Equity LifeStyle Properties Inc (ELS) 2004 Q4 法說會逐字稿

Good day, everyone, and thank you for joining us to discuss ELS’ fourth quarter results. Our featured speakers are Tom Heneghan, our President and CEO, Michael Berman, our CFO, and Roger Maynard, our COO. Just as a reminder, today’s 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 would like to turn the call over to Mr. Tom Heneghan. Please go ahead, sir.

Thank you for joining us as we discuss Equity LifeStyle’s results for the fourth quarter of 2004 and our expectations for 2005. I am Tom Heneghan, Equity LifeStyle’s CEO. And joining me today are Mike Berman, Equity LifeStyle CFO, and Roger Maynard, Equity LifeStyle’s COO. After my initial comments, Roger will provide some comments with respect to property operation 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 operation. To recap the acquisition program, December of 2003 Equity LifeStyle has invested in 135 properties, representing almost 50,000 sites. We now have 275 properties and over 100,000 sites in our portfolio. Today, the core market of Florida and Arizona represent approximately 52 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 like Denver, Chicago, and Las Vegas.

The success of this program has resulted in the transformation of the old Manufactured Home Communities, Inc. into Equity LifeStyle Properties, Inc. We are a more robust and dynamic company while retaining the legacy of our business plan that has proven continually successful, owning stable, cash-flow-generating properties near major metropolitan areas with high barriers to entry and retirement and vacation destinations.

We successfully assimilated these properties while maintaining our focus on our core business. In fact, with respect to new home sales volumes and profits, the fourth quarter of 2004 was impressive. Despite the hurricanes, we sold 169 new homes, an increase of over 12 percent from the year ago period. On a year-to-date basis, we sold 517 new homes, a 13 percent increase over the prior year. The profitability of our sales operation has also shown substantial improvement from a loss of almost $600,000 in 2003 to a profit of approximately $2 million this year. We expect this trend to continue in 2005.

With respect to core portfolio occupancy, the fourth quarter was down 174 sites, resulting in a decline of approximately 440 sites since the beginning of the year. Most of this year-to-date decline results from two factors, the loss in the fourth quarter of approximately 200 sites due to hurricane-damaged homes and a continued decline in certain family markets. We are disappointed in not achieving the flat occupancy target we established at the beginning of the year and remains a focus for 2005.

Our outlook for 2005 is based on the 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. Our goals for 2005 include improved home sales volumes and profitability, increased occupancy, improving the mix of annual seasonal and transient sites in our resort properties and evaluating new expansion projects. In addition, we expect to step up our evaluation of opportunities to redeploy our capital generally away from family assets that focus on affordable housing to lifestyle properties that meet our investment criteria.

We are excited about the opportunities that lie ahead for our Company and our customers. Today, we can offer a myriad of lifestyle opportunities to our customers, including attractive locations, various price points and home sizes, and through our RV sites, significantly more flexibility in use. This breadth of product offerings allows us to meet the lifestyle needs of active adults taking high quality affordable retirement housing, seasonal or second homes in attractive resort locations, and seasonal or extended stay opportunities for our RV owners seeking a home base.

We also understand that tomorrow’s homeowner or seasonal customer could be today’s active RVer. With this in mind, we will continue to dedicate a portion of our sites to serving this very active customer. Also, through our relationship with Thousand Trails, we have the ability to interact with over 100,000 active RV members while maintaining our desire for the long-term stable cash flow through a long-term lease structure. We now have the ability to extend our relationship with our customers all the way from their initial active on-the-road experience through an extended stay or seasonal RV experience among newly found friends on through to the purchase of a new resort home or cottage as these friendships develop into lasting relationships and the desire for on-the-road RV lifestyle adds, but the zest for an active lifestyle continues.

More importantly, we also provide the flexibility for new customers to begin their relationship with us at any point in the spectrum and to combine aspects of housing, location, pricing, and mobility that fit their needs and their lifestyle. We look at 2005 and beyond with the optimism of a company that has executed on its opportunities and overcame challenges in 2004. We appreciate the support of our shareholders and our board members.

Roger will now comment on our operation in more detail.

Thanks, Tom. On the year-end call for 2003, I segmented our portfolio into three distinct groups, with Group One representing all age communities and low barrier to entry markets. These communities are in a highly competitive environment and we will continue to struggle in these markets until we see repo’s diminish, channel financing return, and competition from single family housing slow down. We had a loss of 33 sites at these properties in the fourth quarter compared to the third quarter of 2004. Total occupancy for the Group One properties at December 30, 2004 was approximately 61 percent.

