Equity LifeStyle Properties Inc (ELS) 2008 Q3 法說會逐字稿

Good day everyone, and thank you all for joining us to discuss the Equity Lifestyle Properties results. Our featured speakers today are Tom Heneghan, our CEO; Joe McAdams, our President; Michael Berman, our CFO; and Roger Maynard, our COO.

In advance of today's call management released earnings. Today as call will consist of opening remarks and a question-and-answer sessions with the management related to the company's earnings release. As a reminder, this call is being recorded.

Certain matters discussed during this call may contain forward-looking statements, in the meaning of the Federal securities laws. Our forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events.

At this time I would like to turn the call over to Tom Heneghan, our CEO. Please proceed.

Good morning. Thank you for joining us today as we discuss our results for the third quarter of 2008. I am top Tom Heneghan, Chief Executive Officer of Equity Lifestyle Properties.

In a very difficult macro environment I'm pleased with our third quarter results, which reflect the stability of our business. Joe McAdams and Mike Berman will provide more details regarding our results following my comments. Our business plan has always been to create long-term, stable and predictable cash flows. I believe our results so far for 2008, and also our expectations of both the fourth quarter of 2008 and the year 2009, reflect this plan. Our primary investment objective has been to offer affordable housing options in high-quality real estate locations, focused on retirement and vacation destinations. In addition, we have consistently focused on serving the housing and lifestyle needs of retirees and baby boomers, based on both the positive demographic trends of this segment and its generally higher credit quality. It is this combination of strong demographics, high-quality affordable housing, and a fulfilling lifestyle that we believe position our company well in the current environment and for the future.

One potential trend we see emerging out of the current economic turmoil is simplification. We believe there will be an increased desire for simplicity in both financial and social interaction. Our business fits this desire for simplicity. A review of our customer characteristics reveals a customer who has generally avoided credit, saved money, focused on expense control, and is focused on simplifying their life both financially and socially.

However, simplification does not mean less fulfilling; to the contrary, our customers have an active lifestyle ranging from recreational activities such as golf, tennis or shuffleboard to music, plays, crafts, and social gatherings such as concerts, dances and dinners, all within the confines of our communities. Much of this activity is provided by residents of the community, and therefore available for little or no incremental costs. With all the stress and worries that exist in our time, our customers find comfort in their friends and neighbors, and security in knowing you will always be greeted with a friendly wave. The coffee you drink shared with friends, or the joy of participating in or watching a wide array of activities for little more than the cost of your time, provide an easy respite from all of the outside noise.

This is not to say that our customers and potential customers do not face challenges. The increased uncertainty of the future has caused people to be more cautious in their spending and decision making. In light of this we, too, have made adjustments to our business; however, we strongly believe that by making appropriate adjustments to our products and services, we can offer attractive solutions to those customers seeking to reduce their exposure to residential real estate while improving their ability to engage in an active and fulfilling lifestyle.

Now I'll turn it over to Joe for his remarks.

Thanks, Tom.

I would like to provide some color regarding our operations for the current quarter and our future expectations. With respect to our core community business, we continue to enjoy a very stable customer base, so our focus has been on how we incrementally attract customers fitting our profile. For many years, we have used a new home sales program to attract younger retirees and empty nesters, selling on an average of approximately 400 homes per year in the last eight years. This has allowed us to focus on removing some of the oldest housing stock out of our communities and replacing those homes with newer, more attractive homes. We have also focused on beefing up our lifestyle offerings to make our communities more attractive to the new generation of retirees. We've been extremely successful with this program, and I believe we will in the future continue to be successful.

The last couple of years have been painful. While we kept this part of our strategic plan in place despite slower sales volumes and lower profitability, we continued new home sales operations in 2007 and thus far in 2008, despite total sales operation losses of over $4 million, because it represented a strategic initiative. However, we also commented that we would temporarily eliminate this program if it became necessary. Today's economic environment represents such a time. We have decided to significantly reduce our new home sales operation beginning in the fourth quarter of this year and into 2009, and until such time as conditions become more favorable. This step should reduce annual expenses by over $3 million.

