Equity LifeStyle Properties Inc (ELS) 2003 Q1 法說會逐字稿

Please stand-by. Good day and thank you for joining us to discuss MHC's First Quarter Results. Our featured speakers are Howard Walker, MHC's CEO; Tom Heneghan, our President and COO; and John Zoeller, our CFO. This call is being recorded. Certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the Federal Securities Law. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligations to update or supplement these statements that become untrue because of subsequent events. At this time, I'd like to turn the call over to Mr. Howard Walker, CEO. Please go ahead sir.

Thank you James and good morning everyone and thank you for joining us as we report on MHC's performance during the first quarter of 2003. MHC released its first quarter earnings this morning and reported that its funds from operations were 67 cents per share on a fully diluted basis. The spread between our actual performance and consensus is essentially due to a strong first quarter performance and the seasonality of revenues from the RV resorts. John will discuss this variation in his remarks.

Our performance continues to be evidence of the stability of MHC's unique portfolio and its ability to generates solid earnings throughout an economic cycle and consequently, we are comfortable with our annual guidance for 2003 of FFO growth of 0 to 3%. Quarter by quarter performance however, will be impacted by the seasonality of our RV resorts and could be further impacted by potential acquisitions and disposition and fluctuations in sales of union [ph] stocks. Core performance remained solid with average portfolio rent of $417.51 cents per site and occupancy declines are showing signs of slowing in those markets that have been experiencing serious declines in the past.

MHC's first quarter sales volumes are on par with last year's performance. We're encouraged with the overall level of sales activity in today's uncertain economic and political environment and MHC continues to sell new homes and communities in most of our major markets. As to expenses our increases for the quarter are in line with our expectations. We continue to monitor our exposure to unexpected expense increases especially in the area of government services as these entities continue to report declines in revenues.

The industry on the whole will continue to adapt to the conditions of the past few years and now that the last large loan portfolio has changed hands we believe that the new ownership will address the portfolio with a goal towards stabilizing its - by marketing its inventory of repolls and analyzing how best to achieve value from the existing collaterals. The manufacturers have positioned themselves to ride out this cycle and together with existing lending sources have created platforms to provide capital for manufactured home loans. We remain cautious about the time lines for return to historical norms of new home manufacturing drives [ph]. In that factors such as global conflict, consumer confidence levels, low home interest rates and competition from strict [ph] built development and apartments remain in flux. As to MHC, however, we believe that MHC's portfolio will perform in its customary solid manner for 2003 notwithstanding the current economic climate. Now to John.

Thanks Howard. As Howard said, the results for the quarters reflect the relative stability of our portfolio property performance throughout the economic cycle. First quarter results also reflect the seasonal earnings generated from the 6,000 plus sites making up our resort first [ph] model RV portfolio. With respect to our core portfolio, which we define as properties owned as of the beginning of each year. Base rattle income is up 3.6%. Our average base rental rate is up 5.3%. Our average occupied site is down 1.7%.

With respect to our core net operating income core NOI is up approximately 2.9%. This is on total property revenues, which were up 3.2% and property operating expenses, which increased to approximately 3.7%. Excluding our expansion communities, total occupancy for the core portfolio is down approximately 1.7%. With respect to expansion during the quarter, we filled approximately 33 expansion sites toward our goal of 150 to 200 sites for the year. During the quarter, no new expansion sites were brought on line. With respect to our debt, our average debt balance was 761 million with the waited average interest rate of 6.5%. Our interest coverage is approximately 2.8 times and the current availability under our credit line is about 80 million.

With respect to the guidance for the remainder of 2003, as we indicated in our press release we project that the range of 2003 FFO will be flat on the low end to about 3% growth on the high end. And we wanted to say that we base these projections on the following factors and assumptions. Our core base rent rate growth is about 5% based upon actual first quarter results --actual first quarter rents as well. This is an increase from earlier guidance of I think approximately 4% and this is due primarily to achieving market increases on more sites and certain rent control California community as well as achieving a higher market increases in other West Coast markets.

With respect to our occupancy, we project within our earnings range an occupancy decrease -- on the low end of the earning range, an occupancy decrease of 1.8% and an occupancy decrease of 1.2% at the high end of the range. This should yield with overall core revenue growth in the area of 3%. With respect to core operating expenses, core occupancy expenses are expected to grow in access of CPI due to increases in insurance, utility expenses, and real estate taxes. Our resulting core NOI growth should be in the range of 2 to 2.5% as a result of all that.

