Equity LifeStyle Properties Inc (ELS) 2004 Q3 法說會逐字稿

Good day and thank you for joining us to discuss MHC's third-quarter results. Our featured speakers are Tom Heneghan, our President and CEO, Michael Berman, our CFO, and Roger Maynard, our COO. 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 obligation 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. Tom Heneghan. Please go ahead, sir.

Thank you for joining us as we discuss MHC's results for the third quarter of 2004 and our expectations for the remainder of 2004 and also 2005.

I'm Tom Heneghan, MHC's CEO. Joining me today are Mike Berman, MHC's CFO, and Roger Maynard, MHC's COO. After my initial comments, Roger will provide some comments with respect to property operations and Mike will discuss our financial results in more detail. We will then open it up for your questions.

During our year-end call for 2003, we indicated that our focus for 2004 would be the successful consummation and integration of the acquisition program, an increase in Core Portfolio occupancy, continuing to increase new home sales volumes and improving the profitability of our home sales operations.

To recap the acquisition program, since December of 2003, MHC has invested in 70 properties representing almost 26,000 sites. Our focus has always been and continues to be to own stable cash flow-generating properties in major metropolitan areas with high barriers to entry and retirement and vacation destinations. This is reflected in our acquisition completed this year.

Today, the core markets of Florida and Arizona represent approximately 70 percent of our total sites with the remaining sites being concentrated along the east and west coasts of the United States, the Gulf Coast of Texas, and the major metropolitan areas of Denver, Chicago and Las Vegas. I'm pleased with the success in closing these transactions and although it is still early, I am also pleased with the integration of these properties into the MHC portfolio and their early performance.

We continue to make progress towards the closing on our sale leaseback transactions with Thousand Trails announced August 3, 2004. This transaction involves an investment of 160 million in 57 membership RV resorts that will be leased back to the current operator. The initial yield is 10 percent and we expect this transaction to close before year-end. This transaction greatly increases our exposure along the West Coast of the United States with 32 properties containing over 9,000 sites located in the states of California, Washington and Oregon. In addition, both MHC and Thousand Trails personnel have been discussing a variety of cross-marketing initiatives and opportunities. We fully expect the transaction to be beneficial to both companies beyond the aspects of the initial transaction.

With respect to Core Portfolio occupancy, the third quarter was essentially flat with the second quarter and down 264 sites from the beginning of the year. Most of this year-to-date decline results from two factors, the timing of occupancy of our seasonal rental program in Florida and Arizona markets and a continued decline in certain family assets. Our goal is to recoup the modest decline since December, 2003 and finish the 2004 occupancy at the December 2003 level.

With respect to new home sales volumes and profit, the third quarter of 2004 was impressive. Despite the hurricanes, we sold 134 new homes, which is only three less than the year-ago period. The profitability of our sales operations has also shown substantial improvement. We hope to continue this trend in the fourth quarter.

Our outlook for 2005 is based on a continuation of our focus in 2004. We expect to leverage the extremely stable Core Portfolio through the opportunities created by our acquisitions and to continue improving our ability to deliver products to our customers with an emphasis on lifestyle and community. We expect to invest in the new expansion opportunities created by our acquisition, continue to focus on selling both resort homes and cottages throughout our portfolio, and step up our evaluation of opportunities to redeploy our capital generally away from family assets that focus on affordable housing and to lifestyle properties that meet our investment criteria.

Before I hand it over to Roger, I would like to make some comments about Charley, Frances, Ivan and Jeanne, the four hurricanes that impacted the southeastern United States and Florida in particular. The physical and emotional burden created by these hurricanes and their aftermath is overwhelming. Many throughout the state incurred significant loss. That said, however, anyone visiting Florida today would be awed by the pace at which (indiscernible) of normalcy has resumed. Remarkable efforts were undertaken throughout the state to clean up after the hurricanes. I am proud to say that our industry and in particular our company weathered the hurricanes and their aftermath extraordinarily well. This is a direct result of a number of factors that have begun and should continue to shed a positive light on our industry.