We decided to convert our remaining for sale new home inventory, currently as comprised of approximately 248 new homes, to our rental program. If you'll recall, we began our new rental program initiative approximately nine months ago in reaction to this economic environment, and have shown that this can be a positive program, renting over 77 new homes in the third quarter and 206 homes to date. In addition, results to date reflect little incremental cost associated with the program, given the retiree renter and the consequent lower wear and tear on the homes. Moreover, many of these renters represent good buying prospects.

As outlined earlier in the year, we are now underway with the first marketing campaigns based on the outcome of the [Axiom] database initiative. While it might take time to find the right combination of customer and offer, my experience tells me this effort will ultimately be successful in bringing additional customers, both buyers and renters, to our communities. We also have stopped acquiring new inventory until we are better able to assess the future environment. We expect to reassess this during January of 2009. We are mindful of the concerns regarding a home rental program, and have kept tight control over our customer quality. However, carrying a new home sales operation at continued losses could not be justified at this time, and rental of the remaining inventory is a natural progression of this decision.

We also have decided to present FFO, after a charge for home depreciation, to better reflect the economic costs of this decision. We expect the marginal impact of this decision to be a potential positive to occupancy and increased revenues, in addition to expense savings mentioned. One additional factor impacting occupancy in 2009 will be how many homes are removed from our communities. As I've said earlier over the years, we have allowed some of the oldest housing stock in our communities to leave when the homes were not sold in place by the owner. This natural attrition allowed us to replace the older housing stock with new homes. However, in the current economic environment we recognize the need to limit this activity, and I believe we're in a position to potentially slow this strain on occupancy compared to previous years.

With respect to ELS's RV segment for both our with Northern and Sun Belt resorts we continue to be very successful in moving our short-term customers to annual customers, with annual revenue up over 7.3% in the quarter and 6.7% for the year-to-date. Our challenge is to find additional new customers interested in short-term stays at a reasonable cost, to offset the impact this transition has on our seasonal and transient revenues, in addition to provide opportunities to grow our annual customer base. We will be utilizing several of the mass RV channels to acquire new customers. My former company, [Goodsan], and Camping World control 4 to 5 million customers, and Reserve America has over 3 million in their database files. ELS has formed alliances with these companies to enhance our new customer acquisition.

With respect to Thousand Trails, we began the consolidation of Thousand Trails into ELS in the third quarter, and have realized synergies of $3 million to $4 million on an annualized basis. We will be restructuring the sales and marketing operations further during the fourth quarter. These changes will reduce both our frontline sales in the associated sales and marketing expenses as we reduce these frontline sales activities. There are further G&A and overhead expense synergies that will be achieved during 2009, and we expect the net impact of these changes to be positive. We are also evaluating new products that lower the front - upfront cost of becoming a member, and offer additional opportunities to grow our $50 million new space. We believe our RV properties represent an economical leisure option for the install base of approximately 8 million registered RV owners.

In addition, we continue to create long-term stable revenue within the existing Thousand Trails footprint. I mentioned to you last quarter that we were testing selling used cottages in the northeast at Thousand Trails resorts. This program has been a success in spite of the current economic environment. We have sold 82 used cottages over the last four months, and will continue to expand the program to more Thousand Trails resorts in 2009. We have also expanded extended stays at Thousand Trails resorts. Both of these initiatives create annual site revenues in excess of $3,000 per site. We expect to continue both of these initiatives in 2009. These new options offer our existing member base the opportunity to increase the value of their membership experience, and provide them with attractive and affordable options for their active lifestyles.

Now I would like to turn it over to Michael Berman.

Thank you, Joe.

I would like to make some comments with respect to our 2009 full year guidance. This is a challenging environment for forecasters, even if you like our business, as we do. That said, we believe it is important to maintain our forward look at 2009, and I would like to go through our thoughts and assumptions underlying our 2009 guidance range. In general we are assuming zero occupancy growth, and 2008 full-year numbers are estimates.

First, core property operations. 2008 community-based rental income for our 2009 core properties is expected to be approximately $245 million to $246 million, and is assumed to increase 3.5% to 4%. By the end of October, we will have noticed approximately 60% of our residents with rate increases reflecting this revenue growth. 2008 resort-based rental income for our 2009 core properties is expected to be approximately $104 million, and is assumed to increase 1% to 3%. We expect good growth at the margin in the annuals, which generally comes at the expense of transient and seasonal revenue growth, as we take sites away from the latter categories.

