Equity LifeStyle Properties Inc (ELS) 2012 Q3 法說會逐字稿

Good day everyone and thank you all for joining us to discuss Equity LifeStyle Properties' third-quarter 2012 results. Our featured speakers today are Tom Heneghan, our CEO, Marguerite Nader, our President, and Paul Seavey, 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 in the meanings of the federal security laws. Our forward-looking statements are subject to certain economic risks and uncertainty. 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.

Good morning everyone. Thank you for joining us. Before I turn the call over to Marguerite Nader, our President, and Paul Seavey, our Chief Financial Officer, I would like to take the time to address some recently announced management changes for ELS. As most of you know, I have tendered my resignation to the Company effective February 1, 2013. Paul Seavey has been appointed the Chief Financial Officer of the Company and Marguerite Nader will take over as the Chief Executive Officer beginning February 1, 2013.

In 1995, I left Sam Zell's Equity Group to come Chief Financial Officer of ELS. At that time, the Company had 67 properties and about $69 million in total revenue and a core group of young, talented people. Working with that core group of people, we have grown the business to almost 400 properties and have grown revenue to almost $700 million.

Along with me during this great experience were two people I always counted on to get things done, Marguerite Nader and Paul Seavey. I am proud of what has been accomplished at ELS and believe strongly that our best years are ahead of us.

One of the true tests of a CEO is whether the Company will be better managed after his departure than when he was there. Some organizations lose their best talent due to lack of opportunity. On this test, I believe I have succeeded. Succession planning has always been a significant part of our board deliberations. As a result, we have groomed and cultivated our young talent, exposing them to various parts of our organization over the years, so that they were ready when the opportunity came. ELS is now well-positioned with the next generation of leadership that is young, talented, and experienced.

Most of you have had the chance to meet and get to know Marguerite. She is the right CEO for this company and I look forward to watching her excel at this position. Although she is a relatively new face to the investor and analyst community, she is a well-known executive in both the MH and RV industries and has developed a strong contact list that will be important to ELS' future.

Paul Seavey has been with ELS for over 18 years, gaining experience in budgeting, forecasting, systems, administration, and capital markets. During his tenure, he has been significantly involved in managing our capital structure, including both unsecured and secured debt, our equity offerings, and ELS' recent preferred exchange offer. He has also been involved in integrating our acquisitions and has had primary responsibility for guidance and budgets for the last 15 years. He is fluent in the language of the ELS' guidance and has been a crucial factor in our ability to issue and discuss our guidance with credibility. Given his qualifications, the Board and I frankly had a difficult time and a decision to make last year when we appointed Marguerite as the CFO. In any event, it is nice to see Paul to get his due so quickly.

Roger Maynard is our Executive Vice President of Asset Management and has been with ELS since 1998. Roger is responsible for asset management functions, including capital expenditures and working capital as well as acquisitions. He will continue to be a key contributor to this company's success.

Additionally, I want to mention a new member of our team, Patrick Waite who will join us early next year as our Senior Vice President of Operations. Over the years, we have not only focused on developing our internal talent, but also in bringing in outside talent to bring fresh perspective and experience to our team. Recent examples are Mike Berman and Joe McAdams. Patrick previously worked for ELS in the mid-1990s and has been in the manufactured housing industry for the last 20 years, most recently with American Residential Communities, a 200-plus portfolio of manufactured home communities across the United States. Patrick's experience includes acquisition, dispositions, and asset and property management. I worked closely with Patrick when he was with ELS originally had watched him grow and develop his talent over the years. There were a number of times in the past that I sought out Patrick to rejoin our team. It is nice to finally have him back with us. He gets this business and he will be a great addition to an already strong bench of operations talent, including Peter Underhill, Ron Bunce, and Brad Nelson.

ELS will continue to be the strong stable business that you have followed since its IPO. I am confident the Company is in good hands and I am dedicated to making a smooth transition of my duties to Marguerite.

With that, I will turn it over to Marguerite for some additional comments.

Thanks Tom. I echo Tom's sentiment on the strength in our management team and both the field and corporate offices. I believe the combination of this talented group of senior leaders will be instrumental in the future success of the ELS. I appreciate the opportunity to lead ELS and I am excited about the opportunities that lie ahead. Tom has done an excellent job leading and transforming ELS while returning a 17% compounded annual return to shareholders.

