Equity LifeStyle Properties Inc (ELS) 2011 Q3 法說會逐字稿

Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties third-quarter 2011 results. Our featured speakers today are Tom Heneghan, our CEO, and Michael Berman, our CFO. In advance of today's call, management released earnings. Today's call will consist of opening remarks and a question-and-answer session with management relating to the Company's earnings release. As a reminder, this call is being recorded.

Certain matters discussed during this conference call may contain forward-looking statements as a means of 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 your call over to Tom Heneghan, our CEO.

Good morning, everyone. Thank you for joining us today. Before I turn it over to Mike Berman, our Chief Financial Officer, to walk you through our third-quarter results, our guidance for the rest of 2011, and our preliminary guidance for 2012, I'd like to take this time to recognize our organization and its employees.

We are nearing the final property closings on our acquisition of the Hometown portfolio. This is a transaction has gone very smoothly, both in the timing and in its execution. All the capital necessary to finish the transaction has been raised and we see no significant obstacles through closing on the remaining properties.

Moreover, the transaction and the assimilation of the Hometown portfolio into ELS has gone very well. As of the end of September, we have completed the hand off from Hometown management to ELS property management and welcomed all of the new employees to Equity LifeStyle Properties.

At the same time, the core of our business continues to grow in line with our expectations.

Each of the above comments would be impressive by itself, especially given the degree of volatility that has been circulating in the capital markets and the uncertainty in the underlying economy. Together, I think they demonstrate the strength of our business plan and the quality of the people tasked to carry it out.

With respect to the transaction, figuring out how to get it done was never far from knowing we had to live with it post closing. This thought process permeated not only how and when we chose to raise capital, it also helped form our planning for transition purposes.

It is nice to be in a position today to discuss 2012 guidance with you. It reflects the culmination of a lot of hard work and planning. In essence, we are able to reiterate many of the themes we have previously touched on.

ELS core operations are stable and growing. Although at the margin we continue to rely on rental homes to maintain and grow our occupancy.

Hometown's impact on 2012 is in line with our initial underwriting of the transaction -- a transaction, I might add, that significantly increased our portfolio of high-quality, well-located communities.

And finally, our balance sheet is strong and we have significant financial flexibility.

It is with these factors in mind that we thought it prudent to address questions regarding 2012 dividend policy. As we often respond when asked, we believe the ultimate decision with respect to dividend policy rests with the Board of Directors. We therefore tried not to taint that process by making statements about the dividend before the Board has had the opportunity to discuss the issue. However, given the large impact the acquisition has on our Company, we would like to reduce uncertainty about our dividend when discussing our 2012 guidance with you.

As a result, we have shared with you management's recommendations prior to our November Board meeting. We believe that a 25% a share increase to $1.75 a year dividend represents a meaningful increase to our dividend while, at the same time, providing financial flexibility to the Company in an economic environment that warrants prudence. However please keep in mind that this represents management's recommendations, not the Board's decision. The Board is expected to deliberate on the issue at our upcoming November Board meeting.

With that, I am going to let Mike walk you through some of the numbers in more detail.

Thanks, Tom. Our supplement provides our guidance assumptions for the fourth quarter and next year. Once again, a reminder that these are points on a range of possible outcomes.

We still have some acquisition properties to close on this quarter and we have only recently started operating the closed acquisition properties.

In the third quarter, we came in at $1.08 FFO per share, a slight uptick from our $1.07 guidance. Core basic rental income came in on forecast of 2.8% with 2.1% coming from rate and 70 basis points coming from occupancy. We had an occupancy gain in the quarter of 82 sites and we are up over 200 sites year-to-date as we continue to increase our new home rental activities.

Our overall RV revenues were shy of forecasts although we had better-than-expected results in annual and seasonal revenue. Annuals were up over 4% and seasonal revenues were up 3.5%. This was offset by a lower-than-expected performance on our transient and membership upgrade revenue streams, both of which were impacted somewhat by weather. The weather had an [outsized] impact on some of our Northeast and Pennsylvania locations.

Overall, core NOI before property management grew about 3.5%. This is less than we previously anticipated. It is attributable to the transient and membership sales performance.