Sales operations earnings are assumed to range between breakeven at low end and even with 2002 earnings at the high end. We will continue to follow our plan to run the home sales program with the continued goal of selling more homes and more community. In addition, some other items that MHC would -- has elected to spend stock options; and we expect dilution, from 2003 over 2002, of 1 cent of share. At this time, our projection assumes no acquisitions or dispositions or share repurchases. Our projection does include a recently completed property refinancing that will cause approximately 1 cent of dilution for the rest of 2003. The other thing I -- the other two items are the 2002 sales of properties in Michigan, Florida and Ohio coupled with 2002 purchases of properties in Florida, in Arizona, and Texas, will cause 3 cents of dilution.

And, finally, we want to emphasize this, with respect to our quarterly earnings, we expect FFO for the first half of this year to be flat, with respect to first half of 2002, with any FFO growth to occur in the second half of the year.

Thank you, John. And we'll now open it up for Q&A please.

Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question, simply press the "*" followed by the digit "1" of your touchtone telephone. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pursue in the order as the signal list, and take as many questions as time permits. Once again, press "*" "1" if you have a question. We'll take our first question today from Jonathan Litt with Smith Barney.

Good morning. It's Jordan Sadler here with John. You mentioned that you filled 33 of the expansion sites in goals, 150 to 200 for the full year. Do you expect it to pick up sometimes throughout the year or what are your assumptions on it on quarterly basis, I guess?

Well, we expect to pick up throughout the year. If you look at Jordan, the history of how our sales volumes are ramp up during the course of the year, 33 expansion sites. Home sale was not unusual for us. The first quarter is always wide. And we do set that goal for ourselves. We have in a couple of expansion, our projects in New York [ph] that we hope to get right on line this year and initiate more sales in those projects alone with some of the existing expansion that we have in the pipeline already.

How does that compare against last year sales?

Last year, we filled 150 -- let's say 152.

And then in the first quarter.

In the first quarter last year I have to look it that -- I don't have that with me but I think it was probably in the neighborhood 25 or 30.

Okay. And could you maybe give us an update on the rent control litigation, is has there been any changes? I think you spent $5 million in litigation in '02? What do you expect to spend this year associated with that and will any of the expenses just continue to capitalize?

Well, with respect to the case that we went to trial in the fourth quarter of last year, we are still awaiting the decision on that case. That was where a significant amount of dollars were spent. So, we are still waiting for the outcome of that. We do have set for trail another case in the fourth quarter of this year.

And to the extent that goes to trail, we could see some additional dollars being spent. Dollars spent on either one of those two cases involve issues including a change of use of the property. So that's where you are seeing potentially a treatment that is capitalization versus expense -- every place also the expense. We did have a decision come out another case down in the Santiago area that was favorable to us. Although it hasn't been set for judgment and order has not been issued. So that remains to be seen but it did come to a favorable conclusion for us. And that's about the extent of the uptick.

Okay, and can you let us know how much is actually capitalized in other assets?

As of today -- as of the beginning of this quarter we had over to two years about 7.4 million capitalized. For the first quarter, I don't have those numbers but it was not a heavy quarter. I guess what I emphasize is it's hard to gauge what the expenses are going to be, simply because it is litigation and..

You don't really have to.

[indiscernible] or whatever.

Understood.

We do -- we are waiting, just the other thing I would add is, one final decision with respect to the case we settled in Santa Cruz at the end of last year and to the extent that our attorney fees awarded in that case. It might be some more expense but we don't expect that to be significant.

Okay, and then in the fourth quarter I think you reported you had named the Conseco Repos how many do you have today? Could you may be just give us some, I guess.

Sure.

The contacts and how many repos you expect on the monthly basis or so?

What we have right now, our repos have trended up. I think the last time we really talked about repos is at the end of the third quarter we had about a 185, today we have about 240. If you look at those repos about a 100 of them are Conseco, the other thing - when we look at our repos we see where they are kind of break out is we got about 60 in Colorado.

We got about 60 in some of these other communities that we've talked about in the past in Las Vegas, in Iowa, Indiana all age communities, and then we have about another 120 and about another 150 communities. So, when you look at our repos what you really see is for the most part there is scattered around the portfolio, there is one here two there, except for those concentration in some of those what I'd say like 15 communities.