With our product offering, I believe we are well positioned to take advantage of the strength of the demographic trend. We continue to see stable growth in our core portfolio in both the Manufactured Housing and RV resort sides of our business. Our core MH portfolio has increased occupancy by 138 sites 131 sites this quarter, marking the 12th consecutive quarter of growth in occupancy and the highest growth in any quarter in over 10-plus years.

Additionally, this quarter, our 2.6% increase in core property NOI continued our 15 year plus trend of positive quarterly NOI growth.

Our RV platform remains stable with strong annual growth, and we have made progress embedding our membership product into the sale of an RV. We've activated over 700 new memberships from this programs which we initiated a few months ago. We anticipate that this program will continue to grow in 2013.

We are now almost a year out from closing the majority of the Hometown assets and those properties are performing in line with expectations. We have grown occupancy by 160 sites in that part of the portfolio year-to-date.

I would like to update you on our proposed 2013 dividend policy. While the ultimate decision for the dividend policy is a board-level decision that is typically done at our November Board of Directors meeting, as in the past, we feel it is helpful to highlight management's recommendation with respect to 2013 dividend. Each year, to arrive at a recommendation, we review our proposed growth in FFO, our outstanding obligations, as well as our underlying goal to provide financial flexibility.

Management is recommending an increase in the dividend from $1.75 per share to $2 per share, or a 15% increase. This proposed dividend would provide the ninth consecutive year of dividend growth for ELS.

I think it's helpful to put our dividend in perspective in relation to the whole REIT universe. 60% of the REIT universe was paying a lower dividend in 2011 as compared to 2007. Of the REITs that increased their dividend, the average increase over that time period was approximately 19%, while ELS' dividend during that time frame increased over 2.5 times. All this dividend growth achieved and ELS still has one of the lowest payout ratios in the REIT universe at 40%.

We have been able to increase our dividend significantly over the last few years because our company continues to grow. Our recommendation takes into consideration our belief that access to capital is subject to some volatility, and we think it's important to maintain our flexibility as we begin to approach our 2014 and 2015 maturities. This approach will also allow ELS the opportunity to take advantage of investment opportunities.

Please note, while this is management's recommendation, the Board has not yet met to discuss it. The Board is expected to discuss the 2013 dividend policy in early November at the quarterly Board of Directors meeting.

I am excited about the future of the ELS. We have a solid business platform upon which we will continue to maximize value creation.

I will now turn it over to Paul for a review of the numbers.

Thanks Marguerite and good morning. Our supplement provides our guidance assumptions for the fourth quarter and next year. I'll walk you through the details for the rest of this year as well as our preliminary guidance for 2010.

With respect to the third quarter, we came in at $1.17 FFO per share, $0.02 ahead of our previously issued guidance. Core base rental income came in on forecast, up 2.7%, with 2.2% coming from rate and 50 basis points coming from occupancy. We had strong core occupancy gains of 131 sites this quarter, and we were up over 178 sites year-to-date as we continue to increase our new home rental activities. Our overall core RV revenues were higher than previously issued guidance, largely driven by seasonal and transient revenue. Annual revenues were up 3.9% and seasonal revenues were up 9.5%. Note seasonal revenues represent only $2.7 million in the third quarter.

Overall, core NOI before property management grew about 2.6%, slightly higher than previously anticipated, mainly attributed to higher operating revenues.

The Hometown acquisition portfolio operated within our expectations with a contribution of $25.8 million.

We are pleased with the execution on our preferred exchange. In September, we converted approximately 5.4 million shares or about 68% of our outstanding 8% Series A preferred to Series C preferred with a stated yield of 6.75%. Last week, we redeemed the remaining 2.6 million Series A shares using $64.1 million of cash from our balance sheet.

In the quarter, we recognized $0.5 million in non-cash income related to an escrow established as part of the Hometown transaction. Page 5 of our supplement includes a footnote explaining this item. I'd like to explain the economics involved and highlight the potential future accounting impact.

