term Borrowings
 
Secured Debt
 
As of December 31, 2008 and December 31, 2007, the Company had outstanding mortgage indebtedness on Properties held for long term of approximately $1,555 million and $1,542 million, respectively, and approximately $14 million of mortgage indebtedness as of December 31, 2008 and December 31, 2007 on Properties held for sale. The weighted average interest rate on this mortgage indebtedness for the years ended December 31, 2008 and December 31, 2007 was approximately 5.9% per annum and 6.1% per annum, respectively. The debt bears interest at rates of 5.0% to 10.0% per annum and matures on various dates ranging from 2009 to 2019. Included in our debt balance are three capital leases with balances of approximately $6.7 million and $6.6 million at December 31, 2008 and 2007, respectively, and imputed interest rates of 13.1% per annum. The debt encumbered a total of 151 and 164 of the Company’s Properties as of December 31, 2008 and December 31, 2007, and the carrying value of such Properties was approximately $1,694 million and $1,784 million, respectively, as of such dates.
 
Financing, Refinancing and Early Debt Retirement
 
During the year ended December 31, 2008, the Company closed on approximately $231.0 million of new financing, on 15 manufactured home properties, with a weighted average interest rate of 6.01%. We used the proceeds from the financing to pay-off approximately $245.8 million of mortgage debt on 28 manufactured home properties, with a weighted average interest rate of 5.54%. The proceeds were also used to pay down amounts outstanding on our lines of credit.
 
During the year ended December 31, 2007, the Company assumed $7.5 million in mortgage debt in connection with the acquisitions of Mesa Verde and Winter Garden. Such debt was repaid in 2008. In connection with the acquisition of Tuxbury, the Company financed $1.2 million of the purchase price from the seller. The Company repaid approximately $1.9 million in mortgage debt in connection with the 2007 sale of Lazy Lakes. Refer to “Note 5 — Investment in Real Estate” for further discussion of acquisition and disposition activity.
 
Also during the year ended December 31, 2007, the Company repaid approximately $9.4 million of outstanding mortgage debt collateralized by two properties and paid down $7.7 million of the mortgage debt on Tropical Palms RV Resort. The Tropical Palms RV Resort mortgage debt balance remaining on December 31, 2007 was approximately $12.0 million and was repaid in July 2008.
 
In February 2009, the Company refinanced two mortgages with a stated interest rate of 6.38% per annum for total proceeds of approximately $58.0 million.
 
Unsecured Loans
 
We have two unsecured Lines of Credit (“LOC”) of $350 million and $20 million that bear interest at a rate of LIBOR plus a maximum of 1.20% per annum, have a 0.15% facility fee, mature on June 30, 2010, and have a one-year extension option. The weighted average interest rate for the year ended December 31, 2008 for our unsecured debt was approximately 3.6% per annum. During the year ended December 31, 2008, we borrowed $201.2 million and paid down $211.2 million on the lines of credit for a net pay-down of $10.0 million funded by our operations. As of December 31, 2008, the $370 million bank commitment had $277 million available for future borrowings.


F-25


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 9 — Long-Term Borrowings (continued)
 
In September 2007, we completed an amendment of our existing unsecured Lines of Credit (“LOC”) to expand our borrowing capacity from $275 million to $350 million. Prior to the amendment, the Company had a $225 million LOC and a $50 million LOC. The amendment increased the $225 million LOC to $350 million and decreased the $50 million LOC to $20 million. The lines of credit continue to accrue interest at LIBOR plus a maximum of 1.20% per annum, have a 0.15% facility fee, mature on June 30, 2010, and have a one-year extension option. The Company incurred commitment and arrangement fees of approximately $0.3 million to increase its borrowing capacity.
 
As of December 31, 2007, the $370 million bank commitment had $267 million available for future borrowings. The weighted average interest rate for the year ended December 31, 2007 was 6.84%.
 
Other Loans
 
During 2007, we borrowed $4.3 million to finance our insurance premium payments. As of December 31, 2007 this loan had been paid off.
 
Aggregate payments of principal on long-term borrowings for each of the next five years and thereafter are as follows (amounts in thousands):
 
         
Year
  Amount  
 
2009
  $ 97,167  
2010
    323,814  
2011
    74,642  
2012
    20,618  
2013
    130,170  
Thereafter
    1,014,487  
Net unamortized premiums
    1,505  
         
Total
  $ 1,662,403  
         
 
Note 10 — Lease Agreements
 
The leases entered into between the customer and the Company for the rental of a site are generally month-to-month or for a period of one to ten years, renewable upon the consent of the parties or, in some instances, as provided by statute. Non-cancelable long-term leases are in effect at certain sites within approximately 39 of the Properties. Rental rate increases at these Properties are primarily a function of increases in the Consumer Price Index, taking into consideration certain conditions. Additionally, periodic market rate adjustments are made as deemed appropriate. Future minimum rents are scheduled to be received under non-cancelable tenant leases at December 31, 2008 as follows (amounts in thousands):
 
         
Year
  Amount  
 
2009
  $ 72,153  
2010
    73,834  
2011
    54,981  
2012
    36,482  
2013
    28,943  
Thereafter
    46,733  
         
Total
  $ 313,126  
         


F-26


Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 11 — Ground Leases
 
The Company leases land under non-cancelable operating leases at certain of the Properties expiring in various years from 2013 to 2054, with terms which require twelve equal payments per year plus additional rents calculated as a percentage of gross revenues. For the year ended December 31, 2008, ground lease rent was approximately $1.8 million and for the years ended December 31, 2007 and 2006, ground lease rent was approximately $1.6 million. Minimum future rental payments under the ground leases as of December 31, 2008 as follows (amounts in thousands):
 
         
Year
  Amount  
 
2009
  $ 1,887  
2010
    1,891  
2011
    1,895  
2012
    1,899  
2013
    1,888  
Thereafter
    20,532  
         
Total
  $ 29,992  
         
 
Note 12 — Transactions with Related Parties
 
Privileged Access
 
On August 14, 2008, the Company closed on the PA Transaction by acquiring substantially all of the assets and assumed certain liabilities of Privileged Access for an unsecured note payable of $2.0 million. Prior to the purchase, Privileged Access had a 12-year lease with the Company for 82 Properties that terminated upon closing. At closing, approximately $4.8 million of Privileged Access cash was deposited into an escrow account for liabilities that Privileged Access has retained. The balance in the escrow account as of December 31, 2008 was approximately $3.2 million. In approximately two years, the excess cash in the escrow account, if any, will be paid to the Company.
 
The preliminary purchase price allocation has been recorded as of August 14, 2008. The preliminary allocation does not include a receivable for the contingent cash as the amount and timing of collection is uncertain. Further adjustments to the purchase price allocation may be necessary within the one-year allocation period allowed by FAS 141.
 
Mr. McAdams, the Company’s President effective January 1, 2008, owns 100 percent of Privileged Access. The Company has entered into an employment agreement effective as of January 1, 2008 (the “Employment Agreement”) with Mr. McAdams which provides for an initial term of three years, but such Employment Agreement can be terminated at any time. The Employment Agreement provides for a minimum annual base salary of $300,000, with the option to receive an annual bonus in an amount up to three times his base salary. Mr. McAdams is also subject to a non-compete clause and to mitigate potential conflicts of interest shall have no authority, on behalf of the Company and its affiliates, to enter into any agreement with any entity controlling, controlled by or affiliated with Privileged Access. Prior to forming Privileged Access, Mr. McAdams was a member of our Board of Directors from January 2004 to October 2005. Simultaneous with his appointment as president of Equity Lifestyle Properties, Inc., Mr. McAdams resigned as Privileged Access’s Chairman, President and CEO. However, he was on the board of PATT Holding Company, LLC (“PATT”), until the entity was dissolved in 2008.
 
Mr. Heneghan, the Company’s CEO, was a member of the board of PATT, pursuant to the Company’s rights under its resort Property leases with Privileged Access to represent the Company’s interests from April 14, 2006 to August 13, 2008. Mr. Heneghan did not receive compensation in his capacity as a member of such board.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 12 — Transactions with Related Parties (continued)
 
In connection with the PA Transaction, the Company hired most of the property employees and certain property management and corporate employees of Privileged Access. Subsequent to the PA Transaction, the Company has reimbursed Privileged Access for services provided by Privileged Access employees retained by Privileged Access, which were necessary for the transition of the former Privileged Access operations to the Company.
 
Privileged Access had the following substantial business relationships with the Company, which were all terminated with the closing of the PA Transaction on August 14, 2008.
 
  •  Prior to August 14, 2008, the Company was leasing approximately 24,300 sites at 82 resort Properties (which includes 60 Properties operated by a subsidiary of Privileged Access known as the “TT Portfolio”) to Privileged Access or its subsidiaries. For the years ended December 31, 2008, 2007, and 2006 we recognized approximately $15.8 million, $20.5 million, and $17.8 million, respectively, in rent from these leasing arrangements. The lease income is included in Income from other investments, net in the Company’s Consolidated Statement of Operations. As of December 31, 2008 and 2007, no payments and $0.1 million in lease payments, respectively, remain to be received under these leases. During the year ended December 31, 2008, the Company reimbursed Privileged Access approximately $2.7 million for capital improvements. In 2007, the Company made no reimbursements to Privileged Access.
 
Effective January 1, 2008, the leases for these Properties provide for the following significant terms: a) annual fixed rent of approximately $25.5 million b) annual rent increases at the higher of Consumer Price Index (“CPI”) or a renegotiated amount based upon the fair market value of the Properties, c) expiration date of January 15, 2020, and d) two 5-year extension terms at the option of Privileged Access. The January 1, 2008 lease for the TT Portfolio also included provisions where the Company paid Privileged Access $1 million for entering into the amended lease. The $1 million payment was being amortized on a pro-rata basis over the remaining term of the lease as an offset to the annual lease payments and the remaining balance at August 14, 2008 of $0.9 million was expensed and is included in Income from other investments, net during the year ended December 31, 2008.
 
The Company had subordinated its lease payment for the TT Portfolio to a bank that loaned Privileged Access $5 million. The Company acquired this loan as part of the PA Transaction and paid off the loan during the year ended December 31, 2008.
 
  •  From June 12, 2006 through July 14, 2008, Privileged Access had leased 130 cottage sites at Tropical Palms, a resort Property located near Orlando, Florida. For the years ended December 31, 2008 and 2007, we earned approximately $0.8 million and $1.5 million, respectively, in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of December 31, 2008 and 2007, no payments and $0.4 million in lease payments were outstanding, respectively, under this lease. The Tropical Palms lease expired on July 15, 2008, and the entire property was leased to a new independent operator for 12 years.
 
  •  On April 14, 2006, the Company loaned Privileged Access approximately $12.3 million at a per annum interest rate of prime plus 1.5%, maturing in one year and secured by Thousand Trails membership sales contract receivables. During the year ended December 31, 2008 and 2007, we received no payments and principal repayments of $12.3 million, respectively, and no amounts remain outstanding on this receivable. Interest income recorded by the Company for the years ended December 31, 2008 and 2007 was zero and approximately $0.5 million, respectively. There was no Interest receivable due as of the year ended December 31, 2008 and 2007.
 
  •  The Company previously leased 40 to 160 sites at three resort Properties in Florida, to a subsidiary of Privileged Access from October 1, 2007 until August 14, 2008. The sites varied during each month of the


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 12 — Transactions with Related Parties (continued)
 
  lease term due to the seasonality of the resort business in Florida. For the year ended December 31, 2008, we recognized less than $0.2 million in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of December 31, 2008, and December 31, 2007, no amounts were outstanding under this lease.
 