As you will recall, Group Two represents 76 stable properties that are age-qualified communities and all-age communities in major metro areas with high barrier to entry or in resort destinations. The occupancy for the fourth quarter of 2004 compared to the third quarter of 2004 had a decrease of 86 sites, and most of this occupancy loss was directly related to the four hurricanes that occurred in Florida. We anticipate some additional loss in occupancy related to the hurricanes in the first quarter of 2005, but we believe we will still see positive growth from our stable properties.

This segment of our portfolio includes Denver, where we continue to struggle with occupancy, losing 38 sites in the fourth quarter of 2004 compared to the third quarter of 2004. There are economic warning signals being given in the Denver marketplace, as foreclosures of single family housing increased 14 percent in quarter four 2003 compared to quarter three 2004. We are seeing more repo’s on the manufactured housing side also. We will continue to monitor and pay close attention to the Denver market.

Group Three represents 25 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 fourth quarter. Occupancy for this group is basically flat for the fourth quarter compared to the third 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 fourth quarter of 2004, we did 169 new home sales compared to 151 in the fourth quarter of 2003. On a year-to-date basis, we outperformed 2003, having sold 59 more new homes this year compared to last year. In the fourth quarter, we increased margins by approximately $4,600. We had 62 used home sales in the fourth quarter of 2004 compared to 47 in the fourth quarter of 2003, but had a $49,000 loss in the fourth quarter.

Our resale volume increased as we brokered 352 homes in the fourth quarter of 2004 compared to 273 in the fourth quarter of 2003. The margins are consistent with 2003. This sales effort was accomplished despite four hurricanes that impacted Florida this summer. Our employees did a fantastic job of getting our properties back up and running, but the industry is still feeling some affects from the hurricanes. The manufacturing plants are backlogged and there is a shortage of contractors to set new homes.

As of the fourth quarter of 2004, Equity LifeStyle had over 35,000 sites and 90 park model resorts. We have over 28,000 sites and 58 resorts located in the Sunbelt areas of Florida, California, Arizona, and Texas. In addition, we have over 7,700 sites and 32 resorts in the northern resort destination. In addition, the acquisition of Thousand Trails has added over 9,000 sites and 24 resorts in the Sunbelt and over 8,800 sites and 33 resorts in the northern destination. We are currently in the middle of the snowbird season for our Sunbelt properties and are witnessing strong demand for our resorts.

We continue to examine our customer demand characteristics in order to explore new ways to meet their demands, including expanding our central reservation center, increasing our online presence, and taking a more active role in industry shows. As in the past, our repeat customer and referral business continues to be the largest driver of the seasonal and transient customer base. The acquisition of Thousand Trails has given Equity LifeStyle the opportunity to perform target marketing to over 100,000 people in the Thousand Trails customer base. We will continue to refine this cross-marketing relationship, which we believe will improve the value of both our brands to the customer.

While an overwhelming percentage of our portfolio is dedicated to long-term customers, we recognize the importance of the transient customer to our overall business plan. The customer cycle evolution from its short-term customer to a long-term customer is seen in our resorts on a regular basis. We have positioned our sales personnel to be able to provide multiple home choices to our customers who have decided to make a long-term commitment to Equity LifeStyle.

Mike will now discuss the financial results.

Thanks, Roger. First, I would like to discuss our financial performance. For the fourth quarter of 2004, funds from operations were $15.2 million, or 51 cents per share on a fully diluted basis, compared to $9.7 million, or 34 cents per diluted share in the same period last year. The Thousand Trails transaction, which closed on November 10th, contributed approximately 4 cents per fully diluted share in the quarter.

Our results reflect the relative stability of our core property and by the contribution from previously announced acquisitions. Comparisons to 2003 were impacted throughout 2004 by the $500 million recapitalization transaction we closed in last year’s fourth quarter.

Excluding all investments made since December 2003, our fully diluted FFO per share for this quarter was 37 cents. On a pro forma basis, the fourth quarter of 2003 would have been approximately 34 cents of FFO per fully diluted share. Those numbers were impacted by additional interest expense.