With respect to Conseco, they're -- they fall permanently in the western part of the US and in the Midwest. So there's probably in the East Coast of Florida, there's probably 15 Conseco repos because they just take presence there and the remainder of our Conseco repos are in Iowa, Indiana, Denver, California etcetera.

We think that it's a manageable problem, it is not achieved issue, and it is not an issue that we plan on - it's really some sort of global solution for. We basically look at it on a community-by-community basis with Conseco like any other lender. And to the extent, if there is an opportunity to buy a house, we'll buy a house; if we want to hope best in get our [indiscernible] house, we'll do that. It's really not a global issue. We tend to manage it at the property level.

Just two follow-ups. So would 20 additional repos a month would be a good estimation for the rest of this year assuming everything is equal?

Yes. Jordan, I think what you'd see 20 but then you'll see 20 resolve. You'll see house [indiscernible].

Okay.

And you'll see -- there may be a pullout here or there. It really -- we don't expect it to trend up significantly at this point in time.

And how many do you guys own at this point? Have you purchased the -- of the repo homes, have you purchased any of them?

We probably purchased half dozen.

Okay.

I mean it hasn't been dramatic.

Okay. Thanks.

We'll take our next question from Alexander Goldfarb with Lehman Brothers.

Hi. Good morning. I Just had a first question on the revenue. You mentioned first half of this year to be flat with last year, but the first quarter was up versus year ago. So are you expecting second quarter to be down versus '02 to make the first quarter flat?

Yes. I think what -- one of the things that we're -- one of the things we're seeing is in our guidance including the guidance that we gave you, the transactions we entered into last year will cost 3 cents of dilution year-over-year. But if you look back at those transactions, what we basically did is we sold about 3,700 Manufactured Home sites and redeployed that capital into a purchase of about 1,700 Manufactured Home sites, without 2,000 resort hot [ph] model sites.

Those resort hot model sites said are more seasonal in nature. And therefore, what you saw in the first quarter is the transactions that we entered into last year were actually accretive for the first quarter by about a penny yourself. And what you're going to see is in the second quarter is they're always going to go dilutive, probably a penny -- a couple of cents more. So we're going to start out the second quarter already with 2 cents of dilution. Okay. And then you take in some growth in the core portfolio that gets you to -- that offset some growth in the core portfolio; and then it really comes down to what our sales operations are going to do in the second quarter.

Okay. So then, looking out for the year, I know, it is between this press release and the fourth quarter release, the NOI group was up an extra 0.5%. So, is that really just the increase in the RV income for the first quarter, explains the -- there's a 50 basis point increase for the year? Were there other things looking out into this year that you expect to increase?

The real increase and analyze coming off of a higher than anticipated rent increase primarily emanating from West Coast Properties, the strong market place in Southern California and we had increased rents larger than we had anticipated back in October, I think, when we gave the guidance, we also had some additional mark-to-market adjustments occurring in rent controlled communities and this is primarily San Hose.

We have aggressively targeted any opportunity where we can move rents to market. We now have, I think, out of a few thousand sites or 1,500 sites in San Hose market place, gotten 60 of those sites to market rents of anywhere from $1,100 to $1,300. You compare that to the average market rent -- I mean, excuse me, the rent controlled rent though, call it, $600 and net of giving a little extra boost to what is occurring on the rate line with respect to MHC. That following down through into the NOI line.

Okay. And, David Herts [ph] wanted me to ask you, Howard. On the Conceto [ph] portfolio sale or on [indiscernible] acquisition of a [indiscernible] entry into Manufactured Home business. Are you seeing any benefit?

The answer is probably anticipatory. The initial reaction to the whole world is, anytime, Warren Buffet [ph] and tourism industry. There must be some value there, so the benefit to all of us is, other people are probably looking at our industry in number of ways which I think is positive and, hopefully, will cost some benefit that will emerge over the next year or so.

On a what's going on today, frankly, I think, very few people really have their handle around but they are going to do nor have we seen them make any move that we're aware of. That will, kind of, flight us in the direction they are going. So do I think it's good, yes, anytime [indiscernible] things and the industry has value which is good for everybody.

Okay. Thank you.

Lou Taylor with Deutsche Banc has our next question.