  •  The Company previously leased 40 to 160 sites at Lake Magic, a resort Property in Clermont, Florida, to a subsidiary of Privileged Access from December 15, 2006 until September 30, 2007. The sites varied during each month of the lease term due to the seasonality of the resort business in Florida. For the year ended December 31, 2008, we recognized approximately $0.2 million in rent from this leasing arrangement. The lease income is included in the Resort base rental income in the Company’s Consolidated Statement of Operations. As of December 31, 2008 and 2007, no amounts are outstanding under this lease.
 
  •  The Company had an option to purchase the subsidiaries of Privileged Access, including TT, beginning on April 14, 2009, at the then fair market value, subject to the satisfaction of a number of significant contingencies (“ELS Option”). The ELS Option terminated with the closing of the PA Transaction on August 14, 2008. The Company had consented to a fixed price option where the Chairman of PATT could acquire the subsidiaries of Privileged Access anytime before December 31, 2011. The fixed price option also terminated on August 14, 2008.
 
  •  Privileged Access and the Company previously agreed to certain arrangements in which we utilized each other’s services. Privileged Access assisted the Company with functions such as: call center management, property management, information technology, legal, sales and marketing. During the year ended December 31, 2008, the Company incurred expenses of approximately $0.6 million for the use of Privileged Access employees and no payments were payable to Privileged Access as of December 31, 2008 and December 31, 2007. The Company received approximately $0.1 million from Privileged Access for Privileged Access use of certain Company information technology resources during the year ended December 31, 2008. The Company and Privileged Access had engaged a third party to evaluate the fair market value of such employee services.
 
In addition to the arrangements described above, the Company had the following smaller arrangements with Privileged Access. In each arrangement, the amount of income or expense, as applicable, recognized by the Company for the year ended December 31, 2008 is less than $0.2 million and there are no amounts due under these arrangements as of December 31, 2008 or December 31, 2007.
 
  •  Since November 1, 2006, the Company leased 41 to 44 sites at 22 resort Properties to Privileged Access (the “Park Pass Lease”). The Park Pass Lease terminated with the closing of the PA Transaction on August 14, 2008.
 
  •  The Company and Privileged Access entered into a Site Exchange Agreement beginning September 1, 2007 and ending May 31, 2008. Under the Site Exchange Agreement, the Company allowed Privileged Access to use 20 sites at an Arizona resort Property known as Countryside. In return, Privileged Access allowed the Company to use 20 sites at an Arizona resort Property known as Verde Valley Resort (a property in the TT Portfolio).
 
  •  The Company and Privileged Access entered into a Site Exchange Agreement for a one-year period beginning June 1, 2008 and ending May 31, 2009. Under the Site Exchange Agreement, the Company allowed Privileged Access to use 90 sites at six resort Properties. In return, Privileged Access allowed the Company to use 90 sites at six resort Properties leased to Privileged Access. The Site Exchange Agreement was terminated with the closing of the PA Transaction on August 14, 2008.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 12 — Transactions with Related Parties (continued)
 
 
  •  On September 15, 2006, the Company and Privileged Access entered into a Park Model Sales Agreement related to a Texas resort Property in the TT Portfolio known as Lake Conroe. Under the Park Model Sales Agreement, Privileged Access was allowed to sell up to 26 park models at Lake Conroe. Privileged Access was obligated to pay the Company 90% of the site rent collected from the park model buyer. All 26 homes have been sold as of December 31, 2007. The Park Model Sales Agreement terminated with the closing of the PA Transaction on August 14, 2008.
 
  •  The Company advertises in Trailblazer magazine that was published by a subsidiary of Privileged Access prior to August 14, 2008. Trailblazer is an award-winning recreational lifestyle magazine for active campers, which is read by more than 65,000 paid subscribers. Beginning on August 14, 2008, the Company began publishing Trailblazer in accordance with the terms of the PA Transaction .
 
  •  On July 1, 2008, the Company and Privileged Access entered into an agreement, where Privileged Access sold the Company’s used resort cottages at certain Properties leased to Privileged Access. The Company paid Privileged Access a commission for selling the inventory and the agreement was terminated on August 14, 2008.
 
  •  On April 1, 2008, the Company entered into a lease for a corporate apartment located in Chicago, Illinois for use by Mr. McAdams and other employees of the Company and Privileged Access. The Company paid monthly rent payments, plus utilities and housekeeping expenses and Mr. McAdams reimbursed the Company for a portion of the rent. Prior to August 14, 2008, Privileged Access reimbursed the Company for a portion of the rent and utilities and housekeeping expenses. Such lease terminated on December 31, 2008.
 
Corporate headquarters
 
The Company leases office space from Two North Riverside Plaza Joint Venture Limited Partnership, an entity affiliated with Mr. Zell, the Company’s Chairman of the Board. Fees paid to this entity amounted to approximately $689,000, $768,000 and $624,000 for the years ended December 31, 2008, 2007 and 2006, respectively. As of December 31, 2008 and 2007, approximately $62,000 and $0, respectively, were accrued with respect to this office lease.
 
Other
 
In January 2009, the Company entered into a consulting agreement with the son of Mr. Howard Walker, to provide assistance with the Company’s internet web marketing strategy. Mr. Walker is Vice-Chairman of the Company’s Board of Directors. The consulting agreement is for a term of six months at a total cost of $48,000.
 
Note 13 — Stock Option Plan and Stock Grants
 
The Company’s Stock Option and Stock Award Plan (the “Plan”) was adopted in December 1992 and amended and restated from time to time, most recently effective March 23, 2001. Pursuant to the Plan, officers, directors, employees and consultants of the Company are offered the opportunity (i) to acquire shares of common stock through the grant of stock options (“Options”), including non-qualified stock options and, for key employees, incentive stock options within the meaning of Section 422 of the Internal Revenue Code; and (ii) to be awarded shares of common stock (“Restricted Stock Grants”), subject to conditions and restrictions determined by the Compensation, Nominating, and Corporate Governance Committee of the Company’s Board of Directors (the “Compensation Committee”). The Compensation Committee will determine the vesting schedule, if any, of each Option and the term, which term shall not exceed ten years from the date of grant. As to the Options that have been granted through December 31, 2008 to officers, employees and consultants, generally, one-third are exercisable one year after the initial grant, one-third are exercisable two years following


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Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 13 — Stock Option Plan and Stock Grants (continued)
 
the date such Options were granted and the remaining one-third are exercisable three years following the date such Options were granted. Stock Options are awarded at the New York Stock Exchange closing price of the Company’s common stock on the grant date. A maximum of 6,000,000 shares of common stock are available for grant under the Plan and no more than 250,000 shares may be subject to grants to any one individual in any calendar year.
 
Grants under the Plan are made by the Compensation Committee, which determines the individuals eligible to receive awards, the types of awards, and the terms, conditions and restrictions applicable to any award. In addition, the terms of two specific types of awards are contemplated under the Plan:
 
  •  The first type of award is a grant of Options or Restricted Stock Grants of common stock made to each member of the Board at the meeting held immediately after each annual meeting of the Company’s stockholders. Generally, if the director elects to receive Options, the grant will cover 10,000 shares of common stock at an exercise price equal to the fair market value on the date of grant. If the director elects to receive a Restricted Stock Grant of common stock, he or she will receive an award of 2,000 shares of common stock. Exercisability or vesting with respect to either type of award will be one-third of the award after six months, two-thirds of the award after one year, and the full award after two years.
 
  •  The second type of award is a grant of common stock in lieu of 50% of their bonus otherwise payable to individuals with a title of Vice President or above. A recipient can request that the Compensation Committee pay a greater or lesser portion of the bonus in shares of common stock.
 
The Company adopted SFAS 123(R) on July 1, 2005, which replaced SFAS 123. Since the Company had chosen to use the modified-prospective method for recognizing stock-based compensation and uses the Black-Scholes-Merton Model for valuing the options, the result of the adoption had no material impact of the Company’s results of operations or financial position.
 
Restricted Stock Grants
 
In 2008, the Company awarded Restricted Stock Grants for 30,000 shares of common stock to Joe McAdams in accordance with the terms of his Employment Agreement. These Restricted Stock Grants vest over two years with one-third vesting on January 4, 2008, one-third vesting on January 1, 2009 and one-third vesting on January 1, 2010. The fair market value of these Restricted Stock Grants was approximately $1.3 million as of the date of grant and is recorded as compensation expense and paid in capital over the two- year vesting period.
 
In 2006, the Company awarded Restricted Stock Grants for 147,500 shares of common stock to certain members of senior management of the Company. These Restricted Stock Grants vest over three years. The fair market value of these Restricted Stock Grants was approximately $8.1 million as of the date of grant and is recorded as compensation expense and paid in capital over the three-year vesting period.
 
In 2004, the Company awarded Restricted Stock Grants for 135,000 shares of common stock to certain members of senior management of the Company. These Restricted Stock Grants vest over three years, but may be restricted for a period of up to ten years depending upon certain performance benchmarks. The fair market value of these Restricted Stock Grants was approximately $5.0 million as of the date of grant and is recorded as compensation expense and paid in capital over the three-year vesting period.
 
In 2008, 2007 and 2006, the Company awarded Restricted Stock Grants for 20,000, 18,000, and 23,000 shares of common stock, respectively, to directors with a fair market value of approximately $929,000, $984,000, and $1,050,000 in 2008, 2007 and 2006, respectively.
 
The Company recognized compensation expense of approximately $4.6 million, $3.7 million and $2.8 million related to Restricted Stock Grants in 2008, 2007 and 2006, respectively. Compensation expense to be


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 13 — Stock Option Plan and Stock Grants (continued)
 
recognized subsequent to December 31, 2008 for Restricted Stock Grants not yet vested was approximately $3.9 million, which is expected to be recognized over a weighted average term of 0.5 years.
 
Stock Options
 
The fair value of each grant is estimated on the grant date using the Black-Scholes-Merton model. The following table includes the assumptions that were made and the estimated fair values:
 
                         
Assumption   2008     2007     2006  
 
Dividend yield
    5.5 %     5.8 %     6.0 %
Risk-free interest rate
    3.7 %     4.7 %     4.6 %
Expected life
    4 years       4 years       4 years  
Expected volatility
    16.9 %     15.6 %     15.4 %
                         
Estimated Fair Value of Options Granted
  $ 516,904     $ 705,554     $ 525,936  
 
A summary of the Company’s stock option activity, and related information for the years ended December 31, 2008, 2007 and 2006 follows:
 
                 
          Weighted Average
 
    Shares Subject
    Exercise
 
    to Options     Price Per Share  
 
Balance at January 1, 2006
    983,791     $ 20.62  
Options granted
    140,000       46.66  
Options exercised
    (155,031 )     45.72  
Options canceled
    (167 )     17.50  
                 
Balance at December 31, 2006
    968,593       24.85  
Options granted
    165,000       54.86  
Options exercised
    (143,854 )     57.86  
Options canceled
    (1,200 )     17.60  
                 
Balance at December 31, 2007
    988,539       30.88  
Options granted
    135,000       44.36  
Options exercised
    (169,367 )     45.24  
Options canceled
    (400 )     16.38  
                 
Balance at December 31, 2008
    953,772       34.92  
                 


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Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 13 — Stock Option Plan and Stock Grants (continued)
 
The following table summarizes information regarding Options outstanding at December 31, 2008:
 
                                                 
    Options Outstanding     Options Exercisable  
          Weighted
                Weighted
       
          Average
                Average
       
          Outstanding
                Outstanding
       
          Contractual
    Weighted
          Contractual
    Weighted
 
          Life
    Average
          Life
    Average
 
Range of Exercise Prices
  Options     (in years)     Exercise Price     Options     (in years)     Exercise Price  
 
$15.69 to $18.99
    241,221       1.5     $ 16.72       241,221       1.5     $ 16.72  
$22.65 to $47.97
    527,551       6.2     $ 36.49       450,884       5.7     $ 35.27  
$48.33 to $55.23
    185,000       8.3     $ 54.15       116,663       8.2     $ 54.48  
                                                 
      953,772       5.4     $ 34.92       808,768       4.8     $ 32.51  
                                                 
 
As of December 31, 2008, 2007 and 2006, 1,099,242 shares, 1,283,842 shares and 1,465,642 shares remained available for grant, respectively; of these 600,525 shares, 650,525 shares and 668,525 shares, respectively, remained available for Restricted Stock Grants.
 