The results for the year ended December 31, 2004 are as follows. Funds from operations were $57 million, or $1.93 per fully diluted share, compared to $60.8 million, or $2.17 per fully diluted share for 2003. Excluding all investments made since December 2003, as well as the third quarter reserve we took due to the Florida storm, our fully diluted funds from operation per share for the year ended December 30, 2004 was $1.55. On a pro forma basis, fully diluted FFO per share for the year ended December 31, 2003 was $1.49, impacted by additional interest expense, reduction for discontinued operations, and some share dilution.

Moving on to results in our core portfolio, manufactured home comparisons to the fourth quarter of 2003. Our base rental income was up 3.5 percent for the quarter, our average base rental rate was up 4.5 percent for the quarter, and our average occupied sites were down 1 percent for the quarter. Our core net operating income, including core RV properties, were up approximately 2.3 percent for the quarter on property revenues of 3.1 percent, offset by a 4.2 percent increase in operating expenses. The year-over-year comparison in the manufactured homes side of our business, base rental income was up 3 percent for the year, consisting of average base rental of 4.5 percent for the year and average occupied sites down 1.5 percent for the year. Overall, core net operating income was up approximately 2.5 percent for the year on property revenues of 3.2 percent, offset by a 3.9 percent increase in operating expenses.

Acquisitions. During the quarter we closed on the Thousand Trails transaction, which added 57 properties to our portfolio, including over 17,000 sites and approximately 3,000 acres of vacant land. In addition, we invested both directly and through joint ventures in 5 additional properties containing approximately 1,500 sites.

Now I’m going to turn our attention to our debt. We financed the Thousand Trails transaction with a $120 million, 3-year unsecured facility with a rate of LIBOR plus 1.75 percent. Our bank group includes Wells Fargo, Bank of America, LaSalle, and most recently US Bank. The remaining proceed came from our existing line of credit facility. In December, we entered into a 1-year LIBOR contract on $180 million of proceeds. Our average long-term debt balance was approximately $1.56 billion in the quarter with a weighted average rate of approximately 6 percent. At the end of the quarter, we had $1.65 billion in debt with a rate of approximately 6.1 percent. Interest coverage was approximately 1.8 times. The availability under our line was approximately $50 million as of today.

Guidance for 2005. Our business has grown dramatically over the past year. We now have over 101,000 sites in our portfolio of which approximately 90 percent are wholly-owned. Our guidance for 2005 remains at $2.44 to $2.54 fully diluted FFO per share. The following discussion highlights some of the factors behind this range.

Our revenue streams are predominantly derived from customers renting our sites on a long-term basis. We have over 45,000 manufactured home community sites currently approximately 90 percent occupied, generating an average annual rent of $5,400 to $5,500 per occupied site. As you know, these revenues come in monthly throughout the year. We have approximately 44,200 resort community sites. Approximately 13,100 of these sites are leased to customers on an annual basis. Revenues from these sites occur ratably throughout the year. These sites generate an average annual rent of approximately $3,100 to $3,200 per site.

Approximately 7,200 of resort sites are leased customers on a seasonal basis, generally for 3 to 6 months. These sites are used by long-term recurring customers who pay an average of $1,700 to $1,800 per occupied site for the season. Revenues from these sites are tied to the customer’s seasonal usage. Approximately 65 percent of these customers occupy our properties during the first quarter, effectively Christmas through Easter. Approximately 20 percent of our seasonal customers are with us during our fourth quarter, with the remainder divided between the second and third quarters.

17,911 sites are subject to a long-term lease with Thousand Trails for use in their membership RV business. Thousand Trails has over 100,000 members using the properties throughout their system. The annual rent paid is $16 million. We consider these three categories, containing over 86 percent of our resort sites, to be long-term in nature.

The remaining 6,000 resort sites are occupied by customers who lease our sites on a transient basis. We expect to service 60,000 customers with these sites and generate approximately $2,000 to $2,100 in average annual rent per site. We expect these transient revenues to come in ratably over the quarters. The first quarter is approximately 35 to 40 percent. The second and third quarters are each approximately 20 to 25 percent. This reflects activity in our northern resorts. And the fourth quarter is approximately 15 to 20 percent.

Currently, there is significant interest and demand for these sites. However, we consider this revenue stream to be our most volatile. It is subject to weather conditions, gas prices, and other factors accepting the marginal RV customer’s vacation and travel preferences. For our Sunbelt property, we already have increased the number of seasonal and long-term customers compared to our budget and are yield managing our remaining transient sites. In total, we are over budget for resort-based revenues for January.