Well, thanks. Howard, can you expand a little bit on the occupancy change in, any differences among regions? And then, number two, whether or what percentages maybe coming from actual -- just moving out of the homes and homes staying a lot versus actual pullouts?

Well I'll comment a little bit. On what you're seeing first quarter this year versus first quarter of last year is the cumulative effect on the occupancy loss that occurred for the most part in 2002. If you look at first quarter of this year compared to, kind of, fourth quarter of last year, our yearend numbers were essentially flat on occupancy. So the decline that you're seeing year-over-year is really the decline that occurred cumulatively throughout 2002.

I should note that during the first quarter of this year, we have a program that is called, The Seasonal Rental Program in our senior properties that trade and occupancy uptick in the first quarter that will fall off in the second and third quarters. So, we'll see some occupancy decline from the first quarter on a on-going basis into the second and third quarter. But, we see that [audio gap] decline on a relative basis, compared to last year slowing. So in another word, the rate of decline that's occurring in 2000 and occupancy loss that we were experiencing in 2002. And for the most part that occupancy loss is in the same areas, just had a slower rate than we had seen last year. We're still losing occupancy in some of those areas we have long discussed, but just not as at the same pace.

All right. And how about just a level of pay slip pullouts? Up -- down?

Well, there is mix in the pullouts. We like to see pullouts in senior communities, because it gives us the opportunity to put in, and install and install a new home. We have been pretty encouraged by our ability to solve new homes in our senior properties, literally throughout the country, in what I would have to characterize is a pretty competitive housing environment. We're still pretty successful selling life style and selling that package of affordability in life style within our senior properties.

So, we're not really trying to stop a pullout occurring in some of our senior properties. We keep an eye on it. We don't wanted to get out of control. But we're in 1970 home, it is gone and you replace it with a 2002 home and the market allows you to sell that new home. We call that a good thing. In the family communities you actually have the reverse going on. The pullouts are in fact of the newer homes that were financed in the late 90's that people now are challenged with respect to maintaining the payments schedule on those new homes. Those are the ones that are going into repossession. Those are the ones that are being pulled.

So you almost see a reverse of the quality of the cash flow occurring between a senior community and a family community. In the senior community you're upgrading the housing stock and I think the cash flow commensurate with that housing stock. In the family communities, you're seeing a deterioration in the housing stock, as the newer homes that were priced in the late 90's start to get pulled and now you see people trying to scramble to replace that site with something may be at the resell [ph], may be at the used home recent vintage, used home or may be they're buying the resell on site trying to sell it again but at a lower price which is again going to attract a lower end customer. So, I think there is - if the question as to where it's occurring as to what the impact is on the business.

Okay. How about in terms of the repossessed homes getting pulled out are they getting pulled out at the same rate or at a greater rate?

I think it's slowing, you know we had some concern as to what would happen in the major metropolitan of Denver, I have to say till date, we're pretty pleased with what's going on in Denver. Denver in fact has sold some new homes this first quarter over and above what they sold last year in the first quarter. So, if anything we're seeing more of a stabilizing market place in Denver not a deteriorating market place in Denver, it would restrict to other places where we operate. I will have to say sitting here that we're seeing a slowing down of that trend, a stabilizing of the properties but not an uptick yet.

Okay. Thank you.

As a reminder, if you do have a question press "*" "1." We'll now move on to David Lanco with RBC Capital Markets.

Hi, guys, David Lanco here with Jay Leupp [ph] wondered -- you talked about the strength in your California markets I wondered if you could give us kind of market by market run down in terms of a rent growth and occupancy in some of your market, major markets particularly California, if you could quantify the rent growth that degrade?

You know California, essentially occupancy has been very stable in California and rent growth depends on whether or not you're subject rent control or not, we have seen some healthy rent increases, given a strong very strong housing market in the San Diego market place. I think it's a double-digit type rent increase year over year. Again in San Jose where we can actually get a site to a market rent status because it doesn't comply with rent control on an individual site basis. You are seeing a doubling of the rent in fact on $600 to $1200 but that limited in the opportunity you are seeing stable occupancy in San Jose and up in -- to the northwest [indiscernible] Oregon we are also seeing some pretty healthy rent increases. It's been a marketplace where senior properties continue to perform well, and there has been some slippage in family properties.