Our annual revenue stream represents 60% to 65% of our resort cash flow stream, and is anticipated to increase 5% to 6% in 2009. This revenue growth is a combination of rate increases as well as occupancy gains that occurred throughout 2008, and we will have the full benefit of in 2009. As we have stated many times, our goal is to increase our long-term revenue streams. Over the past few years, we've done an excellent job of extending transient and seasonal customers in their length of stay, and in particular have converted a number of seasonal customers to annuals.

Our 2008 transient revenues for our 2009 core properties, which is less than 5% of our overall property revenue base, is expected to be approximately $18 million. We anticipate a 5% decline in transient revenues in our 2009 guidance. Our 2008 seasonal revenues for our 2009 core properties is expected to be approximately $21 million, and is expected to decline 5% to 10% in 2009. We attribute a portion of this decline to seasonal customers that have become annual customers.

Approximately 60% to 65% of our seasonal revenues occur in the first quarter. Our 2009 core properties generated approximately $13 million in the first quarter of 2008, and assuming approximately $1 million of this revenue has moved to the annual pool, we would anticipate $11 million to $12 million in seasonal revenue in the first quarter. To date, we have approximately $9 million in reservations for the first quarter. For the remainder of 2009, we anticipate our remaining revenues will be flat for 2008 or approximately $7.5 million.

Moving on to other income. Our unbundling efforts continue as we expect utility and other income, approximately $39 million in 2008, to grow over 7.5% in 2009. Overall, core property operating revenues are expected to increase 3% to 4% in 2009. Core property expenses before property management are expected to be approximately $161 million in 2008, and our budget to increase to 2.5 to 3%. In 2008, our core expenses grew 4.5% before property management, and was led by utility expenses, which is approximately one-third of our expense base, before property management. These expenses were up over 7.5% in 2008, and we consecutive this growth rate to be reduced significantly. We anticipate real estate taxes to be up over 5% in 2009. Overall core property operations before property management is therefore expected to grow 3.5% to 4.5% in 2009. We assume no contribution from non-core properties in 2009.

Comments on Privileged Access. At the beginning of 2008, we anticipated to receive a $25 million lease payment, and therefore a $25 million FFO contribution, from PA. We expected Privileged Access to have generated approximately $26 million to $27 million in cash EBITDA for 2008. In 2008, PA anticipated $17 million in property management and corporate and G&A costs. So the FFO contribution prior to overheads of 2008 would have been approximately $44 million. Of the $44 million, approximately 70% comes from property operations and some ancillary activities and other income. 30% comes from sales. The sales contribution primarily comes from upgrade sales, and frontline sales are at best a modest contributor. We anticipate FFO contribution prior to overhead to be approximately $39 million to $43 million in 2009, as we are anticipating a similar performance in 2009 for property operations, as we are just taking over management of the 82 Privileged Access resorts. The anticipated variability in our results primarily relates to the sales operation.

Moving on to property management and corporate G&A. In 2008, ELS expected to have $22 million in property management costs, and $21 million in corporate G&A. In 2008, PA expected to have approximately $17 million in overhead costs. Pro forma for 2008 would be approximately $60 million to $60.5 million. We have achieved initial synergies of $4 million to $4.5 million, of which approximately $1 million of cost savings will be rolling into our fourth quarter results. For 2009, we anticipate we will have $56 million in property management and corporate G&A costs.

Our sales operations. Following up on Joe's comments, we have shifted our focus on our home operations away from new home sales in our manufactured home communities and towards renting our vacant inventory balances. As a result, we have dramatically reduced the expenses associated with our new home sales activities. We continue to sell cottages in our resort communities. As a result of our efforts we expect our overall sales operation to be break even in 2009, reversing 2008's anticipated $3.5 million loss.

Other income expense items unrelated to Privileged Access is expected to have contributions from interest income, other corporate income and joint venture income of approximately $6 million, offset by rent control of $2.5 million. In 2008, we received $8 million of income from these items, offset by $2.5 million of rent control. Financing costs consist of interest expense and preferred costs. We assume this is going to remain at approximately $116 million. We make no assumption on the use of our free cash flow in our earnings model. Overall, FFO is approximately $98 million for 2008 and $110 million in 2009, at the midpoint of our range. We estimate our share count will grow approximately 0.5% in 2009. At the midpoint of our preliminary guidance, our FFO per share estimate is $3.55, with a range of $3.45 to $3.65 FFO per share.