We expect our utility and other revenues to increase almost 9 percent over 2004 due to the full year impact of acquisitions. We anticipate an average property operating margin of 55 to 56 percent for the year, excluding Thousand Trails revenues, with expenses approximately ratable throughout each quarter.

Moving on to our sales operation, we expect a 50 percent increase in profit contribution over 2004 results. Investment and other income, joint ventures, mezzanine, interest income, excluding Thousand Trails, are expected to be similar to 2004 results. Thousand Trails revenues were approximately $2.3 million for the fourth quarter of 2004. We have increased our G&A expense to almost 3.5 percent of property revenues for 2005. I’ve already discussed our outstanding debt. Finally, other expenses are currently expected to be similar to 2004 levels.

We expect to have approximately $75 million of free cash flow before debt repayment and recurring capital expenditures. We expect to pay down at least $20 million of debt and invest over $15 million in our property. As always, financial flexibility will play a key role in the Company’s choices in the use of this free cash flow. These include acquisitions, expansion opportunities in our properties, partial redemption of our 9 percent preferred security, the payment of amounts outstanding on our line of credit, dividends, whether annual or special, and stock repurchases. We are also evaluating disposition candidates.

Factors impacting our guidance include our mix of site usage, yield management of our transient sites, scheduled or implemented rate increases, occupancy changes, home sales, and greater than CTI expense increases.

Finally, I would like to recap the impact of the hurricanes from last year. Three of the four hurricanes impacted our properties and the fourth hurricane disrupted operations due to uncertainty of its path and our preparedness activities. We have 84 investments in Florida with over 37,000 sites. Through year-end, approximately 200 vacancies were caused due to significantly damaged homes. We believe we mitigated the impact on our business through our efforts to return to normal operations quickly after each storm. Through year-end, we have spent approximately $7 million, of which approximately $1 million was charged to operations. At this point, we expect any amount in excess of the $1 million to be recoverable from insurance, but we have not yet submitted our claim or engaged in any discussions with our insurance company.

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 occupancy 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, effective interest rates as well as other risks indicated from time to time in the Company’s filings with the SEC. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Now, I would like to open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Alexander Goldfarb with Lehman Brothers, please go ahead.

Good morning. First, just getting to your disposition target, you suggested cycling out of the all age. Is there a target amount for disposition or a target amount for mix in terms of all age versus the retirement communities?

I think more importantly there’s a target amount for properties that meet our investment criteria, which is again major metropolitan areas, high barrier to entry marketplaces, and resort or retirement destinations. There are some locations in our portfolio that don’t meet those criteria and those would be the first that would be evaluated for purposes of sale. And we’ve done this historically. If you looked at our activity over the last 6 years, you’ve seen us rotate out of markets like Kansas City and into markets like Florida. I think you should expect to see something consistent with that. The timing of this is yet to be determined, but it is a long-term goal of ours.

Okay. On the income statement, the line that’s marked “income from investment,” it was close to $3.8 million for the year. It’s a big pop from previous quarters. Is that a reflection of those 1,500 joint venture sites in there, or what’s driving that?

That’s the Thousand Trails income, Alex.

Okay. So Thousand Trails is being booked through that line, not the property line?

Correct.

Okay. And speaking of Thousand Trails, the pro forma of the financials, should we expect that soon?

Of the Thousand Trails business, we’re not required to file that, Alex.

Okay. In your 8K, going back on the 16th, it says in there that “we intend to file any required pro forma.” Okay, so there’s nothing required.

Right.

Okay. Final question is just noticing a flurry of newspaper headlines talking about senior activism, whether it’s in Florida or right of first offer, or in Delaware with this rent control stuff, does this represent an increase in activity or is just sort of par for the course?

I would say it’s par for the course. There’s always what I would call a posing type pressure with respect to the relationship between landowners and homeowners. And in various times and in various points across the United States you see that get the attention of the local press or the local politician. But for the most part, that’s an issue that you could go back to the 70s and see the same issues that we’re dealing with today. So I don’t see any increase.

Okay. Thank you.

We’ll now move on to William Ikson with Merrill Lynch.

I was wondering if you could give us an idea, how much expansion activity you are going to try to enter into this year?

Yes, William, on the expansions, we have two of our flagship properties in major metro Phoenix, Monte Vista and ViewPoint, that we’re reviewing and expect to have some sites come out of the ground this year. In Florida, we have Coquina Crossing, which is up in St. Augustine, which we are going forward with our next phase, which is about 100 sites. It should come online this year. And then we have another expansion, Bulow Plantation, which is in Flagler County, that we’re assessing right now and think we’ll bring some sites out of the ground also this year.