We received an insurance recovery payment which boosted other income and expense by $2.2 million. [Old] ELS came in at $37.7 million of FFO compared to guidance of $36.2 million. The Acquisition portfolio operated within our expectations; however, the variance to the forecast of $700,000 was attributable to the timing of the closings.

Our fourth-quarter guidance is over $43 million of FFO before transaction costs or $0.96 FFO per share compared to prior guidance of $1.00 of FFO per share before transaction costs. Old ELS is basically on track to do $30.2 million with expected growth in core NOI before property management of 2.1%.

The Acquisition portfolio continues to perform within our operational expectations. However, we expect a $13.1 million FFO contribution before transaction costs in the fourth quarter. Our prior expectation was $14.7 million. The variance to previous guidance is primarily attributable to the timing of the closing of properties. Our operational expectations have not changed.

For the year, our guidance shows about $160.3 million in FFO before transaction costs, compared to the $161.6 million we sought back in July. We estimate FFO per share before transaction costs to be $3.97 compared to $4.01. The variance is primarily due to the timing of the fourth-quarter closings. As of today, we have closed on 61 of the properties and we now assume the remaining properties outside of one will close by November 1. The assumption process has been the cause of the delay in the closings.

Moving on to 2012, our preliminary guidance is almost $201 million of FFO and $4.42 FFO per share at the midpoint. Our expected total FFO for 2012 is up over 25% from 2011 and FFO per share growth is about 11.4%.

Growth in core NOI before property management is approximately 2.2%, which is consistent with our 2011 performance. We assume flat occupancy growth in all of our MH properties in 2012.

In our Resort business, we see annuals continuing to show good growth with occupancy growth of 2.3% and rate growth of 1.2%. We continue to improve the utilization of our Thousand Trails footprint. We have added about 500 annuals each of the past few years and expect a similar performance in 2012.

We expect seasonal transient and member dues to be flat to 2011. We expect to sell around 7,500 to 8,000 new memberships in 2011 and expect to sell over 9,000 new memberships in 2012. Core expenses are showing about a 2% increase compared to approximately 0 in 2011. For 2012, we see no unusual pressure on our expenses. Keep in mind we are forecasting 2012 without the benefit of 2011 being complete. We benefited in 2011 from reduced readership sales expense compared to 2010 as a result of eliminating high-cost membership sales products in the middle of 2010.

For our Acquisition portfolio, we see a contribution of income from property operations before property management to be around $101.3 million, which is in line with our underwriting of the transaction. While we see some modest revenue growth in the Acquisition portfolio in 2012, with an average rent increase of about 1.5%, the revenue growth is essentially offset by an increase in real estate taxes, due to anticipated reassessments.

We see the Acquisition portfolio expense budget in line with the ELS portfolio outside of the real estate tax impact.

One part of the acquisition transaction I would like to spend a few minutes on is our acquisition of the chattel loan portfolio. Hometown supported an active sales program by providing subsidized financing to their customers. We looked at this as part of the net operating income we were acquiring and applied an initial valuation that reflected this view.

The interest income earned by Hometown in 2010 was $8.7 million. We made no adjustment to this reported interest income at the time our previous supplement was produced. Since then, we have determined our carrying value based on a third-party valuation which used market-based transactions, and that carrying value is approximately $40 million.

There is a high degree of judgment in this number including appropriate default rates, recovery rates, as well as the appropriate market discount rate. On page 16 of our supplement, we provide disclosure on the portfolio, the chattel loan portfolio.

The impact of our evaluation estimate is to shift about $2 million of contractual interest payments expected to be received in 2012 to a reduction in principle. As a result, the lower interest income reduces 2012 FFO per share by about $0.05.

To the extent we have less defaults and/or better-than-expected recoveries in the future, we will have higher interest income than currently modeled. These assumptions prove too aggressive, we will have immediate losses reducing interest income. We intend to provide this disclosure quarterly as there may be some volatility in our reported interest income, relative to our starting assumptions.

For [all] ELS, we see $142 million of FFO at the midpoint, up 3% to our expected final 2011 result. For the Acquisition portfolio, we see an FFO contribution of about $59 million.