First, the improved standard of today's homes performed remarkably. This was noted not only by the industry but also by state and federal officials touring hurricane-impacted areas. Second, our homes are set approximately 3 feet off the ground and greatly reduced the damaging effects of flooding caused by significant and extensive rains that, in many places, overwhelmed the existing drainage systems. Third, the communities themselves allowed focused and coordinated efforts to clean up from aftermath that were generally equal to or ahead of efforts in the surrounding areas. The combined efforts of our employees and our residents gave real meaning to the word 'community'. We often say that this sense of community is a strong draw for potential customers and residents, and it was on plain display in recent months. Finally, the relative value at risk for a homeowner -- when you compare the relative performance of new homes in our communities at an average price of approximately $80,000 or a new park model at an average price of $40,000 to the average price of more than $200,000 for a stick-built home, our product offers a number of reasons to choose community living for those who want the best that Florida has to offer while reducing the amount of their capital at risk from hurricanes. This is especially true for retirees and seasonal owners not wanting to tie up significant amounts of their capital in their residences.

Roger will now comment on our operations in more detail.

Thanks, Tom. On the year-end call for 2003, I segmented our portfolio into three distinct groups with group one representing eight all-age communities in low-barrier-to-entry markets. These communities are in highly competitive environments, and we will continue to struggle in these markets until we see repos diminish, chattel financing return and competition from single-family housing slow down. We had a loss of 28 sites at these properties in the third quarter, compared to the second quarter of 2004. Total occupancy per Group One properties at September 30, 2004 was approximately 62 percent.

As you will recall, Group Two represents 77 stable properties that are age-qualifying communities and all-age communities in major metro areas with high barriers to entry or in resort destinations. The occupancies for the third quarter of 2004, compared to the second quarter of 2004, had an increase of 21 sites. We believe we will continue to see positive growth from our stable properties, but this segment of our portfolio includes Denver, where we continue to struggle with occupancy, losing 18 sites in the third quarter of 2004, compared to the second quarter of 2004. There are economic warning signals being given in the Denver marketplace, as foreclosures of single-family housing increased 38 percent year-to-date and we're seeing more repos on the manufactured housing side. We will continue to monitor and pay close attention to the Denver market.

Group Three represents 26 upgrade properties. Although representing only about 25 percent of our Core Portfolio, this group contributed approximately 37 percent of our new home sales volume in the third quarter. Occupancy for this group is basically flat for the third quarter compared to the second quarter of 2004. We continue to be pleased with our upgrade properties and believe we will continue to see positive activity from this segment of our portfolio.

In the third quarter of 2004, we did 134 home sales, compared to 137 in the third quarter of 2003, but the third quarter of 2003 included the final 18 new home sales that completed an expansion project outside of Chicago. On a year-to-date basis, we continue to outperform 2003, having sold 41 more new homes this year compared to last.

Year-to-date, our margins are down but in the third quarter, we continued to increase margins by approximately $2,800 per deal compared to the third quarter of 2003. We had 97 used home sales in the third quarter of 2004, compared to 53 in the third quarter of 2003, and our margins increased from approximately 500 per deal in 2003 to approximately $1,600 per deal in 2004. Our resale volume increased as we brokered 335 homes in the third quarter of 2004, compared to 287 in the third quarter of 2003.

The margins were consistent with 2003.

As of the third quarter of 2004, MHC has over 27,000 sites in park model resorts in the Sunbelt areas of Florida, Arizona and Texas. In addition, we have over 6,049 sites and nine resorts that completed their summer season in line with expectations. Our 63 Sunbelt resorts are about to enter their snowbird season. As previously discussed, we will begin to actively sell new homes at these communities using our new home designs. We believe the focus on the sales program will enable us to convert a more transient customer to a long-term stay and expose them to more products. Through our continued marketing efforts using both online and print mediums, we are optimistic about the opportunities to service our customers.

Mike will now discuss the financial results.

Thanks, Roger.

First, I will discuss our financial performance. For the third quarter of 2004, Funds From Operations were 12.3 million, or 41 cents per share on a fully diluted basis, compared to 15.9 million, or 56 cents per fully diluted share in the same period last year. The results for the third quarter of 2004 reflect the relative stability of our core properties and by our previously announced acquisition.

Quarterly comparisons to 2003 continue to be impacted throughout the year by the $500 million recapitalization transaction we closed in the fourth quarter of last year. Excluding all investments made since December 2003 as well as a $1 million reserve due to the Florida storms, our fully diluted FFO per share for this quarter was 36 cents. On a Pro Forma basis, the third quarter of 2003 would have been approximately 33 cents FFO per fully diluted share. That statistic was impacted by additional interest expense.