Okay. I guess an idea for the total -- I mean you mentioned the 100 sites. How about in Phoenix and Flagler?

Anywhere from 100 to 200 per location.

Okay.

And we are still evaluating many of the vacant land parcels that we acquired in the Thousand Trails portfolio. We have people out and about evaluating the feasibility and it’s in various stages of discussion and analysis. It’s a little too early to comment on beyond that.

In round numbers, what sort of incremental investment per site would be required?

It depends on real estate location, but in the markets we’re talking about, where Roger was talking about Florida and Arizona, you’re roughly going to be talking anywhere from $15,000 to $25,000 per site. Some of it has to do with whether or not there are utility impact fees or hookup fees. But generally that range will be within reason.

Okay. And again round numbers, 15 percent yield on that, given that you have most of the other utilities and infrastructure in place? Is that a good starting point for the yield?

Yes. In those marketplaces where we’re looking at it, you can look at rents that we have achieved in either the Bulow marketplace or the Coquina marketplace, most of that revenue will be falling fairly cleanly down to the operating line. I think the rent in Coquina, Roger, are --

$500.

$500 a month. So that will give you some idea for the math that would be involved.

Okay. Real quickly, on the balance sheet, variable rate debt right now, does that work out to about 15 percent?

Oh, I think it’s less. It’s about -- less than 10.

Less than 10. Okay, I was just using --

Sorry. I’m wrong. It’s close to 15. I was looking at a wrong number.

Okay. When will your Q be out, or excuse me, any supplemental or stuff where we can get the year-end information in a little bit more detail, the K?

The K is going to be filed pursuant to regular requirements. We don’t put out any supplemental information on top of the K.

Okay. Now, you mentioned in your release the cross-matching agreement that you have with Thousand Trails and there certainly is some potential there. What are your expectations for that?

It’s part of a larger plan. It involves the transient sites we also have in our resort properties. We now have some fairly significant anecdotal evidence that it shows that customers who begin their experience become attracted to certain properties and certain lifestyles and then move up the chain in terms of becoming a seasonal and/or annual customer. We also now are seeing evidence of their interest in the manufactured home communities and the manufactured home product given the quality of that product we’ve been able to provide the customers out there. So the Thousand Trails cross-marketing agreement really is in part of a larger picture.

What we would intend to do with that Thousand Trails customer, they have a 100,000 members, we would like to let them explore and experience what is available in the MHC –- or ELS universe of properties. And as they gain that experience and enjoy that lifestyle become permanent customers or long-term customers within our portfolio. We would also like to offer our existing customers in our portfolio the opportunity to gain the mobility and the lifestyle experience that they can enjoy by accessing the Thousand Trails system. And we think that the two combined really end up being a benefit for both our customers and the Thousand Trails member.

Would you consider offering some sort of discount to existing Thousand Trail customers or existing ELS customers?

Yes, that’s part of the agreement as it stands today. We’re starting right now with the off-season. So a Thousand Trails member is going to be able to experience our properties in the shoulder and the off-season at discounted rates. And also a homeowner in an ELS property is going to be able to access the Thousand Trails membership at a discount. So both of those are part of the cross-marketing plan.

Okay. And then one last question. You provided the occupancy rate for the Group One properties. Can you (technical difficulty - no sound) Two and Group Three?

We lost 86 sites in the Group Two stable portfolio.

And then the occupancy percent worked out to --

About 70 -- On the stable portfolio, we don’t have those numbers. We can get them after the call. But I would say that the upgrade properties, probably 85, 86 percent occupancy and that the stable portfolio is probably 91, 92 percent.

Thank you very much.

William, just one other thing in terms of the variable debt. We locked $180 million of LIBOR for one year. So I don’t know if you are including that as variable or not. If you are including it as variable, it would be closer to 15 percent. If not, it’s closer to like 4.

Okay. So the number that you show on the partial balance sheet should exclude that $180 million.

I would argue that that’s not floating rates.

Okay. Thank you very much. One other thing, you already said this before, income from other investments, that’s where the income from Thousand Trails is going to live going forward?

That’s correct.

And that is net of expenses?

It’s a triple net lease. The only expense associated with that transaction is interest expense.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) Smith Barney, Jordan Sandler.