Just a couple of quick comments on our financial flexibility. We have a $380 million undrawn line of credit with approximately four years remaining. Current mortgage secured terms are roughly 10 years with coupons in the 5% area and loan to values of 60% to 65% and debt service coverage around 1.4 times. We believe we have multiple sources of public and private capital available to us and, with that, let's open it up for questions.

Operator, could we open up for questions, please?

(Operator Instructions). Eric Wolfe from Citi.

Thanks. Couple of questions on your guidance. For 2011, it looks like the majority of the drop in your core growth expectations are due to declines in right-to-use and also flattish growth for RV. I guess first question, was it just the weather that caused you to lower your expectations there? And second, how much confidence should we have in your forecast for 2% growth for next year?

Most of it is coming from the transient revenue streams. And although we don't like the point to weather, if you look at the decline in transient revenues that occurred during 2011, it -- 100% of it is in the Northeast markets, Pennsylvania and the Northeast. Excluding that, there was actually growth in the transient.

So that's a factor that really played havoc with our numbers in the summer season here. And it -- certainly, Irene was a major part of the weather pattern that affected us. But actually throughout the summer, rain in the Northeast did affect our ability to use our properties in the way that we would have anticipated in the summer season.

What would you have thought the growth would be without the weather playing that havoc? I mean, would it be more like down 5% relative to down 10%? And then, I mean I guess should we then think that your 2% as for the next year is actually conservative given that -- I don't know if the weather is going to have the same impact, but assuming it doesn't, would it be conservative?

It's always hard to say whether it is conservative or not. I mean, the outlier on our numbers relative to the RV revenue is always kind of the impact on the transient and there are a number of factors that play into that transient revenue mix. One is if to the extent we have more success with our annual revenue streams and our seasonal revenue streams, that comes at the expense of transient sites available. Or, excuse me, sites available for transient use.

And at the same time, transient is the one area that does get impacted almost immediately by any favorable or adverse weather impacts on the business. So I think we are comfortable with our guidance. I think we can explain what happened in 2011 for the most part is attributable to the weather and I think we'll just leave our comments at that.

And then you mentioned in your remarks that it doesn't look like you're factoring in any NOI growth for the Hometown portfolio in your guidance for next year. I mean, how should we think about the growth potential for the Hometown portfolio over the longer term? I mean, do you see it matching your current core portfolio or is there going to be or do you think it is going to be a little bit less?

No, actually we think it's going to be on par with our existing core portfolio. You know appreciate it that $1.5 billion transaction, 76 properties that have gone through a fairly quick closing process and transition to ELS management. We subsume those properties into the ELS budgeting process for 2012, but frankly our old tagline internally is don't break it, right? If it's running well, let it run and then make sure you have some intelligence information before you change anything over and above what was already in place.

And that is the philosophy we kind of took with respect to the Hometown portfolio. We kind of let it be what it was, assimilated them into our budgeting process and I think as we get smarter with respect to the issues affecting those properties and the opportunities affecting or available at those properties, we expect that portfolio to operate much in line with our existing core portfolio.

Okay and then just one last question. I guess one of those opportunities would potentially be increasing the occupancy at the Michigan sites. I mean, do you see that as a possibility for next year and I guess where do you see the long-term stabilized occupancy for those assets?

Again, we see Michigan as a little bit of an R&D from us in terms of our approach to affordable housing. We do think that occupancy [couldn't] go up in Michigan. Again, it is early on for us. We have bought order of magnitude 60 homes to place up in Michigan to see how they would rent up and what would the wear and tear on the homes be. So with that page in process I do know that I can't really tell you how we are doing up there other than that we have actually started the decision making with respect to seeing what is available from an occupancy pick up in the state of Michigan. So I think it is a little early to say.

I can say that if you look throughout Michigan that most operators are gaining occupancy to the extent they have homes available for occupancy. And there are a number of properties in the state of Michigan that run at 85% or so of stabilized occupancy, whereas many of the properties in the Hometown portfolio were in the 60%. We see no reason why the 60% compared to the 85% should sustain itself over time.