Note 14 — Preferred Stock
 
The Company’s Board of Directors is authorized under the Company’s charter, without further stockholder approval, to issue, from time to time, in one or more series, 10,000,000 shares of $.01 par value preferred stock (the “Preferred Stock”), with specific rights, preferences and other attributes as the Board may determine, which may include preferences, powers and rights that are senior to the rights of holders of the Company’s common stock. However, under certain circumstances, the issuance of preferred stock may require stockholder approval pursuant to the rules and regulations of The New York Stock Exchange. As of December 31, 2008 and 2007, the Company issued no Preferred Stock.
 
Note 15 — Long-Term Cash Incentive Plan
 
On May 15, 2007, the Company’s Board of Directors approved a Long-Term Cash Incentive Plan (the “Plan”) to provide a long-term cash bonus opportunity to certain members of the Company’s management and executive officers. The total cumulative payment for all participants (the “Eligible Payment”) is based upon the Company’s Compound Annual Funds From Operations Per Share Growth Rate over the three-year period ending December 31, 2009. The Eligible Payment is further adjusted upward or downward based on the Company’s Total Return compared to a selected peer group. The Company accounts for the Plan in accordance with SFAS 123(R). As of December 31, 2008, the Company had accrued compensation expense of approximately $1.8 million related to the Plan.
 
Note 16 — Savings Plan
 
The Company has a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Code (the “401(k) Plan”), to cover its employees and those of its Subsidiaries, if any. The 401(k) Plan permits eligible employees of the Company and those of any Subsidiary to defer up to 60% of their eligible compensation on a pre-tax basis subject to certain maximum amounts. In addition, the Company will match 100% of the participant’s contribution up to the first 3% and then 50% of the next 2% for a maximum potential match of 4%.
 
In addition, amounts contributed by the Company will vest, on a prorated basis, according to the participant’s vesting schedule. After five years of employment with the Company, the participants will be 100% vested for all amounts contributed by the Company. Additionally, a discretionary profit sharing component


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 16 — Savings Plan (continued)
 
of the 401(k) Plan provides for a contribution to be made annually for each participant in an amount, if any, as determined by the Company. All employee contributions are 100% vested. The Company’s contribution to the 401(k) Plan was $465,000, $399,000, and $407,656, for the years ended December 31, 2008, 2007, and 2006, respectively.
 
Note 17 — Commitments and Contingencies
 
California Rent Control Litigation
 
As part of the Company’s effort to realize the value of its Properties subject to rent control, the Company has initiated lawsuits against several municipalities in California. The Company’s goal is to achieve a level of regulatory fairness in California’s rent control jurisdictions, and in particular those jurisdictions that prohibit increasing rents to market upon turnover. Regulations in California allow tenants to sell their homes for a premium representing the value of the future discounted rent-controlled rents. In the Company’s view, such regulation results in a transfer of the value of the Company’s stockholders’ land, which would otherwise be reflected in market rents, to tenants upon the sales of their homes in the form of an inflated purchase price that cannot be attributed to the value of the home being sold. As a result, in the Company’s view, the Company loses the value of its asset and the selling tenant leaves the Property with a windfall premium. The Company has discovered through the litigation process that certain municipalities considered condemning the Company’s Properties at values well below the value of the underlying land. In the Company’s view, a failure to articulate market rents for sites governed by restrictive rent control would put the Company at risk for condemnation or eminent domain proceedings based on artificially reduced rents. Such a physical taking, should it occur, could represent substantial lost value to stockholders. The Company is cognizant of the need for affordable housing in the jurisdictions, but asserts that restrictive rent regulation does not promote this purpose because the benefits of such regulation are fully capitalized into the prices of the homes sold. The Company estimates that the annual rent subsidy to tenants in these jurisdictions may be in excess of $15 million. In a more well balanced regulatory environment, the Company would receive market rents that would eliminate the subsidy and homes would trade at or near their intrinsic value.
 
In connection with such efforts, the Company entered into a settlement agreement with the City of Santa Cruz, California and that, pursuant to the settlement agreement, the City amended its rent control ordinance to exempt the Company’s Property from rent control as long as the Company offers a long term lease which gives the Company the ability to increase rents to market upon turnover and bases annual rent increases on the CPI. The settlement agreement benefits the Company’s stockholders by allowing them to receive the value of their investment in this Property through vacancy decontrol while preserving annual CPI based rent increases in this age-restricted Property.
 
The Company has filed two lawsuits in federal court against the City of San Rafael, challenging its rent control ordinance on constitutional grounds. The Company believes that one of those lawsuits was settled by the City agreeing to amend the ordinance to permit adjustments to market rent upon turnover. The City subsequently rejected the settlement agreement. The Court initially found the settlement agreement was binding on the City, but then reconsidered and determined to submit the claim of breach of the settlement agreement to a jury. In October 2002, the first case against the City went to trial, based on both breach of the settlement agreement and the constitutional claims. A jury found no breach of the settlement agreement; the Company then filed motions asking the Court to rule in its favor on that claim, notwithstanding the jury verdict. The Court postponed decision on those motions and on the constitutional claims, pending a ruling on certain property rights issues by the United States Supreme Court.
 
The Company also had pending a claim seeking a declaration that the Company could close the Property and convert it to another use which claim was not tried in 2002. The United States Supreme Court issued the


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
property rights rulings in 2005 and subsequently on January 27, 2006, the Court hearing the San Rafael cases issued a ruling that granted the Company’s motion for leave to amend to assert alternative takings theories in light of the United States Supreme Court’s decisions. The Court’s ruling also denied the Company’s post trial motions related to the settlement agreement and dismissed the park closure claim without prejudice to the Company’s ability to reassert such claim in the future. As a result, the Company filed a new complaint challenging the City’s ordinance as violating the takings clause and substantive due process. The City of San Rafael filed a motion to dismiss the amended complaint. On December 5, 2006, the Court denied portions of the City’s motion to dismiss that had sought to eliminate certain of the Company’s taking claims and substantive due process claims. The Company’s claims against the City were tried in a bench trial during April 2007. On July 26, 2007, the United States District Court for the Northern District of California issued Preliminary Findings of Facts and Legal Standards, Preliminary Conclusions of Law and Request for Further Briefing (“Preliminary Findings”) in this matter. The Company filed the Preliminary Findings on Form 8-K on August 2, 2007. In August 2007, the Company and the City filed the further briefs requested by the Court. On January 29, 2008, the Court issued its Findings of Facts, Conclusions of Law and Order Thereon (the “Order”). The Company filed the Order on Form 8-K on January 31, 2008. On March 14, 2008, the Company filed a petition for attorneys’ fees incurred in the amount of approximately $6,800,000 plus costs of approximately $1,274,000. The City also filed a petition for attorneys’ fees incurred in the amount of approximately $763,000 plus costs of approximately $58,000 in connection with the jury verdict that found no breach of the settlement agreement (as described above). While the City alleges it is the prevailing party on the settlement agreement issue, the Company asserts that the outcome of the entirety of the case finding the ordinance unconstitutional means that the Company is the prevailing party in the case. The parties have submitted briefs with respect to the petitions for attorneys’ fees and costs, which remain pending before the court and there can be no assurances as to the outcome of these petitions.
 
The Company’s efforts to achieve a balanced regulatory environment incentivize tenant groups to file lawsuits against the Company seeking large damage awards. The homeowners association at Contempo Marin (“CMHOA”), a 396 site Property in San Rafael, California, sued the Company in December 2000 over a prior settlement agreement on a capital expenditure pass-through after the Company sued the City of San Rafael in October 2000 alleging its rent control ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed on a motion for summary judgment on an issue that permits the Company to collect only $3.72 out of a monthly pass-through amount of $7.50 that the Company believed had been agreed to by the CMHOA in a settlement agreement. The CMHOA continued to seek damages from the Company in this matter. The Company reached a settlement with the CMHOA in this matter which allows the Company to recover $3.72 of the requested monthly pass-through and does not provide for the payment of any damages to the CMHOA. Both the CMHOA and the Company brought motions to recover their respective attorneys’ fees in the matter, which motions were heard by the Court in January 2007. On January 12, 2007, the Court granted CMHOA’s motion for attorneys’ fees in the amount of $347,000 and denied the Company’s motion for attorneys’ fees. These fees have been fully accrued by the Company as of December 31, 2006. The Company appealed both decisions. On September 19, 2008, the Court of Appeal affirmed the attorneys’ fees rulings. The Company filed a Petition for a Rehearing of that appellate decision. On October 17, 2008, the Court of Appeal issued an order modifying its original opinion in certain respects without changing its judgment. The Company petitioned the California Supreme Court for review of the decision, which was denied. Accordingly, the Company will pay the CMHOA’s attorneys’ fees as previously ordered by the trial court and, to the extent required, incurred on appeal. The Company believes that such lawsuits will be a consequence of the Company’s efforts to change rent control since tenant groups actively desire to preserve the premium value of their homes in addition to the discounted rents provided by rent control. The Company has determined that its efforts to rebalance the regulatory environment despite the risk of litigation from tenant groups are necessary not only because of the $15 million annual subsidy to tenants, but also because of the condemnation risk.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
In June 2003, the Company won a judgment against the City of Santee in California Superior Court (case no. 777094). The effect of the judgment was to invalidate, on state law grounds, two (2) rent control ordinances the City of Santee had enforced against the Company and other property owners. However, the Court allowed the City to continue to enforce a rent control ordinance that predated the two invalid ordinances (the “prior ordinance”). As a result of the judgment the Company was entitled to collect a one-time rent increase based upon the difference in annual adjustments between the invalid ordinance(s) and the prior ordinance and to adjust its base rents to reflect what the Company could have charged had the prior ordinance been continually in effect. The City of Santee appealed the judgment. The Court of Appeal and California Supreme Court refused to stay enforcement of these rent adjustments pending appeal. After the City was unable to obtain a stay, the City and the tenant association each sued the Company in separate actions alleging the rent adjustments pursuant to the judgment violate the prior ordinance (Case Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments, refunds of amounts paid, and penalties and damages in these separate actions. On January 25, 2005, the California Court of Appeal reversed the judgment in part and affirmed it in part with a remand. The Court of Appeal affirmed that one ordinance was unlawfully adopted and therefore void and that the second ordinance contained unconstitutional provisions. However, the Court ruled the City had the authority to cure the issues with the first ordinance retroactively and that the City could sever the unconstitutional provisions in the second ordinance. On remand, the trial court was directed to decide the issue of damages to the Company from these ordinances, which the Company believes is consistent not only with the Company receiving the economic benefit of invalidating one of the ordinances, but also consistent with the Company’s position that it is entitled to market rent and not merely a higher amount of regulated rent. The remand action was tried to the court in the third quarter of 2007. On January 25, 2008, the trial court issued a preliminary ruling determining that the Company had not incurred any damages from these ordinances and actions primarily on the grounds that the ordinances afforded the Company a fair rate of return. The Company sought clarification of this ruling. On April 9, 2008, the court issued a final statement of decision that included a clarification stating that the constitutional issues were not resolved on the merits and that the court had not determined that the ordinances afforded the Company a fair rate of return outside the remand period. The trial court granted a motion for restitution filed by the City in Case No. GIE 020524. The Company filed a notice of appeal on July 2, 2008. In order to avoid further trial and the related expenses, the Company agreed to a stipulated judgment, which requires the Company to put into escrow after entry of the judgment, pending appeal, funds sufficient to pay the judgment with prejudgment interest while preserving the Company’s appellate rights. The parties also disputed whether the trial court’s decision to award restitution encompassed an award of prejudgment interest, as to which the parties submitted additional briefs to the trial court for decision. On October 31, 2008, the court awarded the City some but not all of the prejudgment interest it sought. The stipulated judgment was entered on November 5, 2008, and the Company deposited into the escrow the amounts required by the judgment and continues to deposit monthly disputed amounts until the disputes are resolved on appeal. The appeal is proceeding and briefing will commence after the superior court has filed the supplemental record on appeal. The tenant association continued to seek damages, penalties and fees i n their separate action based on the same claims made on the tenants’ behalf by the City in the City’s case. The Company moved for judgment on the pleadings in the tenant association’s case on the ground that the tenant association’s case is moot in light of the stipulated judgment in the City’s case. On November 6, 2008, the Court granted the Company’s motion for judgment on the pleadings without leave to amend. On February 9, 2009, the tenant association filed a notice of intention to move for new trial in which it stated that it intends to move the Court to set aside the order granting defendant’s motion for judgment on the pleadings. That notice remains pending.
 