The results for the first nine months are as follows -- for the nine months ended September 30, 2004, FFO were 41.6 million, or $1.43 per fully diluted share, compared to $51.2 million, or $1.83 per fully diluted share for the same period last year. Excluding all investments made since December 2003 as well as a $1 million reserve due to the Florida storms, our fully diluted FFO per share for the nine months ended September 30, 2004 was $1.26. On a Pro Forma basis, fully diluted FFO per share for the nine months ended September 30, 2003 was $1.19 per share, impacted by additional interest expense, reduction to discontinued operations and share dilution.

Turning our attention to our Core Portfolio, comparisons to last year's third quarter, our base rental income was up 3.3 percent. Our average base rental rate was up 4.6 percent for the quarter. Average occupied sites were down 1.3 percent for the quarter. Our core net operating income is up approximately 2 percent for the quarter on property revenues up 2.8 percent, offset by a 4 percent increase in operating expense. Excluded from the MH Core Portfolio are results from resort communities owned as of the beginning of each year. Although only 12 properties with approximately 6,100 sites, these properties experienced strong revenue growth over the prior period. As a result, our overall core net operating income from both MH and resort properties increased approximately 3 percent.

Acquisitions -- for the nine months ended September 30, 2004, the Company has acquired 70 properties. These acquisitions have added 20 cents of fully diluted FFO per share in 2004 of which approximately 8.5 cents occurred in the current quarter. We have invested approximately $215 million of equity since December of 2003 and anticipate a yield on our equity of over 8 percent for 2005.

As Tom mentioned, we are on track to close our transaction with Thousand Trails by year-end, and our banks stand ready to provide us the financing.

Our average long-term debt balance was approximately 1.4 billion in the quarter with a weighted average rate of approximately 6.45 percent. We had interest coverage of approximately 1.7 times and our availability under our line of credit was approximately 99 million as of the end of the quarter.

Now, let's discuss guidance for 2004. Looking ahead, we continue to work towards fully integrating our acquisitions and are continuing to evaluate synergies and cost savings. Our share count increased in the third quarter from operating partnership units issued in our acquisitions of Monte Vista and NHC. Incorporating this information into our guidance results in no change to our current FFO estimates of $1.85 to $1.90 per fully diluted share for 2004.

For 2005, we expect continued growth in our core property performance along historical trends. Assuming we are successful in our occupancy and sales goals and various expansion projects are completed on time, overall core base rent growth is expected to be approximately 4 percent. By the end of this October, we will have noticed approximately two-thirds of our residents of annual rent increase. Core Portfolio operating expenses are expected to continue to grow in excess of CPI due to increases in real estate taxes and utilities. Overall, we expect Core Portfolio to grow between 3 and 3.5 percent for 2005. Our guidance for 2005, previously announced in July, is therefore reaffirmed at $2.20 to $2.25 fully diluted FFO per share. We have not incorporated the Thousand Trails transaction into our earnings guidance.

Finally, we have begun to evaluate the potential uses of our 2005 free cash flow. We are working with our Board of Directors to maximize value for our shareholders. The Board intends to have its annual review of dividend policy at the upcoming November Board meeting. As always, financial flexibility will play a key role in the Company's choices to utilize its free cash flow, which includes acquisitions, expansion opportunities at our properties, partial redemption of our 9 percent preferred security, prepayment (sic) of amounts outstanding on our line of credit, dividends, whether annual or special, and stock repurchases. We have also begun evaluating potential disposition candidates.

The forward-looking statements contained herein are subject to certain risks and uncertainties, including but not limited to the Company's ability to maintain rental rates and occupancies with respect to properties currently owned or pending acquisitions, the Company's assumptions about rental and home sales markets, the completion of pending acquisitions and timing with respect thereto, the effects of interest rates as well as other risks indicated from time to time in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become true because of subsequent events.

(OPERATOR INSTRUCTIONS). Jordan Sadler with Smith Barney.

Good morning, guys. Mike, where does the $1 million show up? The reserve? Is that just in property operating expenses?

Yes.

So just looking forward to the fourth quarter, you should pick up a few pennies in expenses. Is that about accurate? Then what happens in -- what do you expect to happen in revenues and maybe just talk about it as it relates specifically to the RV base rental income, or the resort?

The reserves hit the third quarter. I'm not sure if there is going to be any additional impact in the fourth quarter.

In terms of revenues, we are seeing no fall-off. Roger probably would like to comment on that as well, particularly with respect to the RVs.