How long that takes, I think that is too early for us to really make a comment on.

Okay, that is fair. Thank you.

Gaurav Mehta from FBR.

Good morning. Going back to your initial comments on rental housing, what percent of the office sites are currently occupied by renters?

It's about 3,000 sites out of 4,000 -- 40,000 occupied sites.

And is it evenly distributed all over the country or it's more in a couple of regions?

Yes it is, for the most part it is going to be in Arizona, Florida, and some California. That would be the bulk of it. We've recently noticed improving market conditions in Colorado and have put some at the margin in Colorado, but for the most part it is going to be Florida, Arizona and California.

And what's your view on what do you think -- would you be able to carry forward in the current renters into the next couple of years? Or what is your kind of view on what is going to happen to the renters?

Our view as it -- for the benefit of everybody on the call, I mean, we have long made comments about the difficulty in this current environment on our ability to sell new homes. As we have said before, there is a lot of transactions that happen, those are resale transactions within our communities. Those are existing resale homes that trade at pretty affordable pricing compared to new homes that they -- you know, $50,000 or $40,000.

And we don't really see the environment changing very quickly on that issue. We think it is very difficult to sell a $50,000 or $40,000 product in our communities today.

However, there is very strong demand for renting those homes up and we have since 2800 taken that tack in terms of what would cause us to change that view, I think we would have to see a clearing and a stabilizing of the single-family housing market, where some of our potential customers -- potential retiree customers -- would have some degree of reasonable assurance that if they put their home up for sale, they would actually sell in a reasonable period of time. I don't think that is the current environment.

Do you see these renters as potential customers in the future?

Well, they are customers today. Do I see them as buyers in the future? Actually, there's two types of customers that we are seeing in the rental profile. There are dedicated renters, just people who just never really want to buy. They've committed to renting. They like the benefits of the flexibility offered by renting.

But there is also some people who would buy, but just are not comfortable today. We call it, they are sitting on their wallets, they are preserving their capital.

We think that those people in some cases, some of the renters have bought used home sales in our communities; so that does go on. And we think that over time as the single-family market kind of clears and people get a little more certainty as to what is going to happen with respect to that marketplace going forward, that we will see some people returning to their natural home buyer position.

That's helpful. And second question on your occupancy, it looks like your occupancy declined in the third quarter. I was wondering if it's possible for you to quantify how much your occupancy would have been excluding the Hometown portfolio?

Yes, Mike --?

The ELS portfolio, I think, ended at 90%, 91%. So the number you're seeing is just the average. It's a blended average. I think it's 83% and almost 91%.

Yes, I think we've got -- do you want to -- does that answer the question or you want more specific?

No, that answered my questions. Thank you.

Jana Galan from Bank of America Merrill Lynch.

Good morning. I was wondering if there was any update on any programs or initiatives you have in place to help the financing of home sales?

Yes. We have never, we've never really seen financing as an attractive way to get homes and get occupancy into our communities. Those communities that have gone into financing programs essentially do one of two things.

One, they are offering subsidized financing. Or two, they are offering financing through a third party, but that third party has recourse back to the community owner. And in today's environment, where home sales are difficult at the margin, in many respects you have to induce that home sale activity by providing financing that we don't believe is market. And as a result, the performance of that loan portfolio is not favorable over time.

And what you really end up with is less control over your collateral, that being the house in your community. We think that the rental program is a much more direct method of dealing with the issue of inability to sell homes.

So we haven't really seen the financing. It is something that we found attractive. To the extent there is an active market for buyers who really want to buy and are willing to put the appropriate down payment and pay the market terms of interest, I think we'd want to facilitate that. But we have access to financing through third parties and that has not stopped us from selling homes. It's just there are not buyers. It's not a supply of capital problem. It is a demand by the potential customers.

Great, make you very much.

Paul Adornato from BMO Capital Markets.

Thanks and just as a follow-up to that point, so with respect to the chattel loan portfolio that you have acquired, will that be run as a legacy business? That is you will keep it in place but not expand it?