In addition, the Company has sued the City of Santee in federal court alleging all three of the ordinances are unconstitutional under the Fifth and Fourteenth Amendments to the United States Constitution. Thus, it is the Company’s position that the ordinances are subject to invalidation as a matter of law in the federal court action. Separately, the Federal District Court granted the City’s Motion for Summary Judgment in the Company’s


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
federal court lawsuit. This decision was based not on the merits, but on procedural grounds, including that the Company’s claims were moot given its success in the state court case. The Company appealed the decision, and on May 3, 2007 the United States Court of Appeals for the Ninth Circuit affirmed the District Court’s decision on procedural grounds. The Company intends to continue to pursue an adjudication of its rights on the merits in Federal Court through claims that are not subject to such procedural defenses.
 
In October 2004, the United States Supreme Court granted certiorari in State of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of Appeals case that upheld the standard that a regulation must substantially advance a legitimate state purpose in order to be constitutionally viable under the Fifth Amendment. On May 24, 2005 the United States Supreme Court reversed the Ninth Circuit Court of Appeals in an opinion that clarified the standard of review for regulatory takings brought under the Fifth Amendment. The Supreme Court held that the heightened scrutiny applied by the Ninth Circuit is not the applicable standard in a regulatory takings analysis, but is an appropriate factor for determining if a due process violation has occurred. The Court further clarified that regulatory takings would be determined in significant part by an analysis of the economic impact of the regulation. The Company believes that the severity of the economic impact on its Properties caused by rent control will enable it to continue to challenge the rent regulations under the Fifth Amendment and the due process clause.
 
As a result of the Company’s efforts to achieve a level of regulatory fairness in California, a commercial lending company, 21st Mortgage Corporation, a Delaware corporation, sued MHC Financing Limited Partnership. Such lawsuit asserts that certain rent increases implemented by the partnership pursuant to the rights afforded to the property owners under the City of San Jose’s rent control ordinance were invalid or unlawful. 21st Mortgage has asserted that it should benefit from the vacancy control provisions of the City’s ordinance as if 21st Mortgage were a “homeowner” and contrary to the ordinance’s provision that rents may be increased without restriction upon termination of the homeowners’ tenancy. In each of the disputed cases, the Company believes it had terminated the tenancy of the homeowner (21st Mortgage’s borrower) through the legal process. The Court, in granting 21st Mortgage’s motion for summary judgment, has indicated that 21st Mortgage may be a “homeowner” within the meaning of the ordinance. The Company does not believe that 21st Mortgage can show that it has ever applied for tenancy, entered into a rental agreement or been accepted as a homeowner in the communities. A bench trial in this matter concluded in January 2008 with the trial court determining that the Company had validly exercised its rights under the rent control ordinance, that the Company had not violated the ordinance and that 21st Mortgage was not entitled to the benefit of rent control protection in the circumstances presented. In April 2008, the Company filed a petition for attorneys’ fees and costs. On August 22, 2008, the Court granted the Company $0.4 million in attorneys’ fees and costs. On October 20, 2008, the Company entered a Post-Judgment Agreement with 21st Mortgage pursuant to which 21st Mortgage paid the Company the $0.4 million in attorneys’ fees and costs that the court had awarded, and the parties agreed to let the trial court’s judgment stand, to otherwise end the litigation, and exchanged releases.
 
Countryside at Vero Beach
 
On January 12, 2006, the Company was served with a complaint filed in Indian River County Circuit Court on behalf of a purported class of homeowners at Countryside at Vero Beach. The complaint includes counts for alleged violations of the Florida Mobile Home Act and the Florida Deceptive and Unfair Trade Practices Act, and claims that the Company required homeowners to pay water and sewer impact fees, either to the Company or to the County, “as a condition of initial or continued occupancy in the Park”, without properly disclosing the fees in advance and notwithstanding the Company’s position that all such fees were fully paid in connection with the settlement agreement described above. On February 8, 2006, the Company served its motion to dismiss the complaint. In May 2007, the Court granted the Company’s motion to dismiss, but also allowed the plaintiff to amend the complaint. The plaintiff filed an amended complaint, which the Company has also moved to dismiss.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
Before any ruling on the Company’s motion to dismiss the amended complaint, the plaintiff asked for and received leave to file a second amended complaint, which the plaintiff filed on April 11, 2008. On May 1, 2008, the Company filed an answer and a motion for summary judgment. The motion for summary judgment was denied with leave to resubmit the motion after further discovery. On or about February 4, 2009, the Company accepted the Plaintiff’s offer to voluntarily dismiss the case with prejudice in exchange for the Company’s waiver of any claim for attorneys’ fees.
 
Colony Park
 
On December 1, 2006, a group of tenants at the Company’s Colony Park Property in Ceres, California filed a complaint in the California Superior Court for Stanislaus County alleging that the Company has failed to properly maintain the Property and has improperly reduced the services provided to the tenants, among other allegations. The Company has answered the complaint by denying all material allegations and filed a counterclaim for declaratory relief and damages. The case will proceed in Superior Court because the Company’s motion to compel arbitration was denied and the denial was upheld on appeal. Discovery has commenced. The Company has filed a motion for summary adjudication of various of the plaintiffs’ claims and allegations, which is scheduled for hearing on November 19, 2008. The Court has set a trial date for August 4, 2009. The Company believes that the allegations in the first amended complaint are without merit, and intends to vigorously defend the lawsuit.
 
California’s Department of Housing and Community Development (“HCD”) issued a Notice of Violation dated August 21, 2006 regarding the sewer system at Colony Park. The notice ordered the Company to replace the Property’s sewer system or show justification from a third party explaining why the sewer system does not need to be replaced. The Company has provided such third party report to HCD and believes that the sewer system does not need to be replaced. Based upon information provided by the Company to HCD to date, HCD has indicated that it agrees that the entire system does not need to be replaced.
 
Hurricane Claim Litigation
 
On June 22, 2007 the Company filed suit, in the Circuit Court of Cook County, Illinois (Case No. 07CH16548), against its insurance carriers, Hartford Fire Insurance Company, Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, regarding a coverage dispute arising from losses suffered by the Company as a result of hurricanes that occurred in Florida in 2004 and 2005. The Company also brought claims against Aon Risk Services, Inc. of Illinois, the Company’s insurance broker, regarding the procurement of appropriate insurance coverage for the Company. The Company is seeking declaratory relief establishing the coverage obligations of its carriers, as well as a judgment for breach of contract, breach of the covenant of good faith and fair dealing, unfair settlement practices and, as to Aon, for failure to provide ordinary care in the selling and procuring of insurance. The claims involved in this action exceed $11 million.
 
In response to motions to dismiss, the trial court dismissed: (1) the requests for declaratory relief as being duplicative of the claims for breach of contract and (2) certain of the breach of contract claims as being not ripe until the limits of underlying insurance policies have been exhausted. On or about January 28, 2008, the Company filed its Second Amended Complaint. Aon filed a motion to dismiss the Second Amended Complaint in its entirety as against Aon, and the insurers moved to dismiss portions of the Second Amended Complaint as against them. The insurers’ motion was denied and they have now answered the Second Amended Complaint. Aon’s motion was granted, with leave granted to the Company to file an amended pleading containing greater factual specificity. The Company did so by adding to the Second Amended Complaint a new Count VII against Aon, which the Company filed on August 15, 2008. Aon then answered the new Count VII in part and moved to strike certain of its allegations. The Court left Count VII undisturbed, except for ruling that the Company’s


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
alternative claim that Aon was negligent in carrying out its duty to give notice to certain of the insurance carriers on the Company’s behalf should be re-pleaded in the form of a breach of contract theory. On February 2, 2009, the Company filed such a claim in the form of a new Count VIII against Aon. Written discovery proceedings have commenced.
 
Since filing the lawsuit, the Company has received additional payments from Essex Insurance Company, Lexington Insurance Company, and Westchester Surplus Lines Insurance Company, of approximately $2.6 million. In January 2008 the Company entered a settlement with Hartford Fire Insurance Company pursuant to which Hartford paid the Company the remaining disputed limits of Hartford’s insurance policy, in the amount of approximately $516,000, and the Company dismissed and released Hartford from additional claims for interest and bad faith claims handling.
 
California and Washington Wage Claim Class Actions
 
On October 16, 2008, the Company was served with a class action lawsuit in California state court filed by a single named plaintiff. The suit alleges that, at the time of the PA Transaction, the Company and other named defendants willfully failed to pay former California employees of Privileged Access and its affiliates (“PA”) who became employees of the Company all of the wages they earned during their employment with PA, including accrued vacation time. The suit also alleges that the Company improperly “stripped” those employees of their seniority. The suit asserts claims for alleged violation of the California Labor Code; alleged violation of the California Business & Professions Code and for alleged unfair business practices; alleged breach of contract; alleged breach of the duty of good faith and fair dealing; and for alleged unjust enrichment. The complaint seeks, among other relief, compensatory and statutory damages; restitution; pre-judgment and post-judgment interest; attorney’s fees, expenses and costs; penalties; and exemplary and punitive damages. The complaint does not specify a dollar amount sought. On December 18, 2008, the Company filed a demurrer seeking dismissal of the complaint in its entirety without leave to amend. The hearing on the demurrer is set for March 13, 2009. The plaintiff’s responsive brief is not yet due. The Company will vigorously defend the lawsuit.
 
On December 16, 2008, the Company was served with a class action lawsuit in Washington state court filed by a single named plaintiff, represented by the same counsel as the plaintiff in the California class action. The complaint asserts on behalf of a putative class of Washington employees of PA who became employees of the Company substantially similar allegations as are alleged in the California class action. The Company’s response to the complaint is not yet due and the Company has not yet filed a response. The Company will vigorously defend the lawsuit.
 