I would like to make a few comments on our leverage, before I discuss the status of our 2009 refinancings and our plans for 2009. At the end of 2003, we undertook a recapitalization that brought our coverage ratio, which I will define as EBITDA to interest expense, from 2.25 times at the end of 2003 to a low point of less than 1.8 times during 2004. Over the past five years, we have more than doubled the size of our company, expanded into faster-growing revenue streams, enhanced our customer base, and maintained our financial flexibility. At the midpoint of our 2009 guidance, our coverage ratio will be 2.26 times. We accomplished this deleveraging with almost no dilution to our shareholders.

In 2008, we had approximately $200 million to refinance, with a weighted average interest rate of about 5.4% and we are replaced that with about 6% debt. We paid off $131 million through September 30th ,and paid off another $60 million in October. We have approximately $8 million to go, with cash proceeds set aside. Our cash balance is approximately $27 million to $28 million today, and in this environment we have tended to hold higher cash balances, primarily invested in short-term U.S. Treasuries. Although spreads have significantly widened, and the number of lenders has decreased, there is still a strong interest in financing our properties. We provide a stable cash flow, a diversification element, and a relationship-borrowing approach to long-term lenders. These are well received in today's credit markets.

With respect to 2009, in addition to our excess cash we have on hand, we have more than $70 million of free cash flow, which is our FFO less recurring CapEx estimate of $15 million, and a current common dividend of approximately $25 million. We are currently negotiating a detailed term sheet with Fannie Mae concerning a $200 million secured credit facility, and have over $250 million of availability on our lines of credit. Our line banks are Wells Fargo, Bank of America and U.S. Bank. We are running our balance sheet ahead of maturities. We are currently in the market with $80 million of financings, the amount we have coming due for 2009 which - more than half of which matures in the second half of 2009. As a result we may end up holding more cash than we have historically, which may result in some dilution, and is not factored into our guidance.

One final point I would like to make concerning TT's accounting. Let me take a moment to address accounting implications related to the consolidation of the Privilege Access business. As most of you know, Privilege Access generates substantial cash flow from initial right-to-use payments which are non-refundable. Under GAAP, these payments are being amortized over periods of up to 30 years. For purposes of FFO, we have added this noncash amortization back to our results. Depreciation is a good analogy. There you spend cash on your real estate, it gets depreciated over some future period. Here we receive cash from our real estate, and are amortizing it over some future period. In both cases, the noncash adjustments are added back to assess the performance of the real estate.

And now I would like to open up the discussion for questions.

(OPERATOR INSTRUCTIONS)

Your first question is from David Bragg with Merrill Lynch. Please proceed.

Good morning. Just wanted to focus on the decision that you've made on the home sale business, and as you look at that clearly the benefit you outlined going forward for 2009, what are the risks and the costs that you could see going out over the next three to five years as you cut back this business now, and - in terms of community quality or higher operating expenses?

I would say that we're making the decision in light of the short-term economic environment, and not a long-term change in our strategic view of how we want to run our properties. We're sitting with an inventory balance of approximately 250 homes. If you looked at the cost of carrying that inventory, noncash flow-generating, and the cost of the sales and marketing operation around that, that was a pretty significant drag. We did not see the home sale environment improving in 2009. Everybody knows what is going on in the single family housing environment right now. There's significant liquidation of foreclosures that are occurring. There's difficulty accessing the credit markets for home buyers. And our customers at the margin, even if they could buy, are opting to rent in the current economic environment. So I would say the decision we made was in light of today's uncertainty. I think you will see us reinitiate a home sale program in the future. And if you recall, the home sale program used to be a net positive to our results, not the $3 million-plus negative that's occurring right now, and we don't think it's going to meaningfully change our strategic initiative relative to customer quality or the quality of the lifestyle or our amenity package.

Okay, and could we just review those numbers real quick. How many homes are currently in the rental pool?