We operate a property subject to a ground lease with a purchase option and a put option. Our option to purchase the fee interest, as well as the lessors put option, may be exercised upon the death of the fee holder. The ground lease and the option contain scheduled increases over time in the lease payments as well as the option price. During negotiations to acquire this asset, we wanted to cap our exposure to these scheduled increases and effectively fixed our purchase price by requiring Hometown to establish an escrow for our benefit. They funded the escrow with approximately 114,000 shares of ELS common stock. We will receive periodic distributions from the escrow until the purchase or put option is exercised, at which time increases in the option price will be offset by distributions from the escrow with any remaining excess shares in the escrow returned to Hometown. For accounting purposes, this escrow currently has a value of approximately $6.8 million on our balance sheet. We will estimate fair value quarterly and any changes which we expect will be driven mainly by changes in our stock price will be recognized in earnings consistent with our recognition of $0.5 million in the quarter.

Our fourth-quarter guidance is approximately $49 million of FFO, or $1.08 per share, at the midpoint of our guidance range. This is approximately $0.03 of FFO per share higher than prior guidance as a result of dividend savings from our preferred Stock exchange transaction. We assume no growth in our core MH occupancy during the quarter.

Looking ahead to the fourth quarter in our core RV business, we are 100% reserved in our annuals, consistent with our performance at this time last year. Our seasonals are 84% reserved, slightly ahead of reservations last year, and transients are approximately 58% reserved, in line with last year. For the year, the midpoint of our stated guidance, updated guidance, is about $208.6 million in FFO or $4.59 per share, compared to $206.2 million, or $4.54 per share in our previous guidance.

Turning our attention to 2013, our preliminary guidance is $227.3 million of FFO, or $5 FFO per share at the midpoint. Our total FFO for 2013 is expected to be up approximately 9% from 2012. Our projection of FFO growth for 2013 assumes fourth-quarter results will be consistent with our stated guidance. We plan to update guidance on our next call, and we may adjust growth rates on certain line items after we finalize results for 2012.

An important note, our 2013 core guidance includes the Hometown properties, as we've owned these properties for the full year 2012. Also, the growth rates I discussed are intended to represent the midpoint of our guidance expectations.

Growth in core NOI before property management is expected to be approximately 2.7%. We assume flat occupancy in all of our MH properties during 2013. Base rent is expected to grow 2.6% with 2.2% from rates and 40 basis points from occupancy.

In our resort business, we expect annuals to continue to show solid growth and are projected at 3.1% increase for 2013. We continue to improve the utilization of our Thousand Trails footprint. We've added about 500 annual each of the past few years and expect a similar performance in 2013. We expect seasonal, transient and dues to be flat to 2012.

Taking a look into the first quarter, our annuals are almost 97% reserved, slightly ahead of this time last year. Our seasonal and transient businesses are approximately 72% and 19% reserved respectively, in line with this time last year. We expect to have sold around 9000 new memberships in 2012 and expect to sell approximate 12,000 new memberships in 2013.

We are projecting a 2.1% increase in core expenses compared to approximately 1.2% growth in 2012 over 2011. The main drivers of this expense growth include real estate taxes and insurance. Again, note that we are forecasting 2013 without the benefit of actual full-year results for 2012.

Financing costs include savings of approximately $5.3 million in 2013 as a result of our preferred Stock exchange and redemption.

With respect to our balance sheet, in July of this year, we extended our $380 million line of credit to September 2016. This line bears interest at a rate of LIBOR plus 145 basis points at our current leverage level and is currently undrawn. Current secure debt terms are 10 years and coupons in the 3.9% to 4.5% range, 60% to 75% loan-to-value, and 1.4 to 1.6 times debt service coverage. High quality age qualified MH assets will command best financing terms. We continue to place high importance on balance sheet flexibility and we believe we have multiple sources of public and private capital available to us.

At this time, I would like to open it up for questions. Carissa?

(Operator Instructions). Jana Galan, Bank of America Merrill Lynch.

Thank you very much. I was curious of kind of the change in management. Do you see any changes to strategy? Would you be more open to increasing the home purchases for rentals program, or potentially looking at purchasing affordable communities?

No, we just finished our budget process this year. And we are continuing to plan for next year, but I would anticipate that we would continue to operate as we have in the past with no real changes.

And I was hoping if you could comment on the opportunities for external growth. Do you see a lot of product on the market now, or are there opportunities to maybe expand sites at current communities?