Brennan Beach
 
The Law Enforcement Division of the New York Department of Environmental Compliance (“DEC”) has investigated certain allegations relating to the operation of the onsite wastewater treatment plant and the use of adjacent wetlands at Brennan Beach, which is located in Pulaski, New York. The allegations included assertions of unlawful point source discharges, permit discharge exceedances, and placing material in a wetland buffer area without a permit. Representatives of the Company attended meetings with the DEC in November 2007, April 2008, May 2008 and June 2008, at which the alleged violations were discussed, and the Company has cooperated with the DEC investigation. No formal notices have been issued to the Company asserting specific violations, but the DEC has indicated that it believes the Company is responsible for certain of the alleged violations. As a result of discussions with the DEC, the Company has agreed to enter into a civil consent order pursuant to which the Company will pay a penalty of $50,000 and undertake an environmental benefit project at a cost of $150,000 in connection with the alleged violations. The consent order is being prepared by the DEC pursuant to that agreement and the amounts expected to be paid under the consent order were accrued as property operating expenses during the quarter ended June 30, 2008.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
Appalachian RV
 
The U.S. Environmental Protection Agency (“EPA”) has undertaken an investigation of potential lead contamination at Appalachian RV, which is located in Shartlesville, Pennsylvania, reportedly stemming from observations of remnants of old auto battery parts at the Property. In late November and early December 2007, the EPA conducted an assessment by taking samples of surface soil, sediment, surface water, and well water at the Property. The Company is cooperating with the EPA.
 
In March 2008, the EPA issued a report regarding the findings of the sampling (“EPA Report”). The EPA Report found no elevated concentrations of lead in either the sediment samples, surface water samples, or well water samples. However, out of the more than 800 soil samples the EPA took, which were collected from locations throughout the Property, the EPA Report identified elevated levels of lead in 61 samples.
 
Following issuance of the EPA Report, the EPA sent the Company a Notice of Potential Liability for a cleanup of the elevated lead levels at the Property, and a proposed administrative consent order seeking the Company’s agreement to conduct such a cleanup. On April 9, 2008, the Company submitted a response suggesting that the Company conduct additional soil testing, which the EPA approved, to determine what type of cleanup might be appropriate.
 
The EPA also advised the Company that, because elevated arsenic levels were detected at six locations at the Property during the EPA’s testing for lead, at the suggestion of the Agency for Toxic Substances and Disease Registry (ATSDR), the EPA further analyzed for potentially elevated arsenic levels the samples it previously collected. As a result of that analysis, the Company engaged a laboratory to analyze those samples for elevated arsenic levels. In light of these results, the additional soil testing the Company is conducting will test for arsenic as well as lead.
 
The additional soil testing commenced in July 2008 and was completed in August 2008. Based on the results of the additional soil testing, the Company entered a contract with an environmental consulting company to remediate the site and, with the permission of the EPA, submitted a notice of intent to remediate the site under the supervision of the Pennsylvania Department of Environmental Protection. The contaminated soil has been excavated and stockpiled, will be delivered to facilities approved for receiving such contaminated waste, and has been replaced at the property by clean fill.
 
In addition, the local township in which the Property is located issued a notice of violation regarding the operation of the wastewater system with respect to various sites at the Property. The Company is in discussions with the Township regarding connecting portions of the Property to the Township’s sewer system, resolving the issues raised by the notice of violation, and eliminating or reducing any potential penalties associated with the notice of violation. While the outcome is still uncertain, the amount of eventual penalties, if any, is not expected to be material.
 
As a result of these circumstances, the Company decided not to open the Property until these issues can be resolved. In addition, although the potential costs of addressing the environmental issues at the Property are uncertain, based upon information to date, a liability of approximately $0.4 million for future estimated costs is accrued as of December 31, 2008. Based on the information currently available to the Company, the Company expects to be able to re-open the Property in time for the 2009 season.
 
Gulf View in Punta Gorda
 
In 2004, the Company acquired ownership of various property owning entities, including an entity owning a property called Gulf View, in Punta Gorda, Florida. Gulf View continues to be held in a special purpose entity. At the time of acquisition of the entity owning Gulf View, it was financed with a secured loan that was cross-collateralized and cross-defaulted with a loan on another property whose ownership entity was not acquired. At


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 17 — Commitments and Contingencies (continued)
 
the time of acquisition, the Operating Partnership guaranteed certain obligations relating to exceptions from the non-recourse nature of the loans. Because of certain penalties associated with repayment of these loans, the loans have not been restructured and the terms and conditions remain the same today. The approximate outstanding amount of the loan secured by Gulf View is $1.4 million and of the crossed loan secured by the other property is $5.5 million. The Company is not aware of any notice of default regarding either of the loans; however, should the owner of the cross-collateralized property default, the special purpose entity owning Gulf View and the Operating Partnership may be impacted to the extent of their obligations.
 
Florida Utility Operations
 
The Company received notice from the Florida Department of Environmental Protection (“DEP”) that as a result of a compliance inspection it is alleging violations of Florida law relating to the operation of onsite water plants and wastewater treatment plants at seven properties in Florida. The alleged violations relate to record keeping and reporting requirements, physical and operating deficiencies and permit compliance. The Company has investigated each of the alleged violations, including a review of a third party operator hired to oversee such operations. The Company met with the DEP in November 2007 to respond to the alleged violations and as a follow-up to such meeting provided a written response to the DEP in December 2007. In light of the Company’s written response, in late January 2008 the DEP conducted a follow-up compliance inspection at each of the seven properties. In early March 2008, the DEP provided the Company comments in connection with the follow-up inspection, which made various recommendations and raised certain additional alleged violations similar in character to those alleged after the initial inspection. The Company has investigated and responded to the additional alleged violations. While the outcome of this investigation remains uncertain, the Company expects to resolve the issues raised by the DEP by entering into a consent decree in which the Company will agree to make certain improvements in its facilities and operations to resolve the issues and pay certain costs and penalties associated with the violations. In August 2008, the DEP provided the Company a proposed consent order for resolving the issues raised by the DEP, the details of which the Company negotiated with the DEP. On December 2, 2008, a Consent Order was entered resolving the issues raised by the DEP. Pursuant to the Consent Order, the Company paid $5,000 for costs incurred by the DEP. The Company also agreed to pay a penalty of $113,499, which is subject to reduction in the event the Company elects to perform “in-kind” capital improvement projects that the DEP approves. The Company has proposed one such project and may propose another, subject to DEP approval. Accordingly, the amount of the $113,499 penalty that the Company will ultimately be required to pay is not yet certain. The Company also replaced its third party operator hired to oversee onsite water and wastewater operations at each of the seven properties. The Company is evaluating the costs of any improvements to its facilities, which would be capital expenditures depreciated over the estimated useful life of the improvement. During the course of this investigation, one permit for operation of a wastewater treatment plant expired. The Company applied for renewal of the permit and expects the DEP to grant the application after certain determinations and capital improvements are made. In the meantime, the Company is permitted to operate the wastewater treatment plant pursuant to the Consent Order.
 
Other
 
The Company is involved in various other legal proceedings arising in the ordinary course of business. Such proceedings include, but are not limited to, notices, consent decrees, additional permit requirements and other similar enforcement actions by governmental agencies relating to the Company’s water and wastewater treatment plants and other waste treatment facilities. Additionally, in the ordinary course of business, the Company’s operations are subject to audit by various taxing authorities. Management believes that all proceedings herein described or referred to, taken together, are not expected to have a material adverse impact on the Company. In addition, to the extent any such proceedings or audits relate to newly acquired Properties, the Company considers any potential indemnification obligations of sellers in favor of the Company.


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Table of Contents

 
Equity LifeStyle Properties, Inc.
 
Notes To Consolidated Financial Statements
 
Note 18 — Quarterly Financial Data (unaudited)
 
The following is unaudited quarterly data for 2008 and 2007 (amounts in thousands, except for per share amounts):
 
                                 
    First
    Second
    Third
    Fourth
 
    Quarter
    Quarter
    Quarter
    Quarter
 
2008
  3/31     6/30     9/30     12/31  
 
Total revenues(a)
  $ 123,205     $ 110,909     $ 118,578     $ 116,449  
Income (loss) from continuing operations(a)
  $ 12,712     $ 4,069     $ 1,456     $ (80 )
Income from discontinued operations(a)
  $ 13     $ 40     $ 26     $ 67  
Net income (loss) available for Common Shares
  $ 12,725     $ 4,109     $ 1,482     $ (13 )
Weighted average Common Shares outstanding — Basic
    24,200       24,370       24,527       24,765  
Weighted average Common Shares outstanding — Diluted
    30,386       30,540       30,572       30,505  
Net income per Common Share outstanding — Basic
  $ 0.53     $ 0.17     $ 0.06     $ 0.00  
Net income per Common Share outstanding — Diluted
  $ 0.52     $ 0.17     $ 0.06     $ 0.00  
 
                                 
    First
    Second
    Third
    Fourth
 
    Quarter
    Quarter
    Quarter
    Quarter
 
2007
  3/31     6/30     9/30     12/31  
 
Total revenues(a)
  $ 119,031     $ 105,689     $ 110,699     $ 106,482  
Income from continuing operations(a)
  $ 12,367     $ 1,619     $ 4,040     $ 4,134  
Income from discontinued operations(a)
  $ 3,793     $ 15     $ 5,612     $ 522  
Net income available for Common Shares
  $ 16,160     $ 1,634     $ 9,652     $ 4,656  
Weighted average Common Shares outstanding — Basic
    23,910       24,133       24,148       24,161  
Weighted average Common Shares outstanding — Diluted
    30,351       30,431       30,418       30,439  
Net income per Common Share outstanding — Basic
  $ 0.68     $ 0.07     $ 0.40     $ 0.19  
Net income per Common Share outstanding — Diluted
  $ 0.66     $ 0.07     $ 0.39     $ 0.19  
 
 
(a) Amounts may differ from previously disclosed amounts due to reclassification of discontinued operations.


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Schedule II

Equity LifeStyle Properties, Inc.
Valuation and Qualifying Accounts
December 31, 2008
 
                                         
          Additions              
    Balance at
    Charged to
    Charged
          Balance at
 
    Beginning
    Costs and
    to Other
          End of
 
    of Period     Expenses     Accounts     Deductions(1)     Period  
 
For the year ended December 31, 2006:
                                       
Allowance for doubtful accounts
  $ 1,179,000     $ 968,000     $ (38,000 )   $ (1,224,000 )   $ 885,000  
For the year ended December 31, 2007:
                                       
Allowance for doubtful accounts
  $ 885,000     $ 1,865,000           $ (1,596,000 )   $ 1,154,000  
For the year ended December 31, 2008:
                                       
Allowance for doubtful accounts
  $ 1,154,000     $ 1,951,000           $ (1,977,000 )   $ 1,128,000  
 
 
(1) Deductions represent tenant receivables deemed uncollectible.