Right, Jordan. You know, our reservations are up for 2005 and getting no sense from our customers that -- nothing but it's going to be a great season in Florida.

Would you expect a seasonal uptick, Roger, in the fourth quarter a little bit or from the third quarter? Is there any impact from communities that may not be operable from the hurricanes?

Well, there's not going to be much of an uptick from the third quarter to the fourth quarter. You are really going to see it in the first quarter of 2005 because, as you recall, we did add some properties this year that had a summer season that’s contributing to second and third-quarter revenues. As those properties finish their season, we start pulling in some of the seasonality from the Snowbird destination, so I wouldn't expect much change in that number, maybe a slight increase but really the season for the Snowbird is going to be in the first quarter, 2005.

Okay. Tom, in your comments, you mentioned again that occupancies will likely move up to the same levels they were at the end of last year. I'm not sure exactly what that number was, but I think you said that you've lost 254 sites or something like that year-to-date?

I think the number I said was 260, 261. That's the total number of sites we've lost from the end of last year through year-to-date today, so it's just a change, not an average. If you broke down that 260, about 100 or so of that was really just a seasonal rental program. We expect to actually improve on the seasonal rental program this coming season. I think we expect to fill somewhere in the neighborhood of 120 to 150 seasonal homes. We certainly have the inventory available. Early indications are we're going to have a good success in filling those seasonal rental homes. The remaining sites would have to be picked up and the other properties in the portfolio, primarily the stable assets and the upgrade assets.

We don't see anything changing with respect to our view on the family assets, those eight properties we talk about probably too much.

Okay. Then that 120 seasonal rentals, does that show up in the community base rental income?

Yes.

Okay. Then just moving over to the Thousand Trails deal, is there any debt on that deal at all? Is it 100 percent cash?

Well, our investment of 160 million is for the real estate. We are still evaluating how we want to finance that transaction. We are looking at, right now, unsecured. We've had discussions with our bank group about the financing and certainly they stand ready to provide the financing on that transaction. But we're still evaluating our options, unsecured versus secured, floating versus fixed, all that kind of stuff is happening as we speak.

Okay, but there's no mortgages that you're going to have to assume on the property?

No.

Could you just maybe give us a little bit of background on Thousand Trails and sort of how that came together? It seems a little bit different for you guys but I'm just curious as to the history and the campground business and how they ended up being owned by a private equity player.

Thousand Trails used to be a public company and was purchased by a private equity player a little more than a year ago. MHC has watched Thousand Trails for a number of years. If you kind of watch what we've done over the course of our life, we have moved much more into a comfort position with respect to the type of properties and those type properties we like to own are more lifestyle-oriented, vacation destination-oriented. Certainly, the park model resorts that we have been buying meet that criteria. We like the real estate; we like the quality of customer.

The membership properties actually provide us a very favorable way to get exposure to the RVer on-the-road with his unit in a format that allows us to stay true to our desire to have stable and predictable cash flows. I think the ground lease position we like, it offers that protection but more importantly, when you look at the membership cash flows themselves, they are very sticky, very predictable and the customer supporting that cash flow is a high-income, high-profile customer. The demographics are superb, the economics of that customer are superb and his timeframe for membership, on average, is about 14 years. So we like the demographics, we like the cash flow, and more importantly, we love the real estate. If you look at where Thousand Trails owns real estate, it is in areas where we have historically had much difficulty getting any exposure to. I have now toured in excess of 30 of the 57 properties; I haven't found a property I didn't like a lot. Many of the tours I have taken have been on the West Coast and literally you can drive a car from Oregon up to Washington and see many of the Thousand Trails properties as you are looking at the ocean, just some fantastic coastal real estate up in the Oregon, Washington states and some very unique locations throughout the portfolio. So I think we are pretty pleased with the transaction, look forward to not only the investment but also the cross-marketing opportunities between what we have and what they have.

We certainly target a much more long-term stay from our customers. The Thousand Trails member is much more active and much more on the move, but we think, at a point in time, that customer is going to want to gain longer-term stay at a location. That's hard to achieve within their portfolio but very easy to achieve within our portfolio. They also don't have as many properties in the Sunbelt locations that we now provide. They have one property in Florida; we have 85 properties in Florida. So, we like the synergies that exist post-transaction as well.

Okay. Then I guess just maybe I think in your comments you talked about disposition opportunities and guidance. You also made a comment about redeploying some family into resort. Is that just sort of a typical redeploying of family into resort that you guys have talked about, or does that include properties in Group Two?