New homes I think is somewhere around 300. So we have about 300 that we've already rented that were in our new home inventory. We have about 250 for sale homes in inventory that have been held back for our selling program. As a result of this decision, those 250 homes will be now available for rental. We've also made the decision that we will stop buying inventory at least until the January 2009 period, where we can reassess the environment. So essentially what we're going to be working with over the next few months, maybe half a year, is going to be the existing for sale inventory that has been converted to rental. And we've been renting that new home inventory up at anywhere from, call it 50 to 70 a quarter.

Okay, thanks. Just a couple of questions for Joe. First, Joe, could you review the PA cost structure as it stands now and discuss any potential changes there for new Thousand Trails members?

David, let's talk a little bit - I think maybe the easiest way to do this is we've got about $80 million to $81 million worth of property operating revenue, and that comes from roughly $50 million to $55 million in annual dues; $20 million in ancillary revenue, and that consists of everything from extended stays to rentals of cottages to boat rentals and retail operations; and then we have about another $7 million of other income, which basically comes from Resort Park International and the Thousand Trails management company. That gets us to about $81 million in revenue, and on that $81 million we have roughly a $31 million contribution. In 2008 our sales -- frontline sales will be roughly $20 million, and as Michael said earlier, that's a very small contribution, let's say it's 5% or less. And on our uprate sales there's $20 million there, and the contribution is 50 to 60%. So with that, that gives us the $44 million contribution that Michael was talking about.

In 2009, what we will do is we'll actually take the sales down on the frontline to roughly $12 million, and we will keep the upgrades at about $15 million. So we'll take the the mix from - the frontline sale is extremely costly, 3,200 units we did roughly in 2008, we will take it down to around 2,100 units and then we'll upgrade those folks, and our contribution then would be roughly $42 million. That's what we're looking at for 2009.

With respect to the members, we have an attrition of roughly - after we shook out the Outdoor World membership and consolidated that, we have an attrition of roughly 8,000 members. That comes in about three broad-range categories. The first category, a third of them are people that have health problems and are dying. Can't do much about those folks. The other third comes in people that have left the lifestyle, and they are people that are -- actually they sold the RV. What we intend to market to those folks this year is a cottage-type program or a rental. They still enjoy the outdoor - the outdoor resort, but they actually don't have the RV. And a third are the members who say look, the dues are too expensive for us, we haven't looked at - we're not using that much. So what we're looking at is a flexible dues program to go back with those people. So maybe that's more than you want to know about it, David, but that's where we're going.

Well, so just to be clear on the lower upfront sales in 2009, that's the result of your expectations for less sales, not lower price points?

That's correct. We will be introducing some lower price points, but remember that's that very high cost front-end sale, and we will be reducing selling locations.

Okay, thank you.

Your next question comes from the line of Paul Adornato with BMO Capital Markets. Please proceed.

Yes, I'd like to focus on the move-outs on the core portfolio, the core retirees. What is the average age of the home that leaves the community?

Historically, I'd say over the last ten years we've probably moved out 30-year-old-plus housing, there used to be some of our communities that would have a single section home kind of metal-sided, metal roof. Those are the homes we have targeted over time to remove. A couple of things that happens when you replace that older housing stock with the the newer homes with the front door/front porch and the higher roof pitch, is the surrounding homeowners also start to make improvements on the existing housing stocks. So there's a beneficial effect that occurs over time as a result of the removal of the older housing and replacing with the newer homes.

Okay. And the homes that leave the communities, is there any value to those homes? I think you mentioned that the homeowner just kind of writes it off, if you will, and there's not actually a sale that occurs. Is that correct?

There is some of that. There are some that we've actually historically bought for removal, if it's a targeted location in our property, for example by the entrance, and we wanted to improve the look and feel of the community as you drive in. We would have targeted and bought existing housing stock and targeted for removal. Sometimes that's a demolition of the house and sometimes you could sell it offsite, but we're talking for very little money.

Okay. And so the plan at this point is to somehow make that house livable and salable to a new customer, is that the plan?

I would say that for the most part throughout our properties we're culled a lot of older housing stock, so we're in a position to not have to be as aggressive as we would have been say back in 1999, when we first started this program. As I mentioned before, when you upgrade both the amenity package and the housing stock with the new homes, there is a lot more care and attention paid by homeowners with respect to the existing housing stock because now they are competing against the newer homes as a result of their resale values. So I think we've done a pretty good job. The housing stock in our properties I think is in pretty good shape overall.