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Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Properties Held for Long Term
                                                                                       
Hidden Cove
  Arley   AL           212       632                   212       604       816       (57 )     2006  
Apollo Village
  Phoenix   AZ     (4,856 )     932       3,219             1,162       932       4,381       5,313       (1,866 )     1994  
Araby
  Yuma   AZ     (3,022 )     1,440       4,345             213       1,440       4,558       5,998       (764 )     2003  
Cactus Gardens
  Yuma   AZ     (4,566 )     1,992       5,984             217       1,992       6,201       8,193       (919 )     2004  
Capri RV
  Yuma   AZ     (4,960 )     1,595       4,774             128       1,595       4,902       6,497       (447 )     2006  
Carefree Manor
  Phoenix   AZ     (3,213 )     706       3,040             663       706       3,703       4,409       (1,293 )     1998  
Casa del Sol East II
  Glendale   AZ     (4,682 )     2,103       6,283             1,915       2,103       8,198       10,302       (2,395 )     1996  
Casa del Sol East III
  Glendale   AZ     (6,093 )     2,450       7,452             670       2,450       8,122       10,572       (2,822 )     1998  
Casa del Sol West I
  Peoria   AZ     (10,096 )     2,215       6,467             1,866       2,215       8,333       10,548       (2,584 )     1996  
Casita Verde RV
  Casa Grande   AZ     (2,232 )     719       2,179             48       719       2,227       2,947       (205 )     2006  
Central Park
  Phoenix   AZ     (12,435 )     1,612       3,784             1,307       1,612       5,091       6,703       (3,663 )     1983  
Countryside RV
  Apache Junction   AZ           2,056       6,241             351       2,056       6,592       8,648       (1,429 )     2002  
Desert Paradise
  Yuma   AZ     (1,373 )     666       2,011             78       666       2,089       2,756       (356 )     2004  
Desert Skies
  Phoenix   AZ     (4,930 )     792       3,126             580       792       3,706       4,498       (1,312 )     1998  
Fairview Manor
  Tucson   AZ           1,674       4,708             1,414       1,674       6,122       7,795       (2,279 )     1998  
Fiesta Grande RV
  Casa Grande   AZ     (9,425 )     2,869       8,653             260       2,869       8,913       11,783       (819 )     2006  
Foothill
  Yuma   AZ     (1,350 )     459       1,402             103       459       1,505       1,964       (258 )     2003  
Foothills West RV
  Casa Grande   AZ     (2,307 )     747       2,261             30       747       2,291       3,038       (211 )     2006  
Golden Sun RV
  Apache Junction   AZ           1,678       5,049             117       1,678       5,166       6,844       (1,127 )     2002  
Hacienda De Valencia
  Mesa   AZ     (14,628 )     833       2,701             4,269       833       6,970       7,803       (3,585 )     1984  
Monte Vista
  Mesa   AZ     (24,314 )     11,402       34,355             2,926       11,402       37,281       48,682       (5,559 )     2004  
Palm Shadows
  Glendale   AZ     (8,020 )     1,400       4,218             869       1,400       5,087       6,487       (2,518 )     1993  
Paradise
  Sun City   AZ     (18,656 )     6,414       19,263       11       1,217       6,425       20,480       26,905       (3,382 )     2004  
Sedona Shadows
  Sedona   AZ     (2,198 )     1,096       3,431             1,150       1,096       4,581       5,677       (1,589 )     1997  
Seyenna Vistas
  Mesa   AZ           1,354       4,660       6       1,944       1,360       6,604       7,963       (2,808 )     1994  
Suni Sands
  Yuma   AZ     (2,999 )     1,249       3,759             207       1,249       3,966       5,215       (644 )     2004  


S-2


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Sunrise Heights
  Phoenix   AZ     (5,426 )     1,000       3,016             1,392       1,000       4,408       5,408       (1,784 )     1994  
The Highlands at Brentwood
  Mesa   AZ     (10,660 )     1,997       6,024             1,708       1,997       7,732       9,730       (3,631 )     1993  
The Meadows
  Tempe   AZ           2,613       7,887             3,329       2,613       11,216       13,830       (4,683 )     1994  
Venture In
  Show Low   AZ     (6,644 )     2,050       6,188             231       2,050       6,419       8,469       (591 )     2006  
Viewpoint
  Mesa   AZ     (43,809 )     24,890       56,340       15       2,936       24,905       59,276       84,181       (9,345 )     2004  
Whispering Palms
  Phoenix   AZ     (3,146 )     670       2,141             259       670       2,400       3,070       (928 )     1998  
Mesa Verde
  Cottonwood   AZ           1,379       4,148       8       217       1,387       4,365       5,752       (293 )     2007  
California Hawaiian
  San Jose   CA           5,825       17,755             2,423       5,825       20,178       26,003       (7,576 )     1997  
Colony Park
  Ceres   CA     (5,608 )     890       2,837             531       890       3,368       4,257       (1,384 )     1998  
Concord Cascade
  Pacheco   CA           985       3,016             1,642       985       4,658       5,644       (3,159 )     1983  
Contempo Marin
  San Rafael   CA           4,787       16,379             2,934       4,787       19,313       24,101       (9,277 )     1994  
Coralwood
  Modesto   CA     (6,058 )           5,047             405             5,452       5,452       (2,139 )     1997  
Date Palm Country Club
  Cathedral City   CA     (14,453 )     4,138       14,064       (23 )     4,108       4,115       18,172       22,287       (8,648 )     1994  
Date Palm RV
  Cathedral City   CA                 216             311             527       527       (246 )     1994  
DeAnza Santa Cruz
  Santa Cruz   CA     (5,619 )     2,103       7,201             1,544       2,103       8,745       10,848       (3,910 )     1994  
Four Seasons
  Fresno   CA           756       2,348             312       756       2,660       3,416       (1,060 )     1997  
Laguna Lake
  San Luis Obispo   CA           2,845       6,520             419       2,845       6,939       9,784       (2,631 )     1998  
Lamplighter
  Spring Valley   CA           633       2,201             1,067       633       3,268       3,901       (2,319 )     1983  
Las Palmas
  Rialto   CA     (3,597 )     1,295       3,866             225       1,295       4,091       5,386       (641 )     2004  
Meadowbrook
  Santee   CA           4,345       12,528             1,804       4,345       14,332       18,677       (5,041 )     1998  
Monte del Lago
  Castroville   CA     (21,400 )     3,150       9,469             2,226       3,150       11,695       14,845       (4,281 )     1997  
Nicholson Plaza
  San Jose   CA                 4,512             246             4,758       4,758       (1,763 )     1997  
Pacific Dunes Ranch
  Oceana   CA     (5,682 )     1,940       5,632             122       1,940       5,754       7,694       (892 )     2004  
Parque La Quinta
  Rialto   CA     (4,823 )     1,799       5,450             92       1,799       5,542       7,341       (939 )     2004  
Quail Meadows
  Riverbank   CA     (5,083 )     1,155       3,469             370       1,155       3,839       4,994       (1,379 )     1998  
Rancho Mesa
  El Cajon   CA     (9,380 )     2,130       6,389             560       2,130       6,949       9,078       (2,401 )     1998  

S-3


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Rancho Valley
  El Cajon   CA           685       1,902             1,048       685       2,950       3,635       (2,060 )     1983  
Royal Holiday
  Hemet   CA           778       2,643             2,069       778       4,712       5,490       (1,224 )     1998  
Royal Oaks
  Visalia   CA           602       1,921             504       602       2,425       3,027       (899 )     1997  
San Francisco RV
  Pacifica   CA           1,656       4,973       4       238       1,660       5,211       6,870       (605 )     2005  
Santiago Estates
  Sylmar   CA     (15,600 )     3,562       10,767             1,113       3,562       11,880       15,442       (4,293 )     1998  
Sea Oaks
  Los Osos   CA           871       2,703             402       871       3,105       3,976       (1,139 )     1997  
Sunshadow
  San Jose   CA                 5,707             221             5,928       5,928       (2,271 )     1997  
Tahoe Valley
  Lake Tahoe   CA           1,357       4,071             133       1,357       4,204       5,561       (687 )     2004  
Village of the Four Seasons
  San Jose   CA     (14,485 )     5,229       15,714             397       5,229       16,111       21,340       (2,471 )     2004  
Westwinds (4 properties)
  San Jose   CA                 17,616             6,146             23,762       23,762       (9,451 )     1997  
Santa Cruz Ranch RV
  Scotts Valley   CA           1,183       3,549             163       1,183       3,712       4,895       (162 )     2007  
Santa Cruz Ranch Warehouse
  Scotts Valley   CA           412       388                   412       388       800       (17 )     2007  
Bear Creek
  Denver   CO     (4,768 )     1,100       3,359             388       1,100       3,747       4,848       (1,348 )     1998  
Cimarron
  Broomfield   CO     (15,791 )     863       2,790             768       863       3,558       4,421       (2,738 )     1983  
Golden Terrace
  Golden   CO     (14,212 )     826       2,415             1,267       826       3,682       4,508       (2,330 )     1983  
Golden Terrace South
  Golden   CO           750       2,265             711       750       2,976       3,726       (1,145 )     1997  
Golden Terrace West
  Golden   CO     (16,800 )     1,694       5,065             1,054       1,694       6,119       7,813       (4,246 )     1986  
Hillcrest Village
  Aurora   CO     (26,844 )     1,912       5,202       289       2,644       2,201       7,846       10,047       (6,025 )     1983  
Holiday Hills
  Denver   CO     (37,109 )     2,159       7,780             4,386       2,159       12,166       14,326       (9,075 )     1983  
Holiday Village
  Co. Springs   CO     (11,600 )     567       1,759             1,071       567       2,830       3,397       (2,050 )     1983  
Pueblo Grande
  Pueblo   CO     (7,698 )     241       1,069             599       241       1,668       1,908       (1,213 )     1983  
Woodland Hills
  Thornton   CO     (10,812 )     1,928       4,408             2,579       1,928       6,987       8,915       (3,490 )     1994  
Aspen Meadows
  Rehoboth   DE     (5,492 )     1,148       3,460             437       1,148       3,897       5,045       (1,451 )     1998  
Camelot Meadows
  Rehoboth   DE     (12,668 )     527       2,058       1,251       4,234       1,778       6,292       8,070       (2,165 )     1998  
Mariners Cove
  Millsboro   DE     (16,076 )     990       2,971             5,428       990       8,399       9,389       (4,099 )     1987  
McNicol
  Rehoboth   DE     (2,648 )     562       1,710             135       562       1,845       2,408       (654 )     1998  

S-4


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Sweetbriar
  Rehoboth   DE     (2,970 )     498       1,527             385       498       1,912       2,410       (783 )     1998  
Waterford
  Bear   DE     (30,245 )     5,250       16,202             1,131       5,250       17,333       22,583       (4,534 )     1996  
Whispering Pines
  Lewes   DE     (9,645 )     1,536       4,609             1,189       1,536       5,798       7,334       (3,662 )     1998  
Barrington Hills
  Hudson   FL           1,145       3,437             408       1,145       3,845       4,990       (609 )     2004  
Bay Indies
  Venice   FL     (39,655 )     10,483       31,559       10       4,686       10,493       36,245       46,738       (17,085 )     1994  
Bay Lake Estates
  Nokomis   FL     (4,370 )     990       3,390             1,557       990       4,947       5,937       (2,136 )     1994  
Breezy Hill RV
  Pompano Beach   FL     (9,109 )     5,424       16,555             1,002       5,424       17,557       22,981       (3,611 )     2002  
Buccaneer
  N. Ft. Myers   FL     (17,607 )     4,207       14,410             2,348       4,207       16,758       20,964       (7,650 )     1994  
Bulow Village RV
  Flagler Beach   FL                 228             364             592       592       (133 )     2001  
Bulow Plantation
  Flagler Beach   FL           3,637       949             5,962       3,637       6,911       10,548       (2,369 )     1994  
Carefree Cove
  Fort Lauderdale   FL     (4,514 )     1,741       5,170             443       1,741       5,613       7,354       (853 )     2004  
Carriage Cove
  Daytona Beach   FL     (7,633 )     2,914       8,682             1,013       2,914       9,695       12,609       (3,643 )     1998  
Clerbrook
  Clermont   FL     (11,217 )     3,883       11,700             573       3,883       12,273       16,156       (1,132 )     2006  
Coachwood
  Leesburg   FL     (4,006 )     1,602       4,822             162       1,602       4,984       6,585       (812 )     2004  
Coquina Crossing
  Elkton   FL           5,286       5,545       (12 )     16,626       5,274       22,171       27,444       (4,311 )     1999  
Coral Cay
  Margate   FL     (18,701 )     5,890       20,211             6,778       5,890       26,989       32,879       (11,459 )     1994  
Country Place
  New Port Richey   FL     (15,913 )     663             18       7,225       681       7,225       7,906       (3,920 )     1986  
Countryside
  Vero Beach   FL     (16,406 )     3,711       11,133             5,218       3,711       16,351       20,062       (5,297 )     1998  
Crystal Isles
  Crystal River   FL     (2,675 )     926       2,787             150       926       2,937       3,863       (479 )     2004  
Down Yonder
  Largo   FL     (13,495 )     2,652       7,981             188       2,652       8,169       10,821       (1,751 )     1998  
East Bay Oaks
  Largo   FL     (11,900 )     1,240       3,322             914       1,240       4,236       5,476       (3,164 )     1983  
Eldorado Village
  Largo   FL     (8,190 )     778       2,341             756       778       3,097       3,875       (2,284 )     1983  
Fort Myers Beach Resort
  Fort Myers Beach   FL           1,188       3,593             (71 )     1,188       3,522       4,710       (700 )     2004  
Glen Ellen
  Clearwater   FL           619       1,882             30       619       1,912       2,531       (402 )     2002  
Grand Island
  Grand Island   FL           1,723       5,208       125       3,592       1,848       8,800       10,648       (2,061 )     2001  
Gulf Air Resort
  Fort Myers Beach   FL           1,609       4,830             (84 )     1,609       4,746       6,355       (788 )     2004  
Gulf View
  Punta Gorda   FL     (1,479 )     717       2,158             869       717       3,027       3,744       (424 )     2004  