I don't think it includes properties in Group Two. It may. We've made no secret about kind of the evolution of the portfolio. We've certainly traded out of historically a number of markets. We got out of the Missouri/Kansas market and we got out of some other markets where we didn't really find an ability to get concentrations. I think that is always the way we will look at our portfolio, continue to look at opportunities to redeploy capital. So you might see an asset that may be a great asset, but our ability to get synergies and concentrations are limited. We may sell that asset and use it in a place where we can actually get size and synergies. We've also kind of -- have commented many times about the desire to move away from the manufactured home/affordable housing segment in low-barrier-to-entry markets and into more lifestyle communities.

In Mike's comments, he said that you were identifying disposition candidates. Is that done already or you will be working on that in '05?

We've had a list probably going back a few years that has, I would say, 8 to 12 properties on it. We are in no pressure to sell but if the right price and the right opportunity came along, we would do what we've done historically, which is sell and redeploy that capital.

Then I guess lastly on the expectations for '05, you say 3 to 3.5 percent core NOI growth. You talk about a base rent increase of about 4 percent but does that imply flat occupancies? (multiple speakers).

Pretty much.

Okay (inaudible) flat. Lastly, the preferreds -- when do they become callable? Is it September or --?

They were callable as of the end of last month.

Okay, and you guys haven't made a decision on that yet?

No.

Brad Johnson (ph) with RBC Capital Markets.

(indiscernible) Johnson with JLube (ph). A couple of just very basic questions on Florida -- can you guys comment on home sale efforts in Florida during your fourth quarter -- have expectations for early '05? Do you see some pent-up demand there after the hurricanes?

Yes, Brad, we see -- we've had good results starting in October in Florida. I think that will continue. We're bullish on Florida; we think there are some pent-up demands. We have residents that had damage to some of their homes that, because of the new design, how well it went through the hurricane, basically little or no damage to any of the new product that were in the communities in Florida. We think that's a great place for us to sell to our existing resident and the new customer coming in, so we are pretty bullish on the fourth quarter and 2005.

What percentage of your pipeline is in Florida, the new home sales pipeline?

Almost 50 percent -- (Multiple Speakers) -- home sales come out of Florida, so --.

How much would you say that the third quarter -- because you guys posted pretty good sales numbers -- how much would you say that -- (Multiple Speakers)?

There's about 47, 48 percent of our 134 new home sales.

You know, that number is stunning if you take into account that literally for half of the quarter, you were impacted almost every weekend by a hurricane or the aftermath of a hurricane, so just a stellar job by the people down in Florida, one in dealing with the aftermath of the hurricane and two, just continuing to operate business as usual, just a fantastic job by those people.

I guess that's kind of what I'm getting at. So the fourth quarter then, probably since you don't have this interruption of business, would be very strong in Florida?

Yes, as I sit here, we're very optimistic. I guess we would caution that a little bit by it's a little too early to tell what the long-term lingering effects of four hurricanes running across the state will be, but mind, when the Florida sun starts to shine, it is a magical place; people want to be there; our customers love the lifestyle. We've a great product to deliver them, so long-term, we're very bullish on what we own in Florida, continue to like it, continue to look for opportunities to own in Florida. So I think we would say, absent kind of the lingering effects, we are full bore ahead in Florida.

Terrific. Then I guess also on home sales, can you comment a bit on your new home sale initiatives in 2005? I know you guys mention that in your release.

Yes, we're doing some expansion. Historically, expansions have provided us a great kind of stable sales platform while we are doing the infill sales within our communities. We successfully filled virtually every expansion opportunity we had in the Sunbelt locations and now, as a result of the acquisitions, we're adding the capacity to start expansions in a number of locations that are in areas that we like a lot. Roger could comment on it a little more. Roger, why don't you give them some sense for where we look at the expansion?

Sure, Brad. We have -- two of our acquisitions were in Phoenix major metro, Monte Vista and Viewpoint. We have approximately 1300 sites that can be built out. We will probably do 100 at each location a year, depending on the fill but they are flagship quality assets. We're just excited about that area. We've got Coquina Crossing, which we're going to build another 100 sites, which is in St. Augustine Florida, which has just been an ongoing expansion for us -- doing quite well there this year. Then another property on that Gold Coast, Bulow Plantation, which we expect to come out of the ground in 2005, which is approximately 800 sites. Again, we will probably do 100 in 2005, depending on fill.