Okay. And moving to the decision to no longer sell the homes in inventory, why wouldn't you just want - you know, granted, the sales environment is much slower now, but if someone wants to buy one of those homes, why wouldn't you kind of sell out what you have and then not hold any inventory of owned homes?

We would. We have been trying to sell all year long. We'd be ecstatic to sell a home, if it made sense relative to the economics. What we're seeing now is almost no activity on the buying side, and to the extent we do get any activity on the buying side, these are very sophisticated bargain hunters who have shopped the market well and are putting price points on homes that make it an absolute bargain for them to buy. We don't think that's an economic decision relative to what we could rent that home out for, and retain it in our inventory and perhaps sell it as a used home in two or three years, as opposed to selling it for deep losses today.

Right, okay. And then just one final general question. Of course I think everyone is just trying to get a sense of what consumers are up to, and you guys talk to consumers everyday, so I was wondering if you could give us a progression of activity from the beginning of the quarter to the end of the quarter, and then if you could comment on activity in the month of October?

Sure, with respect to -- I'll break it into a couple of segments. With respect to the manufactured home communities, again, we've commented about the sales environment. There's really no sales environment to speak of, but there is good demand for rental housing, both new and used rental housing. I think we are seen as an attractive, affordable lifestyle option for people seeking retirement and/or empty nester housing. It allows people to simplify their life in lines with my opening comments. The cost of heating a 1,000 square foot home versus a 2,500 square foot home, the cost of maintaining the yard, all of your costs start to get downsized, and I think that is seen as very attractive. So we still have demand for our product; what is causing an issue is the availability of capital in the marketplace to buy homes or to sell their existing single family home residence in this environment. I think that would be the biggest issue on the manufactured home side.

On the RV side, despite -- I'll give you a year prospective than a current quarter prospective. Despite significant issues with the cost of gas earlier in the year, we've seen a very sticky type of revenue stream coming from the RV segment. Certainly there are some customers who decided that they could not afford an RV trip this year, but there were also other customers who changed more expensive spending patterns and more expensive vacations, and rotated to a family weekend out at one of our RV resorts in the summer. I think I mentioned in prior earnings call comments, we saw pretty robust activity on that. We've also seen significant demand for those people who already own an RV unit to want to leave it in place on an annual basis and use it a very affordable form of second home vacation home and vacation destination.

Right.

I think overall we're pretty pleased with how our business is reacting to the economy.

Okay, thank you. Thanks very much.

Your next question comes from the line of Michael Bilerman with Citigroup. Please proceed.

This is David here with Michael. Just a couple of questions. Can you guys provide a quick market update on Florida and California in terms of demand trends, piggybacking on the previous question?

I don't know if there's much more I can add relative to - you know, Florida certainly it's been news with respect to what's going on in the single family housing market. But again we continue to see demand for our product, not on a for sale basis but on a for rent basis. California, I would say that northern California as a market continues to be a pretty strong market, and southern California I could characterize as weak.

Great. And then, I might have missed this, but did you provide terms on the negotiations that you're doing with the agencies at the moment?

No. What we're looking at is a $200 million facility secured by a pool of assets. Pricing in the marketplace could be anywhere from $250 to $400 over, depending on the day and depending on the lender. Specifically with respect to Fannie Mae, it's a somewhat flexible facility. It could range - you could have floating and fixed rate tranches. The fixed rate could go out to ten years. If you float you have to cap it, but it's a very interesting facility to us.

Do you have a sense of when that might close?

We're looking for - to finish that in the first quarter.

Okay. And then lastly, can you provide some guidance on CapEx impacts of the Privileged Access consolidation?

Sure. In general, we have run recurring CapEx at about $125 to $150 per site. My $15 million comment before includes the Privileged Access sites.

Great. Thank you.

Your next question comes from the line of Bill Carrier with KBW. Please proceed.

Hi, guys. You've sent out most of your annual rent notices for '09. Would you be able to tell us the percentage increases over 2008 that those notices contained on average?

Yes, it reflected about 4.5%, 4.6% in rate increases, and inside going back from there - back to my numbers, is about a 1% impact due on our unbundling efforts.

Okay. Guidance for the fourth quarter of $0.66 to $0.68; does that include any items that might be considered one-time in nature?