S-5


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Hacienda Village
  New Port Richey   FL     (9,017 )     4,297       13,088             1,672       4,297       14,760       19,056       (2,831 )     2002  
Harbor Lakes
  Port Charlotte   FL           3,384       10,154             293       3,384       10,447       13,831       (1,703 )     2004  
Harbor View
  New Port Richey   FL     (7,430 )     4,045       12,146             88       4,030       12,234       16,264       (2,608 )     2002  
Heritage Plantation
  Vero Beach   FL     (13,015 )     2,403       7,259             1,812       2,403       9,071       11,474       (4,020 )     1994  
Highland Wood RV
  Pompano Beach   FL     (2,149 )     1,043       3,130             79       1,030       3,209       4,239       (676 )     2002  
Hillcrest
  Clearwater   FL     (7,657 )     1,278       3,928             959       1,278       4,887       6,165       (1,906 )     1998  
Holiday Ranch
  Clearwater   FL     (4,810 )     925       2,866             281       925       3,147       4,072       (1,187 )     1998  
Holiday Village
  Vero Beach   FL           350       1,374             215       350       1,589       1,940       (600 )     1998  
Holiday Village
  Ormond Beach   FL     (10,266 )     2,610       7,837             188       2,610       8,025       10,636       (1,698 )     2002  
Indian Oaks
  Rockledge   FL     (2,841 )     1,089       3,376             857       1,089       4,233       5,322       (1,636 )     1998  
Island Vista
  North Ft. Myers   FL     (14,800 )     5,004       15,066             61       5,004       15,127       20,132       (1,379 )     2006  
Lake Fairways
  N. Ft. Myers   FL     (29,763 )     6,075       18,134       35       1,822       6,110       19,956       26,066       (9,301 )     1994  
Lake Haven
  Dunedin   FL     (11,349 )     1,135       4,047             2,911       1,135       6,958       8,093       (4,285 )     1983  
Lake Magic
  Clermont   FL           1,595       4,793             92       1,595       4,885       6,480       (787 )     2004  
Lakes at Countrywood
  Plant City   FL     (9,195 )     2,377       7,085             1,468       2,377       8,553       10,930       (2,195 )     2001  
Lakewood Village
  Melbourne   FL     (9,593 )     1,862       5,627             1,447       1,862       7,074       8,937       (3,211 )     1994  
Lighthouse Pointe
  Port Orange   FL     (14,029 )     2,446       7,483       23       1,139       2,469       8,622       11,091       (3,247 )     1998  
Manatee
  Bradenton   FL           2,300       6,903             314       2,300       7,217       9,517       (1,168 )     2004  
Maralago Cay
  Lantana   FL     (20,793 )     5,325       15,420             4,420       5,325       19,840       25,165       (7,045 )     1997  
Meadows at Countrywood
  Plant City   FL     (17,301 )     4,514       13,175             3,789       4,514       16,964       21,478       (5,970 )     1998  
Mid-Florida Lakes
  Leesburg   FL     (21,894 )     5,997       20,635             7,773       5,997       28,408       34,405       (12,141 )     1994  
Oak Bend
  Ocala   FL     (5,640 )     850       2,572             1,062       850       3,634       4,484       (1,808 )     1993  
Oaks at Countrywood
  Plant City   FL           1,111       2,513       (265 )     3,914       846       6,427       7,274       (1,612 )     1998  
Park City West
  Fort Lauderdale   FL     (15,391 )     4,187       12,561             378       4,184       12,939       17,122       (2,088 )     2004  
Pasco
  Lutz   FL           1,494       4,484             142       1,494       4,626       6,121       (764 )     2004  
Pickwick
  Port Orange   FL     (7,697 )     2,803       8,870             1,135       2,803       10,005       12,808       (3,524 )     1998  
Pine Lakes
  N. Ft. Myers   FL     (38,256 )     6,306       14,579       21       6,687       6,327       21,266       27,593       (9,461 )     1994  

S-6


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Pioneer Village
  N. Ft. Myers   FL     (9,801 )     4,116       12,353             1,244       4,116       13,597       17,713       (2,166 )     2004  
Ramblers Rest
  Venice   FL     (15,526 )     4,646       14,201             706       4,646       14,907       19,553       (1,364 )     2006  
Royal Coachman
  Nokomis   FL     (12,786 )     5,321       15,978             746       5,321       16,724       22,045       (2,704 )     2004  
Shangri La
  Largo   FL     (4,250 )     1,722       5,200             45       1,722       5,245       6,968       (860 )     2004  
Sherwood Forest
  Kissimmee   FL     (31,072 )     4,852       14,596             4,842       4,852       19,438       24,290       (6,751 )     1998  
Sherwood Forest RV
  Kissimmee   FL           2,870       3,621       568       1,813       3,438       5,434       8,872       (1,997 )     1998  
Silk Oak
  Clearwater   FL     (3,407 )     1,649       5,028             49       1,649       5,077       6,726       (1,054 )     2002  
Silver Dollar
  Odessa   FL     (8,643 )     4,107       12,431             1,045       4,107       13,476       17,583       (2,248 )     2004  
Sixth Ave
  Zephryhills   FL     (2,137 )     837       2,518             14       837       2,532       3,369       (432 )     2004  
Southern Palms
  Eustis   FL           2,169       5,884             2,492       2,169       8,376       10,545       (2,921 )     1998  
Southernaire
  Mt. Dora   FL     (1,977 )     796       2,395             49       796       2,444       3,240       (403 )     2004  
Sunshine Holiday
  Ormond Beach   FL           2,001       6,004             334       2,001       6,338       8,338       (1,022 )     2004  
Sunshine Holiday RV
  Fort Lauderdale   FL     (8,039 )     3,099       9,286             246       3,099       9,532       12,630       (1,472 )     2004  
Sunshine Key
  Big Pine Key   FL     (15,602 )     5,273       15,822             1,151       5,273       16,973       22,245       (2,703 )     2004  
Sunshine Travel
  Vero Beach   FL           1,603       4,813             227       1,603       5,040       6,643       (801 )     2004  
Terra Ceia
  Palmetto   FL     (2,390 )     965       2,905             70       965       2,975       3,940       (493 )     2004  
The Heritage
  N. Ft. Myers   FL     (12,509 )     1,438       4,371       346       3,889       1,784       8,260       10,045       (3,655 )     1993  
The Meadows
  Palm Beach Gardens   FL     (5,770 )     3,229       9,870             1,976       3,229       11,846       15,075       (3,735 )     1999  
Three Flags RV Resort
  Wildwood   FL           228       684             5       228       689       916       (65 )     2006  
Toby’s
  Arcadia   FL     (3,218 )     1,093       3,280             14       1,093       3,294       4,388       (573 )     2003  
Topics
  Spring Hill   FL     (2,113 )     844       2,568             316       844       2,884       3,729       (470 )     2004  
Tropical Palms
  Kissimmee   FL           5,677       17,116             4,040       5,677       21,156       26,833       (3,589 )     2004  
Tropical Palms
  Punta Gorda   FL     (7,441 )     2,365       7,286             136       2,365       7,422       9,787       (685 )     2006  
Vacation Village
  Largo   FL     (2,135 )     1,315       3,946             118       1,315       4,064       5,379       (650 )     2004  
Villas at Spanish Oaks
  Ocala   FL     (12,600 )     2,250       6,922             1,006       2,250       7,928       10,178       (3,965 )     1993  
Windmill Manor
  Bradenton   FL     (5,773 )     2,153       6,125             1,390       2,153       7,515       9,667       (2,633 )     1998  
Windmill Village
  N. Ft. Myers   FL     (16,948 )     1,417       5,440             1,808       1,417       7,248       8,665       (5,484 )     1983  

S-7


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Winds of St. Armands North
  Sarasota   FL     (19,935 )     1,523       5,063             2,796       1,523       7,859       9,383       (5,119 )     1983  
Winds of St. Armands South
  Sarasota   FL     (12,829 )     1,106       3,162             978       1,106       4,140       5,246       (3,062 )     1983  
Winter Garden
  Winter Garden   FL           2,321       6,962             73       2,321       7,035       9,356       (372 )     2007  
Pine Island Resort
  St. James City   FL           1,678       5,044             63       1,678       5,107       6,785       (240 )     2007  
Golf Vistas Estates
  Monee   IL     (13,801 )     2,843       4,719             6,473       2,843       11,192       14,035       (3,730 )     1997  
O’Connell’s
  Amboy   IL     (4,677 )     1,648       4,974             361       1,648       5,335       6,984       (978 )     2004  
Pine Country
  Belvidere   IL           55       166             45       55       211       266       (13 )     2006  
Willow Lake Estates
  Elgin   IL     (17,789 )     6,138       21,033             4,963       6,138       25,996       32,134       (11,593 )     1994  
Lakeside
  New Carlisle   IN           426       1,281             49       426       1,330       1,756       (228 )     2004  
Oak Tree Village
  Portage   IN     (9,680 )                 569       3,769       569       3,769       4,338       (2,362 )     1987  
Twin Mills RV
  Howe   IN     (2,524 )     1,391       4,186             64       1,399       4,250       5,649       (300 )     2006  
Diamond Caverns Resort & Golf Club
  Park City   KY           530       1,594             (118 )     530       1,476       2,006       (139 )     2006  
Gateway to Cape Cod
  Rochester   MA           96       288             42       96       330       426       (22 )     2006  
Old Chatham RV
  South Dennis   MA     (5,387 )     1,760       5,293             15       1,760       5,308       7,068       (604 )     2005  
Sturbridge
  Sturbridge   MA           116       347             179       116       526       642       (26 )     2006  
Moody Beach
  Moody   ME           97       292             83       97       375       472       (22 )     2006  
Pinehirst RV Park
  Old Orchard Beach   ME     (5,805 )     1,942       5,827             56       1,942       5,883       7,825       (669 )     2005  
Mt. Desert Narrows
  Bar Harbor   ME           1,042       3,127       (5 )           1,037       3,137       4,174       (114 )     2007  
Narrows Too
  Trenton   ME           1,469       4,408       (6 )           1,463       4,406       5,869       (160 )     2007  
Patton Pond
  Ellsworth   ME           267       802                   267       834       1,101       (30 )     2007  
Bear Cave Resort
  Buchanan   MI           176       573                   176       507       682       (45 )     2006  
Goose Creek
  Newport   NC     (11,808 )     4,612       13,848       750       1,201       5,362       15,049       20,410       (2,412 )     2004  
Green Mountain Park
  Lenoir   NC           1,037       3,121             (107 )     1,037       3,014       4,051       (273 )     2006  
Lake Gaston
  Littleton   NC           136       409             52       136       461       597       (30 )     2006  
Lake Myers RV
  Mocksville   NC           1,504       4,587             (18 )     1,504       4,569       6,072       (337 )     2006  