We have most of the senior properties up there so we are seeing some good rental increases. Across the marketplace I have to say the northeast is still pretty stable going strong across Florida. It's very stable, we are continuing to see success selling new homes. Chicago metropolitan area is rock solid. Indiana is sloppy.

Iowa the same way. Into Phoenix you are still seeing challenges on the family community and the same we've had with respect to Los Vegas. I guess my general comment as it relates to family communities is, in those areas where there is low barriers to entry called the middle belt of the Midwest and into some parts of southwest; looking for the apartment markets because as the apartment market start to firm up and either start gaining occupancy or rate I think that's going to be the signal for when the family communities in these areas will start to find and uptick in their opportunities to either gain occupancy of rate growth. In major metropolitan areas that have high barriers to entry whether it's senior or whether it's family those are pretty strong markets as we see here today, given that the alternative cost for housing are pretty high.

Okay. Great. Thanks.

We'll move on to Steve Sakwa from Merrill Lynch.

Good morning. I just had a question on G&A. G&A last year was about $8.1 million, given that you are planning to expense options, what is your expectation for G&A this year?

Steve, we think G&A is going to be flat with last year. G&A last year included $0.5 million hit for some legal. So normally you would say it was going to go down but when we take the option expensing of costing us a penny, along with some public company cost increases in the new environmental and including the directors and officers, insurance premiums and other expenses like that are going to be flat.

Okay. And then I don't know whether you've broken this out in the past. But in terms of, kind of RV or the seasonal revenue in the aggregate, I think, last year was a little over $9 million. Any sense at to what that may be for the full year?

Yes. We think that the full year RV this year is going to be between 11.5 and 12.

And any split out in sort of first half, second half?

We got the first quarter, and what we can typically see is we -- I'm trying to think -- we didn't have -- well, we didn't bought last year. We probably quote about 1.5 million for the second quarter. It will probably go half and half roughly in the first half of the year to the second half of the year.

Okay. Great. Thanks.

Steve Morrison [ph] with [indiscernible] Capital Management has our next question.

I have a couple of question for you. When you mentioned that your rent was stronger in San Jose by trying being able to increase some of the rents to market and good fortune in the Southern California Market; was that at all related to litigation efforts that you're underway?

Well, to some extent, yes. It's all related to the same efforts, which is to get our from underneath the restrictions on rent control, where rent control is actually creating a transfer of value away from the landowner into a homeowner in the form of a premium on their home. So, yes, there is some connection with the litigation. What it is doing more than any thing else frankly is showing what the market would really bear compared to rent control brands.

And when we look at some of the places where we have initiated litigation, where we haven't had the ability to move rent to the market, we feel increasing amounts of confidence with respect to what we think the market rent would be absent rent control and an increasing amount of confidence with respect to what we did believe the values of those properties would be absent the impact of this rent control taking for [indiscernible] better word. So we're seeing, in some places, market rents that are doubled than what rent control rents would be. And in some of the areas, we've talked about with respect to the litigations, it would be at least double if not much more than that.

But it's not a matter of the cities responding differently to your rent proposals then they would have otherwise, because their -- they don't want to get sued or are they afraid of losing the suit?

Are you talking about an application for rental increase?

Right.

On those instance, it's a statutory increase and it's hugely CPI or 76% of CPI. So they're not reacting in any other way other than what they normally do. And therefore what you're hearing from Tom is those instances were able to establish market rent, because the property isn't protected.

I see. And on a different topic when you show your occupancy percentage in the quarter, does that include your RV communities?

No.

Okay. And since last quarter, I guess, it seems as though you're forecast for occupancy for this year have increased a little bit, in another words, the vacancy looks like it's increasing a little bit. And yet at the same time you sound a little more confident that you're occupancies are stabilizing at least in terms of the way the declined, could you help me understand that contradiction?

Sorry, one more time [indiscernible].

In another words, since last quarter it looks like your forecast for '03 occupancy is a little softer than it was last quarter. And yet at the same time your language implies that the rate of decline of occupancy in your troubled areas is flowing.

So you're talking about what were the guidance last time versus the guidance this time in terms of the tone of what we're indicating?

What I'm saying is the guidance - the guidance is that wins are up a little bit better from last time, but occupancies are a little softer than last time. And it doesn't make sense in light of your comments about occupancy stabilizing?