Absolutely. I think there's a total of call it 2,000 or so little more than that loans that we took over as part of the Hometown portfolio. Again, for the benefit of everybody, the face amount of those loans was order of magnitude $115 million or so.

We have essentially recorded them on our books at a value of $40 million, which reflects our pretty conservative view with respect to that portfolio. And, really, the ultimate thing we think is going to happen is to the extent that those loans do not perform, we will roll those homes into our existing rental program, and to the extent they perform, I think you'll see potential upside relative to what we put into our accounting for those loans.

Okay and sorry if I missed this, but could you just describe the extent that the rental program has already been in place in the newly acquired portfolio? That is, has it really had a chance to make an impact at all or --?

You are talking about the activities that we have done?

No, no (multiple speakers).

Or historically?

Yes, yes. Prior --.

(multiple speakers). Historically, they -- I would say that although we ran very similar operations, Hometown and ELS, in 2008 we decided that home sales was just not working and we terminated that sales program and then went into the rental program and have been there since 2008.

I think Hometown made that decision much later in the game. I think at the end of 2010, they had pretty much decided that home sales was not working effectively, given the performance of the loan portfolio and had been at the margin focusing much more on rental.

And you started to see some of the benefits of that decision-making on their portfolio as it rolled into 2011. For example, their Michigan portfolio stabilized in occupancy and actually had a little uptick on a sequential basis. I think that is directly related to decision-making with respect to providing rental homes as opposed to trying to sell the inventory.

But that was early on. Most of the -- most of the capital that Hometown provided in their communities was in the form of the loan book.

Okay. So, then, do you -- have you had a chance to quantify what capital you might invest in terms of homes in the acquired properties?

No, not really. We have certainly had discussions internally, had those discussions formalized. No, I think we are doing a little bit of R&D right now trying to figure out where we think the best opportunities are. As I mentioned, we did talk about Michigan. I think we ordered 60 homes, put them up there to see what was going on.

There are a number of communities that have a fairly significant number of vacant sites in areas of the country that we like. For example, there's a few communities on both the East and West Coast of Florida that have order of magnitude 100 to 200 vacant sites.

We really have not done much in terms of planning for rentals in those communities at this stage other than, really, just an assessment of the market place and an internal discussion. And it really comes back down to an appropriate use of capital within ELS in the entire portfolio and allocating that capital wisely.

Great, appreciate that. And just one final question. A couple of years ago you took us to a huge RV dealership in Florida. I was wondering if you could just provide a little update on RV sales in general in the country.

Yes. RV sales and shipments are up kind of single-digit numbers. I would say that, overall, a lot of optimism with respect to continued growth in RV sales is has kind of fallen I wayside. It is struggling, but it's positive is the way I would describe it.

The noticeable thing that is going on within the RV sector is essentially mirroring what we have seen on our Community business and in our RV Resort business is that customers are rotating away from high dollar, high cost units. In other words, the old $200,000 Class A motor home is sitting on the lots and can't catch a bid, whereas affordable product that allows people to enjoy the lifestyle -- a travel trailer for for $15,000 -- that's the stuff that is moving.

The used and the resale market is still fairly vibrant. It is just kind of the higher priced product that is not moving at all and I think they are struggling with what to do with that.

But I think we are well-positioned, given that we've really rotated to that more affordable product literally across the line in both the MH business and in our low-cost products on the RV business. So I think we are positioned well for that shift.

Great. Appreciate it. Thank you.

Andrew McCulloch from Green Street Advisors.

Good morning. On the rental program, can you give us an update on where you are in terms of negotiations with third-party capital?

Sure. we have not really pushed ahead much in the last couple of months as we have been getting prepared for budgets. We have a proposal from an outside party that is actually a compilation of three different pieces. It is a rather expensive cost of capital and we are in the process of determining what our capital needs before we decide to go out to the marketplace more formally.

And then you are going to test the rental homes that you put in Michigan do before you decide to move forward with the program?

I don't think it's not -- one is not necessarily connected to the other, Andy. We may just go ahead and do the Michigan just to see how that works. Then the new co-process is rather complicated and at best it is moving slow.