Good morning. Could you just give me a little bit more detail on the five additional properties that were acquired during the quarter outside of Thousand Trails?

They are located in Wisconsin and Pennsylvania. Two of them are joint ventures and three of them are wholly-owned.

Are they MH?

They are all resort communities.

All resort.

Barriers to entry, you know destination, location places.

Total value?

Total value, I’ll have to get back to you.

But at least on your investment?

Yes, I don’t have that off the top of my head because I don’t remember the amount of the joint venture investment.

Okay.

The total value of the acquisitions is something on the order of magnitude of $10 million. It wasn’t significant. And on the joint ventures, the joint ventures are also roughly -- call it $300,000 or so per joint venture to 25 percent interest. So I think there are three that are joint venture at three times the $300,000. So I think roughly total investment in ballpark $10 to $12 million.

Okay. And what are the cap rates like?

So they’re 8 to 10.

8 to 10, okay. Unleveraged basis, right?

Unleveraged, yes.

Okay. Could you maybe talk about some of the assets that you would put up for sale in terms of location? I know you talked about what you guys have done in the past. What would fall into the categories that you started to mention? Would it be the stuff in Indiana and Michigan?

I think we’re going to avoid discussion of any specific properties. This call gets disseminated fairly widely among our employees and personnel.

Okay.

You should just have some sensitivity to that. But you can look at our map and you can make some educated guesses as to likely candidates that might be up for discussion.

Sure. And what would expected cap rates be on those types of dispositions?

I can talk generally as it relates to the discussions we’re having.

Sure.

One thing that we are seeing is that despite vacancy the value of the real estate has held up fairly well. One property that’s under discussion has roughly 60 percent occupancy but the pricing of the asset would indicate that they are not looking at that. They are either a single family home developer looking at alternative use for the real estate or somebody who believes that they can repopulate and increase the occupancy of the property and it’s part of their pricing consideration.

So cap rates could potentially be in the low single digit numbers or whatever. They could not make a lot of sense relative to the vacancy.

Yes, I don’t believe it will make a lot of sense relative to the vacancy, but relative to the NOI in place.

Okay. And then the hurricane spending, it was $7 million. Is there additional spending that you guys anticipate you’ll incur in the first quarter?

Yes.

Do you have an estimate for that maybe?

Not yet.

For the most part what we’re dealing on an ongoing basis will be clubhouse damage and that’s going to be restricted to, I think, two or three locations that had some significant damage to either the roofing system or the clubhouse. And those are the dollars that we’re talking about being meaningful going forward. There’s one in Vero Beach. There was one in Punta Gorda. Roger, help me out.

And one in Fort Meyers.

And one in Fort Meyers where there was some damage to the structures. And I think we’re talking about, at least at two of the properties, something less than $500,000, and another property we’re looking at whether or not we want to just rebuild the clubhouse that was there. It was a fairly small structure.

Okay. Does the $7 million number to date include lost rent? Or was that just tree removal and repair?

It was all costs we incurred necessary to get our properties up and running but did not incur any estimate of business interruption or loss run.

Okay. So the total possible related to that, if you include the 200 sites that you lost, would likely be higher?

The possible claim that we would make, yes.

Okay. And then just moving on in terms of capital structure, what would target leverage be, say 2005 or the year-end 2005?

I think target financial flexibility would be getting our balance sheet, and we think we have it today, but in a position to execute on opportunities that we see are out there and being able to take advantage of either expansion opportunities or upgrade opportunities and new home sales opportunities that we see within our portfolio. We think we have that financial flexibility today and it will be a discussion point with respect to how we change the capital structure going forward, either adding new data or record a new form of capital security and/or the dividend discussion.

Okay. And could you just maybe give me a little bit of color on the thinking on the 9 percent preferred that’s outstanding right now? Why you guys haven’t redeemed that yet?

We like the flexibility that it gives us. As we’ve said before, the choice between the income statement and the balance sheet at the margin and paying that off reduces our balance sheet flexibility at the moment. So we’re going to keep our options open with respect to it.

But we love the fact that we can pay it back any time.

Right.

Okay. Thank you.

And we’ll now move on to Andrew Mooth with Starwood Real Estate.

Good morning. You guys mentioned a free cash flow number of $75 million for 2005, correct?

Yes.

What was that number in 2004?

It was free cash flow before -- it was about $45, $50 million.