S-8


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Scenic
  Asheville   NC     (3,745 )     1,183       3,511             6       1,183       3,517       4,700       (325 )     2006  
Twin Lakes
  Chocowinity   NC     (3,582 )     1,719       3,361       (10 )     90       1,709       3,451       5,160       (575 )     2004  
Waterway RV
  Cedar Point   NC     (5,885 )     2,392       7,185             81       2,392       7,266       9,659       (1,196 )     2004  
Sandy Beach RV
  Contoocook   NH     (5,100 )     1,755       5,265             31       1,755       5,296       7,051       (608 )     2005  
Tuxbury Resort
  South Hampton   NH     (1,134 )     3,557       3,910                   3,557       3,989       7,546       (164 )     2007  
Lake & Shore
  Ocean View   NJ           397       1,192             68       397       1,260       1,658       (85 )     2006  
Sea Pines
  Swainton   NJ           208       625             57       208       682       891       (46 )     2006  
Bonanza
  Las Vegas   NV     (9,062 )     908       2,643             1,485       908       4,128       5,036       (2,836 )     1983  
Boulder Cascade
  Las Vegas   NV     (8,398 )     2,995       9,020             2,170       2,995       11,190       14,185       (3,861 )     1998  
Cabana
  Las Vegas   NV     (7,743 )     2,648       7,989             510       2,648       8,499       11,147       (4,088 )     1994  
Flamingo West
  Las Vegas   NV     (14,333 )     1,730       5,266             1,386       1,730       6,652       8,382       (3,050 )     1994  
Villa Borega
  Las Vegas   NV     (6,250 )     2,896       8,774             1,005       2,896       9,779       12,675       (3,634 )     1997  
Alpine Lake
  Corinth   NY     (13,948 )     4,783       14,125       153       147       4,936       14,272       19,209       (1,633 )     2005  
Brennan Beach
  Pulaski   NY     (20,664 )     7,325       21,141             1,377       7,325       22,518       29,843       (2,504 )     2005  
Greenwood Village
  Manorville   NY     (25,718 )     3,667       9,414       484       4,063       4,151       13,477       17,628       (4,470 )     1998  
Lake George Escape
  Lake George   NY           3,558       10,708       4       223       3,562       10,931       14,493       (1,245 )     2005  
Lake George Schroon Valley
  Warrensburg   NY           540       1,626             2       540       1,628       2,168       (50 )     2008  
Rondout Valley Resort
  Accord   NY           1,115       3,344             (117 )     1,115       3,227       4,341       (294 )     2006  
Falcon Wood Village
  Eugene   OR     (5,081 )     1,112       3,426             395       1,112       3,821       4,934       (1,432 )     1997  
Mt. Hood
  Welches   OR           1,817       5,733             (35 )     1,817       5,698       7,516       (1,337 )     2002  
Quail Hollow
  Fairview   OR                 3,249             379             3,628       3,628       (1,367 )     1997  
Shadowbrook
  Clackamas   OR     (6,175 )     1,197       3,693             319       1,197       4,012       5,209       (1,565 )     1997  
Appalachian
  Shartlesville   PA     (4,234 )     1,666       5,044             (37 )     1,666       5,007       6,673       (355 )     2006  
Circle M
  Lancaster   PA           347       1,041             55       347       1,096       1,443       (74 )     2006  
Dutch County
  Manheim   PA           93       278             45       93       323       416       (21 )     2006  
Gettysburg Farm
  Dover   PA           117       350             43       117       393       510       (26 )     2006  
Green Acres
  Breinigsville   PA     (30,167 )     2,680       7,479             3,671       2,680       11,150       13,830       (6,600 )     1988  

S-9


Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Scotrun
  Scotrun   PA           161       483             41       161       524       685       (35 )     2006  
Spring Gulch
  New Holland   PA     (4,485 )     1,593       4,795             112       1,593       4,907       6,499       (830 )     2004  
Timothy Lake North
  East Stroudsburg   PA           311       933             92       311       1,025       1,336       (67 )     2006  
Timothy Lake South
  East Stroudsburg   PA           216       649             31       216       680       897       (46 )     2006  
Inlet Oaks
  Murrells Inlet   SC     (4,836 )     1,546       4,642             28       1,546       4,670       6,216       (426 )     2006  
The Oaks at Point South
  Yemassee   SC           267       814             (22 )     267       792       1,060       (71 )     2006  
Country Sunshine
  Weslaco   TX     (2,336 )     627       1,881             726       627       2,607       3,233       (371 )     2004  
Fun n Sun RV
  San Benito   TX           2,533             412       10,739       2,945       10,739       13,684       (3,839 )     1998  
Lakewood
  Harlingen   TX           325       979             92       325       1,071       1,396       (188 )     2004  
Paradise Park RV
  Harlingen   TX     (4,589 )     1,568       4,705             191       1,568       4,896       6,464       (794 )     2004  
Paradise South
  Mercedes   TX     (1,665 )     448       1,345             191       448       1,536       1,984       (237 )     2004  
Southern Comfort
  Weslaco   TX     (2,684 )     1,108       3,323             130       1,108       3,453       4,560       (558 )     2004  
Sunshine RV
  Harlingen   TX           1,494       4,484             545       1,494       5,029       6,523       (763 )     2004  
Tropic Winds
  Harlingen   TX           1,221       3,809             233       1,221       4,042       5,263       (935 )     2002  
All Seasons
  Salt Lake City   UT     (3,411 )     510       1,623             271       510       1,894       2,404       (767 )     1997  
Westwood Village
  Farr West   UT     (10,924 )     1,346       4,179             1,475       1,346       5,654       6,999       (2,198 )     1997  
Harbor View
  Colonial Beach   VA           67       202             297       67       499       566       (29 )     2006  
Meadows of Chantilly
  Chantilly   VA     (34,344 )     5,430       16,440             5,661       5,430       22,101       27,530       (9,790 )     1994  
Williamsburg
  Williamsburg   VA           117       350             40       117       390       506       (26 )     2006  
Kloshe Illahee
  Federal Way   WA     (5,423 )     2,408       7,286             473       2,408       7,759       10,167       (2,926 )     1997  
Arrowhead
  Wisconsin Dells   WI     (1,772 )     522       1,616             (5 )     522       1,611       2,133       (126 )     2006  
Caledonia
  Caledonia   WI           376       1,127       10       31       386       1,158       1,544       (160 )     2004  
Fremont
  Fremont   WI     (4,077 )     1,432       4,296       5       204       1,437       4,500       5,937       (635 )     2004  
Tranquil Timbers
  Sturgeon Bay   WI           714       2,152             16       714       2,168       2,882       (192 )     2006  
Yukon Trails
  Lyndon Station   WI           547       1,629       9       103       556       1,732       2,288       (251 )     2004  
Thousand Trails (57 Properties)
  Various               48,537       113,253       577       6,174       49,114       119,427       168,541       (16,145 )     2004  

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Table of Contents

                                                                                         
Schedule III
 

Equity LifeStyle Properties, Inc.
 
Real Estate and Accumulated Depreciation
 
December 31, 2008
 
(Amounts in thousands)
 
                        Costs Capitalized
                   
                        Subsequent to
    Gross Amount Carried
             
                  Initial Cost to
    Acquisition
    at Close of
             
                  Company     (Improvements)     Period 12/31/08              
                        Depreciable
          Depreciable
          Depreciable
          Accumulated
    Date
 
Real Estate
  Location       Encumbrances     Land     Property     Land     Property     Land     Property     Total     Depreciation     Acquired  
Thousand Trails (2 Properties)
  Various               1,800       8,200                   1,800       8,200       10,000       (456 )     2006  
Subtotal of Properties Held for Long Term
            (1,553,099 )     534,336       1,556,577       5,382       297,742       539,695       1,854,344       2,394,039       (542,120 )        
Properties Held for Sale
                                                                                       
Creekside
  Wyoming   MI     (3,676 )     1,109       3,646             186       1,116       3,831       4,941       (932 )     1998  
Casa Village
  Billings   MT     (10,628 )     1,011       3,109       158       3,721       1,168       6,830       7,997       (3,175 )     1983  
Subtotal of Properties Held for Sale
            (14,302 )     2,120       6,755       158       3,907       2,277       10,662       12,939       (4,104 )        
Realty Systems, Inc. 
                                    65,202             65,202       65,202       (3,339 )     2002  
Management Business
                        436             18,399             18,835       18,835       (11,667 )     1990  
                                                                                         
              (1,567,403 )     536,456       1,563,768       5,540       385,249       541,979       1,949,042       2,491,021       (561,233 )        
                                                                                         
 
 
NOTES:
 
(1) For depreciable property, the Company uses a 30-year estimated life for buildings acquired and structural and land improvements, a ten-to-fifteen year estimated life for building upgrades and a three-to-seven year estimated life for furniture and fixtures.
 
(2) The schedule excludes Properties in which the Company has a non-controlling joint venture interest and accounts for using the equity method of accounting.
 
(3) The balance of furniture and fixtures included in the total amounts was approximately $36.3 million as of December 31, 2008.
 
(4) The aggregate cost of land and depreciable property for federal income tax purposes was approximately $2.5 billion, as of December 31, 2008.
 
(5) All Properties were acquired, except for Country Place Village, which was constructed.
 
(6) These properties were held for sale as of December 31, 2008, pursuant to FAS 144.

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Table of Contents

 
Schedule III

Equity LifeStyle Properties, Inc.
Real Estate and Accumulated Depreciation
December 31, 2008
 
The changes in total real estate for the years ended December 31, 2008, 2007, and 2006 were as follows:
 
                         
    2008     2007     2006  
 
Balance, beginning of year
  $ 2,396,115     $ 2,337,460     $ 2,152,567  
Acquisitions
    10,393       45,646       164,949  
Improvements
    26,716       29,384       32,205  
Dispositions and other
          (16,375 )     (12,261 )
Inventory reclassification
    57,797              
                         
Balance, end of year
  $ 2,491,021     $ 2,396,115     $ 2,337,460  
                         
 
The changes in accumulated depreciation for the years ended December 31, 2008, 2007, and 2006 were as follows:
 
                         
    2008     2007     2006  
 
Balance, beginning of year
  $ 494,211     $ 435,809     $ 378,325  
Depreciation expense(a)
    67,022       63,991       60,770  
Dispositions and other
          (5,589 )     (3,286 )
                         
Balance, end of year
  $ 561,233     $ 494,211     $ 435,809  
                         
 
 
(a) Excludes approximately $0.8 million of unamortized lease costs expenses related to the termination of the Privileged Access lease and includes approximately $1.2 million of depreciation from rental operations included in Ancillary services revenues, net.


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