Then, on your 2012 guidance, can you give us a little color on maybe the general macro assumptions that are underlining that forecast? I don't know, job growth, GDP, inflation, anything you can talk about?

Well, we pretty much start with the bottom's up budget. What we do pay attention to is CPI and there has been some diversion from CPI numbers. I think headline CPI is plus 3% whereas core is around 2%. We gravitated to using the core for the most part in our underlying assumptions with respect about revenue and expense increases.

You know, we don't really pay much attention to employment given the demographic segment that we deal with. Although with Michigan we are actively looking at what we think of the employment market up in Michigan as we evaluate what we are going to do with those properties.

But from a macro perspective, we are seeing it the same way we saw it last year and the same one we saw it the year before, Andy, which is we have got a customer base and it's a pretty wide swath right from a 45-year-old up to a -- call it 70-year-old demographic slice with a predominant slice of 50-plus that is concerned about what the heck is going on out there and is making decisions to protect and preserve their capital. But at the same time they are trying to engage in a lifestyle.

There is still demand for the properties, there is still demand at the resorts. What we are seeing is people don't want to put big dollars down on houses and/or RV units, and I think that is going to stay with us for some time in my view.

Then just one more question, on the 2012 dividend, your [FFO] coverage I think is still going to be above two times even at the new recommended dividend level. What are your initial plans for that excess cash flow?

Well when we look at the cash flow, we look at what will now be an $80 million run rate on the dividend, a $35 million CapEx budget give or take in principle and debt, too, of around $65 million leaves us $20 million, $30 million after all of that. So -- and then you have to have the discussion with respect to potential uses of that money which would include working capital uses.

But by that margin our assumptions are to deleverage in 2012 with that excess cash flow.

Great, thank you.

Todd Stender from Wells Fargo.

Thanks. Just sticking with that theme in the last question. How did you arrive at the $0.25 a share for your recommendation of the dividend? Does that start to get into a targeted payout ratio on a [fad] basis?

No. I don't think it gets into a target ratio or a fad basis. I think in many respects what it did was allow us to increase the dividend a meaningful amount given where we were giving respect to the transactions that occurred, but at the same time allowing us to retain financial flexibility.

As Michael just discussed, we are using a lot of free cash flow at the margin, $70 million or so, to pay down debt. At some point we might say we are delevered enough or the environment might change economically from a macro basis where an existing amount of leverage doesn't seem to be excessive or, at margin, we think we could take on more leverage. In which case we might have an entirely different view of the dividend that we would recommend to the Board.

But given the current economic environment, we think what we are doing is prudent and, again, it's only our recommendation. And we are going to have a more discussion about this in our November Board meeting.

Thanks. And with just the deleveraging comment, it looks like you are kind of in the low 40% range to total cap. Do you feel more comfortable in the 30% range? Maybe upper 30s, any little target around that?

You know I think the big thing that is in our eyesight as we look at our balance sheet is 2015. We know that sounds like a long time away for most people on the call, but we have a fairly sizable amount of maturing debt in 2015. And what our goal is at the margin, given the current environment, is we are delevering so that we have the financial flexibility to tackle that fairly large amount of maturities in 2015 without having to be in a have to or reactionary mode. We are in a much more comfortable position with respect to dealing with that.

Okay, and I think your Hometown acquisition this year was really a welcome activity just for price discovery and manufactured housing. Are you seeing the phone ring more? Are you seeing more portfolios or properties within your [age-restricted] portfolio target? Are you seeing more activity out there because of it?

We are saying -- I don't think we are seeing more activity. That would be an incorrect statement. What we are seeing is a lot more conversation and a lot more discussion of what I would call distressed property issues. This is for the most part on family assets in the Midwest area of the United States, but there has been a number of portfolios that have come across our way that we have heard where lenders are starting to get to the point of wanting to deal with the issues of perhaps an overleveraged portfolio.

The other kind of macro thing we are seeing out there is the borrower matters today. So when guys who have smaller properties or have a colored past with respect to how they have managed the portfolio go to refinance or go to potentially buy other assets, the lenders are looking at the track record. And that track record is affecting some participant at the margin ability to seek new financing for refinancing existing properties or to negotiate with lenders, subject to having to assume debt.