Okay. So getting from the $45 to the $75, you obviously included about $16 million or so from the Thousand Trails.

Well, no, there’s interest expense associated with that. There is also the full year impact of all of the acquisitions that we made.

Okay. Thanks a lot.

We’ll now move on to ABP Investments, Richard Pilolly.

Hi guys. Perhaps you can elaborate on the swap hedge that you had on your floating rate exposure. When does that expire?

We didn’t do a swap. We entered into a 1-year LIBOR contract.

You entered into a 1-year LIBOR contract where you pay fixed, is that right?

It’s just the 1-year LIBOR contract. It’s the same thing as a 1-month LIBOR contract or a 3-month LIBOR contract.

Right.

Right. You just pay --

So when did your floating rate exposure reemerge?

In December.

In December of ’05.

On that $180 million.

Okay. And what other exposure do you have? Is there anything else that’s hedged out further or is that it?

On the unsecured side, there’s about $50 million that floats.

That floats.

Right.

Okay. And then if you could just remind me of the maturity of the longer-term debt that you have. I saw a schedule that went out only a couple years. How far out do you have some larger maturities because I know in the next couple of years you don’t have much? Where’s the big rollover that’s coming?

We have a big rollover in 2007 and then somewhat less every couple of years thereafter going out about 9 years.

Okay.

2007, 2008, 2010 for fixed (indiscernible).

Okay. What’s the number in ’07?

About $430 million.

That includes the line.

That includes the line. That’s correct.

Okay. If you took out the line, what would the --

It’s about $250.

The biggest piece of rolling fixed financing we have in 2007 was the deal we did back in 1997, the Merrill Lynch securitization. I think the total debt on that was $265. Based on today’s underwriting, we think there are incremental proceeds if we were to redo a similar financing. So we think there’s capacity within that refinance.

The other debt that Michael was talking about is Thousand Trails term loan debt and are unsecured. They do have a maturity within the next few years, but frankly we like that because we are evaluating how we want to either put long-term financing in there or gain some financial flexibility by just retiring some of our shorter-term maturities.

Right. Okay. And two more things. On the capitalization of the hurricane-related disbursements, if you will, to get the properties up and running, how did you make the determination that those could be capitalized versus expensed? It sounded like the rationale is because you are going to get reimbursed for that, or is there something different there? Because I’m not sure even if you get reimbursed, the way it sounds to me, that it shouldn’t have just been run through the P&L and then you get a net benefit when the insurance premiums come in. Proceeds, excuse me.

Our accounting treatment was to treat it as a receivable and determine whether or not we were going to collect on that receivable based on our review of what we’ve spent, the insurance policies, discussions with third-party advisors. We feel very comfortable with the accounting treatment that we’ve had.

Okay. So it’s not related to exactly what you spent it on. It’s more the way it gets brought in.

It is related to what we spent it on. We counted up the dollars and that --

I understand that part, but in terms of it wasn’t determined, well, we’ll cut a tree down here so it’s a CapEx we’re fixing this. It’s a regular expense.

No, it really is just dollars out the door and whether or not there’s a recovery of the insurance providers or insurance policies.

Okay.

Of the $7 million, we didn’t go and say x amount would be CapEx, x amount would be expense.

All right. That’s the part I was a little confused about. And the last thing is a little bit more of a soap box commentary. Somebody else asked about disclosure. I hope that as you guys have become a little bit more complicated from the bread and butter, you know senior manufactured home parks that you can put a little bit more disclosure in with respect to things going on and Thousand Trails and your resort communities going forward and perhaps some same-store analysis as we get longer in the tooth in this stuff. Thanks.

And we’ll take a follow-up question from Alexander Goldfarb.

Yes. Just very quickly, on the Thousand Trails and the investments income line, is it net? It would seem to be net of interest in that line. Is that correct?

No, the interest shows up in the interest expense line, Alex.

Okay. It didn’t seem to go up that much. Thank you.

It was only there for a portion of the quarter.

Right.

Anything further, Mr. Goldfarb?

No.

(OPERATOR INSTRUCTIONS)

Mr. Heneghan, there are no further questions at this time.

All right. Well, thank you for joining us. We look forward to next quarter where we can give you some more information about the success of our season and our resort communities. And if you have any questions with respect to what we talked about on this call, feel free to call Mr. Berman. Thank you very much.

That does conclude our conference, everyone. We thank you for your participation. At this time, you may now disconnect.