Perfect. Then one last question -- Mike, I know you mentioned, with the reserve properties, that your same-store portfolio is pretty small. Looking at results, I guess it can be somewhat misleading in the same-store portfolio but you mentioned strong results. Can you give a bit more detail?

You're talking about the RV?

Yes, the RV properties.

I would say double-digit rent growth, half from rent increases, half from occupancy, which is pretty much what we've seen over the course of the year.

Perfect. Thanks very much.

Art Havener with A.G. Edwards.

Mike, can you give us a diluted share count for 2005 that you're looking at?

It's approximately 30 million.

Are there any debt covenants, or limitations, in respect to you balance sheet right now?

No.

As you go out to look to get some more debt?

No.

Is there anything that we should be aware of in terms of asset sales? You're not restricted from making any asset sales because of your debt?

No.

Okay. Roger, is it possible for you to break down, on each of the three groups that you give us, in terms of their contribution to either rent and/or NOI?

We will get back to you on those.

Okay. Following the hurricane, have you seen any increased acquisition opportunities in any other markets?

You know, we really haven't pursued that. I toured virtually all of Florida; I started out in Orlando, went up to the northeast coast, down the east coast of Florida and then across Alligator Alley and then started going up the west coast of Florida. I have to say -- and I'm very proud to say this -- that our industry did a fantastic job in dealing with the aftermath of the hurricane. I think the product performed extremely well and communities themselves allowed a focused effort to clean up, which was impressive and remarkable.

That said, there were a number of properties that were affected by the eye of the hurricane; there were older communities that sustained some severe damage and it was a state of despair, I guess is the way I would describe it. We pray for what's going on in those communities. I know they are facing some difficult decisions with respect to how they kind of re-energize themselves and bring themselves back to that sense of community that is the hallmark of our properties, but we have not done anything with respect to attempting to acquire any of those assets.

Okay, did you file any insurance claims? If so, have you received any proceeds?

We are currently working with our insurance companies. I don't believe we've actually filed any claims yet, any official claims, although we have put them on notice of a number of items.

Okay, one last question -- in terms of the seasonal RV business, when will you be able to or when do you think you will be able to provide same-store comps for us to kind of get a feel for how strong this business really is?

We typically start the same-store counts when we have them a full year for each property group, so we've given you the same-store to the extent we have it; that's the 12 RV resorts. As 2005 rolls on, you might see a little more than that; you won't see much more than that since the activity closed throughout 2004 -- starting in 2006. You know, we're trying to come up with some internal matrices and matrix to give people an understanding for how well that business is doing. On these calls, we often talk about the MH shipment and how the MH -- manufactured housing shipments are down year-to-date. There is some growth in shipments but it's happening in the single-wide section, which is really not where we play.

It also kind of just kind of demonstrates how meaningless those numbers are to MHC as it sits today. We are selling double-wide or multi-section homes throughout our properties, and we're selling more this year than last year, which is totally against what the statistics are showing you in the industry. We are also selling the park model product, which is facing double-digit growth this year versus last year on a year-to-date basis. Through the Thousand Trails and the transient sites within our RV resorts, we're getting exposure to the RV customer. If anybody is watching what's going on in the RV world today, they are getting record-breaking sales with respect to their unit. They are in excess of 300,000. They are very excited about the demographics. We are participating in a way that we think is extremely advantageous and comfortable for our company. We will try and get that statistic out and start talking about it a little bit so you guys can start putting that flavor into your analysis.

Okay. The final question -- when you do look to possibly redeem the preferred units outstanding, do you have to do it all at once or can you take it down in different tranches?

To the extent we choose to do that, we can do it. The dollar amounts I believe are our choice.

William Atchison (ph) with Merrill Lynch.

Thank you. Good morning. A lot of my questions have been asked, but since we don't have same-store, I was wondering if we could -- on the resort-based income -- I was wondering, can you break out what percentage of revenues should fall by quarter over the course of the year? Is it like, you know, 40 percent in the first quarter and then 20 percent in each of the remaining quarters? Some sort of break out like that?

Sure. It's approximately one-third of the revenues show up in the first quarter, and the remaining three quarters are roughly equal.

Okay. Then how about on Thousand Trails? Can you give a sort of similar analysis of that? Because once that comes online assumably it's going to have a very large seasonal effect on your numbers.