So I think those are the big issues that we are seeing is that there is a lot more discussion of perhaps people dealing with some distressed issues out there. And even within the larger picture what we are seeing is -- and this is literally 180 degrees from what it was maybe seven years ago or five years ago -- is that the borrower matters today. And I think on both those issues, we look well-positioned, given our mostly age-restricted, demographically focused portfolio and our historical track record with our balance sheet management. I think we are well-positioned in that environment and we are looking at whether or not those opportunities are things that are interesting to us at the margin.

Thanks. Just a final question, is there any way to quantify kind of what the cap rates you are looking at now? If you took an age-restricted community and put it side-by-side with an all-age community, equally occupied, the same market, can you kind of quantify what the basis point disparity might be?

Yes, that is really going to be affected by geography. I mean, take a Northeast property for the most part whether it is age-restricted or all age, it is going to trade on top of each other. If it is well located, the same is going to be true of California. Those are going to be traded right on top of financing costs. They are very actively pursued by the marketplace.

There may be some difference between age-restricted and all age in Florida and perhaps Arizona where age-restricted will trade a little tighter to the financing cost than all age. And then when it gets outside of that environment into the land between the Rocky Mountains and the Appalachians, I would say, you have got this wide spread potentially between all age and age-restricted. And some of that is can you catch a bid on the all age?

Okay, thank you.

Haendel St. Juste from KBW.

Good morning. I would like to go back to an earlier question and ask it with I guess a slightly different twist. I know it is too early to detect significant trends, etc., but are there any lessons learned with respect to your experience in Michigan so far that might -- that may impact your view on whether a rental program works on an affordable portfolio? And if so, could we see you perhaps look at acquiring an affordable portfolio with the intent of putting in a rental program, assuming you would find [none] that is appropriately priced?

That is a great question. We are having a lot of discussions internally about that as we sit here today. I think Michigan might be the wrong prototype to discuss. I think we are much more familiar with a marketplace that is all age and we are familiar with call it Colorado.

For many years, Colorado was a place that as a company we didn't feel comfortable investing additional capital at the margin. We solved that the competition from single family home market was a serious challenge to the all age properties in that marketplace and as a result over the early 2000s through 2010 we have experienced occupancy declines in that market from call it 90% plus down to 70%.

Today we are seeing a very robust apartment market in Colorado, 95% occupied apartment market and demand for housing unit at the margin in our properties. We have recently been putting homes into Colorado and then leasing them up at fairly attractive rental rates that would be comparable to the apartment market rates that are experienced in the local geography.

That tells us that there is at margin demand for housing. We think that it's true and has been experienced by other operators of the all age community throughout the United States. From what we have seen, there has been demand for the housing.

The real question that really we are trying to figure out is that okay, we see the demand today, but what does it look like five years from now? And that is a much more difficult question for us to get our arms around and it really starts to get to be a discussion of local geography. Do you like one area of the country better than the other? Do you like the Northeast better than you like Texas? Or do you like Colorado better than you like Michigan?

Because it does matter at the level of execution when you are in the all age business, because it depends on job growth and it depends on alternative cost of housing and alternative supply of housing. Those are issues that we are trying to get our arms around.

So I don't think I can answer that question today. But we are seeing something that looks interesting. We just want to figure out whether it is something that fits into our portfolio and then how to play it from there.

Great. One more here. Lately we have seen many traditionally secured bars in the apartment space and more recently student housing, a couple of names accelerate their pursuits of investment grade rating. Does this make sense for you guys? Should you be looking at [I] grade as well?

We have started thinking about that. We do have some time given on our debt maturity schedule. We have been very successful borrowing on a secured basis and have generally liked that model throughout our history. Having more access, more access to more markets, is always good to have. So it is something that we are starting to think about.

Fair enough. Thank you.

(Operator Instructions). There are no questions at this time. I would now like to turn the call over to your host, Tom Heneghan, our CEO.

Thank you, everyone, for joining us on our call today. As always, anybody with any follow-up questions feel free to reach out to Mike Berman. Appreciate your time. Thank you very much. Bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.