No. I guess, it should - I'll explain guidance last time versus guidance this time and hopefully that will answer the question. Last time we gave guidance, we said we didn't see anything out there that would progress, believe [ph] conditions changed. I'll have to warn that we were experiencing something different in 2003 than we experienced in 2002. With that meant, as we continue to believe, we're going to see a deterioration in occupancy during 2003 at the same rate we experienced in 2002. And that was incorporated into the guidance at the end of the year. What we're saying today is little more bullish that.

Right

That the rate of decline in occupancy has slowed and in fact first quarter this year compared to fourth quarter of last year is relatively flat on occupancy. Again I caution that comparison because there is some seasonal occupancy gain as a result of the seasonal revenue growth -- rental revenue we have. But as we sit here today we are seeing a slowing in the rate of occupancy loss.

Right.

We are pausing up to get a little more comfort with respect to the guidance we're giving.

Right. Right. Good. And last just pursuing the Warren profit purchase of Clayton homes have you heard about Becher's [ph] intentions to expand their financing business or their rental business?

The expansion of the financing business I understand by rental business - you can the expand in the community ownership or?

Right.

We don't really know. You know they bought a portfolio when they bought Clayton.

Right.

And the question is what's their appetite for this business or is this really going to be a business that continues - that's going to continue to operate under the Clayton family and do this model and I just don't know.

We're not getting any real indications this time.

Or have you heard anything about on the financing side. Does they do profit financing for this -- to support their manufacturing business?

Well certainly the Claytons are financing platform and considered one of the best models for this kind of financing in the country especially. We have a vertically integrated operation. Certainly you're getting the benefits if you want profit.

But Clayton is disciplined in operation when you look at deal [ph] portfolio. So, nothing else. It will add to the value of the old portfolio and that it remains to be seen whether or not they're attracted to the industry. As the business, you know, business model. I -- we just don't know.

Okay. Thank you very much.

Next we have a question from RBC Capitals Jay Leupp.

Good morning here with David Lanco with a follow up. Could you talk a little bit more about capitalization rates in any transactions you're seeing so far this year and what's your outlook could be for the year. And also maybe give us a little bit of a scenario analysis if you just pay higher interest rates coming later in the year. Could that have some effect on the movement of cap rates as well?

Well, I think that when you're looking at cap rates right now they pretty low. The acquisition environment right now in our sector is pretty tight. There isn't a tremendous amount of property out there at prices that would make sense to us. You're seeing what, you know, low 7 caps for a large number of properties and in some cases even lower and that's when you do see serious sellers.

With respect to interest rate, you know, that's anybody's guess we certainly, I think the availability of financing for private buyers at a leverage rate is driving some of the willingness to pay up for property. But that's going to change and drive up cap rates. You know, that remains to be seen. People, I think what you're seeing now is people realize this is a great product, and a nice asset to own. So, I think you may see the cap rates stay down there, but we'll see what happens.

What is your overall market expectation for the prospect of the addition of the new construction or new pads to the marketplace outside of our your own plans?

Well, in the markets we are in -- we -- again our overall strategy is to be in - when we're in family communities we want to be in major metro areas with high barriers entry. So, we don't look at additional manufactured home sites. Its creating a tremendous amount of competitive pressure. It's not like apartments because of where we are for the most part with a few exceptions and then with respect to the seniors, you know, in the Sunbelt you are really looking at just a demographic demand and we tend to be in area still in Florida we're raising a tremendous amount of buildable land to manufacture houses. So again its not -- we don't look upon just other MH developers as our competition. We've chosen where to locate our real estate so that that isn't a major problem for us.

Thank you.

Alexander Goldfarb with Lehman Brothers has a follow up question.

you have just a question on CAPEX. I was wondering if you can identify what the current CAPEX in the first quarter was and then also what do you expected for rest of the year?

it was about 2.2 million in a week -- and there's about 800,000 of upgrades, it's about 3 million for the first quarter and 2.2 million is what we would characterize as recurring component of that and we think with true recurring CAPEX that you need to keep the property in good conditions round at about 8 million this year and anything in excess would be upgrade and some of the selected communities.

Okay. Thank you.

As a final reminder if you do have a question at this time press "*" "1". There appears to be no questions at this time. I will turn over the call to Mr. Walker for any additional or closing remarks.

Thank you for joining us and as always we remain available for any additional calls that you might have or clarification. Thank you.

And that concludes today's conference call. We thank you for your participation and have a nice day.