Actually, it's not going to have a large seasonal effect on our numbers since we are in the ground lease position. We're going to get that $16 million payment, ground-lease payment, ratably throughout the year. That said, the business that the operating company Thousand Trails runs has some seasonality to it geared toward the summer months. Most of the properties are open in the summer season, although they do have some snowbelt destinations. Most of their cash flow comes from their members who pay an annual membership dues, and that also has some seasonality in terms of the way comes in, but it's just really being spread throughout the year.

Okay, so there are no contingent revenue streams there, percentage rent, if you will?

The 16 million and I think there's annual escalations of 3.25 percent per year.

Okay, thanks. On the home sales, it sounds like you are pretty confident in there with the third quarter was good up strong over the second quarter. How confident are you you can maintain this level of profitability? I mean, almost $1 million in the third quarter -- is that a good starting run-rate?

We would expect to maintain the profitability as we sell more and more homes. We see no reason why that would be coming down.

Lastly, back to Thousand Trails, just reading between the lines, it sounds like the acquisition is more likely to close towards the end of the quarter than the middle of the quarter.

I would say that probably mid-November through the end of the year is a likely target date, based on the information I have today.

Okay. Thank you very much, gentlemen.

(OPERATOR INSTRUCTIONS). Paul Adornato with Maxcor Financial.

Regarding Thousand Trails, could you comment on the rent coverage statistics of the operator?

I think the disclosure we provided on the initial lease was about 1.5 times. They have a June fiscal year-end and their cash EBITDA number was 23.8, $24 million against our $16 million lease payment.

Okay. Are they involved in -- how much larger is their business other than their Thousand Trails business, or is that their primary business?

Their core business is the membership campground business; it's 57 properties but they do have some other businesses that generate some modest cash flow but nothing as compared to their primary business.

Could you talk about the 3,000 acres that you acquired in the transaction as well? What are your plans for that?

Well, we're still getting our arms around it. It's a lot of land. We have sent teams out to evaluate the capability of I think -- Roger correct me if I'm wrong -- about five of the parcels and trying to figure out what is capable of being done at those real estate locations.

Possibly more than resort properties? Any sense of zoning entitlements?

Well, some of the properties are already entitled for recreational use, which means that you can have a park model product on there or an RV product on there. You know, given the ability to change zoning and the difficulties inherent in that process, we are evaluating whether or not a park model development or a seasonal RV development adjacent to the existing membership resort is feasible.

Okay, thank you.

David Schulman with Lehman Brothers.

Yes, good morning. Are you getting any push-back on the rent increases you sent out? Because you're talking about a 4 percent number. Of course, EPI (ph) is running at 2 percent now. Are you getting any push-back from people on the rents?

There's always a modicum of push-back with respect to rent increases. I don't -- (Multiple Speakers).

Are people beginning like a -- more in an organized way?

Well, I would say it depends on location. There are properties in some areas of the country that are actively trying to put forth their voice with respect to what they think the market is. We are intelligently articulating what we think the market is. We are willing to discuss it at any point in time. For the most part, throughout our portfolio, that is not an issue but there are a couple of isolated areas where the rent increase is facing some discussion.

Okay, so there is some push-back but nothing more than normal push-back as opposed to anything out of the ordinary?

Nothing more than normal, no.

What about the remaining one-third on the notices? Those are places where you get that or you don't tend to get it on? Because you said two-thirds of the notices will be out; there's still another third.

That's just the timing of when we send it out.

The next question is on financing. Could you give us any indication as to what the terms are on the financing you're looking at, the financing packages, the types of terms you're getting from the banks? (Multiple Speakers) -- Thousand Trails?

We're looking at a variety of things, fixed, floating, unsecured, secured.

Can you give us some indication of how much over a curve, how much over a five-year, over a ten-year or a LIBOR if it's a floater?

I think it's a little too early to start talking about that. I think, when we do understand exactly how we're going to finance that transaction and make decisions with respect to unsecured versus secured, fixed versus floating, we will articulate that so that people can adjust earnings guidance accordingly.

Do you foresee financing 100 percent of that?

Currently, I believe that would be our intended --.

Your intent would be to get $160 million of financing, plus or minus?

Yes.

There are no further questions at this time. I'd like to turn the call back over to senior management for any additional or closing comments.

Well, thank you for joining us on this call. As always, Michael Berman will be available for questions to the extent you have any. Thank you. Take care.

That concludes today's conference call. Thank you for your participation. You may now disconnect.