No, basically the fourth quarter previously had implicit in there a $6.3 million lease payment from Privileged Access that we otherwise would have had in our results. The Privileged Access results we estimate to about $0.04 to $0.05 less, so that's really the adjustment that I would make to the fourth quarter guidance. The rest of our results are as anticipated.

Okay. And last quarter you mentioned you had expressed interest in talking to American Land Lease about their portfolio, but your comments today indicate that you're no longer interested in acquiring properties right now. Do you guys have any updates you can provide us with about those talks with ANL?

Well, first, I don't think we made a comment with respect to our view on acquisitions. I think we have mentioned American Land Lease from the prospective of seeing their portfolio as a nice portfolio, seeing their management as capable management, but at the time that they were announcing their strategic review, we decided not to enter into any confidentiality agreement, and I think our issue at the time as we addressed it was the difficulty in valuing much of the development land that was held on their financial statement.

Okay, and so you're no longer in talks with them. Those talks have ended?

We expressed an interest in pursuing it if they could find some way to take the development parcels out of the equation, and this is a conversation done through intermediaries. They expressed a lack of desire to want to do that, and I think that's where the conversation ended.

Okay, well thanks.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Alan Calderon with European Investors Inc. Please proceed.

Hi, guys. When you discuss the home rental program versus the home sales program, there was a comment made, you know, to prevent FFO after charge for home depreciation, and this is going to be a positive, I believe ,to FFO in '09 over '08?

Actually going to be a deduction.

We're running about -- right now in the second and the third quarters it's about $300,000/$350,000 a quarter of depreciation. That will increase in our guidance to about $600,000 a quarter. And that's running through our ancillary services net line item in our sales operation.

Okay. Well, I guess it sounds like overall from doing this from a rental prospective versus the sales prospective, you're expecting a positive contribution to your results in '09?

Yes, as a result of eliminating significant home selling expenses and some negative gross profits on the sale of the homes, we're going to eliminate those two effects. The depreciation effect that Michael talked about is an additional expense that will flow through and hit FFO to the tune of about $2.5 million. Offsetting that will be the incremental revenue we get by renting the house.

Okay. Thank you very much for your time.

Your next question comes from the line of Andrew McCulloch with Green Street Advisors. Please proceed.

Good morning. Could you comment on your expectation for third-party dealer sales in '09?

Well, third-party dealer sales, I think we have year-to-date 60 or so, but that includes both in the park model segment and manufactured home community segment. I would say on the MH side of business, you're talking about an industry that went from 350,000 shipments a year, and a pretty wide dealership program, down to an annualized rate of 80,000 shipments a year, and a fairly well decimated dealership environment out there. We would love to see some more dealers out there, and we would be very excited about working with them to come into our communities and try to initiate new home sales, but I don't see a lot of that activity out there, although we would be happy to see it and talk to them.

You think you would ever bring their sales operations back on to the communities? Their physical sales offices?

You know, I would say that we would have to think long and hard about that. The one thing that traditionally a dealer wanted to do was sell the home and leave and never talk to you again, and we were left then with any of the difficulties that that process left, with a homeowner who didn't like the setup or wasn't happy with the home or - we took over the home sales business within our communities to control the quality of the experience for our customers. I think we still are very mindful of that. We consider the sales operation to be the front door, for lack of a better word, to our communities. We're very, very interested in that, and maintaining the quality of the customer and the quality of the housing stock. If with could get a dealer who was sensitive to our needs on that respect, and treated the customer as a customer that he wanted to make a long-term happy customer, we would be more than happy to talk to a dealer about that.

Thanks. What were the LTVs on your recent Fannie financing ?

75%.

What kind of rates do you think could you get if you locked, say, ten-year debt today? What would the spread be?

As I mentioned before, Andy, you know it depends on the lender, it depends on what they're looking for. You know, anywhere from 250 at the very low end to the - 400 on the upper end.

One last question. Can you tell us what the cash EBITDA was for Privileged Access for all of 3Q?

For the third quarter it was almost $10 million.

Great, thank you.

It appears we have no more questions in queue at this time. I would like to turn the call over to Tom Heneghan, the CEO. Please proceed.

I appreciate everyone's time this morning as we went through our results and, as always, if you have additional questions feel free to follow up with our Chief Financial Officer, Michael Berman. Take care, everyone.

Thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.