On the MH side of the business, I think there remains availability of product if you want to buy in the Midwest in the all age sector. We are not seeing a lot of transactions on the age-restricted side, but I think it's helpful to note that when we did the Hometown transaction, I think 60 days before we did the transaction we weren't aware that we are going to be closing within 60 days. So the relationships with owners take a long time and the execution can happen relatively quickly once you do get an owner interested in selling. And as far as expansion capabilities, those are limited within our MH footprint.

And on the RV side?

On the RV side, there are some portfolios that are available and would be more likely to be traded sooner rather than later. But that's kind of the update on RV side.

Okay. Thank you very much.

Eric Wolfe, Citigroup.

Good morning. It's actually Michael Bilerman here. Tom, I greatly appreciate your comments in terms of succession planning, and also remaining on the Board as well as grooming an unbelievable group of professionals, especially a new generation, to take the Company forward.

I'm just curious. As you sit back and you look at a company that effectively between you, Berman and Allan -- over the course of 12 months, the three most senior people of the Company departing for a variety of different reasons. How is the organization really in a position to sort of handle that sort of turnover in such a short period?

As my comments at the outset said, this isn't something that we haven't been planning for. We've been grooming the talent underneath our organization over a number of years, and I think they are well positioned to continue the success of ELS. Just appreciate we've had a number of CEOs in this company and we've had a number of CFOs in this company over time, and if you look at our success over any long period of time, it has continued despite some of those changes. And I certainly expect it to be continuing on a go-forward basis. I have unbelievable confidence in Marguerite and Paul. I've worked with them for 20 years. They know this business as good as anybody, better than most. And I think ELS' performance is without question going forward.

How will reporting with Patrick coming in, at least when you announced Allan's retirement, Peter Bunce and Brad were all going to report into you at that time, I guess to Marguerite now, how does sort of Patrick coming on, how does that work?

Patrick will -- Ron Bunce and Brad Nelson will report to Patrick. They are in charge of the East and West, respectively, so they will report to Patrick and Patrick will report to me.

Okay, so it's effectively just one other direct report relative to previously.

Yes.

Is there any other sort of structural things happening within the organization, different reporting lines or different responsibilities? And how are a lot of these positions being backfilled at the more junior level as everyone becomes more elevated?

Within our operations group, we have some very strong vice presidents that have been long tenured. I think they have been here for eight to ten years, vice presidents that are kind of stepping in place to take over when -- for Ron and Brad, very capable, two very capable guys, one in the East, one in the West. And within the Chicago office on the corporate side, we have an equal number of people that have been here a long time in our accounting department, our financial planning department, that are able to step up into the roles of the people that are now being elevated.

In this thinking, Margaret, you talked a little bit about the recommendation of a 15% dividend increase and talked about how positive that is relative to most of the other REITs and where that dividend level stands today, which is certainly very impressive, and your payout ratio still extraordinarily low. I'm just curious. As you deliberated as management the thought of potentially ratcheting up that dividend to even a more substantial level, to a more average REIT payout level, perhaps to entice more investors, more yield oriented investors, even though it shouldn't matter on a total return basis, but perhaps bringing the yield up to a higher level would be able to be a catalyst for the stock, which obviously has lagged. I'm just wondering how you thought about that in terms of a much, much larger dividend increase.

When we were looking at what the dividend increase should be, we continued to just make sure that we maintain our balance sheet flexibility because we have in the past been able to capitalize on opportunities, and we want to be able to continue to do that in the future. So, I think not many REITs find themselves with this kind of flexibility, and I think being able to manage our balance sheet without having to be dictated by a dividend policy is helpful to us and has been helpful in the past, and I anticipate it will be helpful in the future.

Okay. Then just lastly, just in terms of the '14 and '15 debt maturities, do you have the ability to prepay or bring any of those maturities forward? You think about the positive impact you had on the preferred being able to effectively do that exchange, and dramatically lower the cost, a big driver of your FFO growth next year. But can you do the same thing just taking advantage of the low cost debt environment by bringing any of that in aggregate, at $735 million of maturities in '14 and '15.

The biggest challenge in front of us as it relates to retiring that debt early is the seasons costs associated with doing that. If we were to try to do that, you're talking roughly $100 million that we would have to pay to retire that amount of debt. So we are definitely watching that, and the passage of time reduces that penalty, so we'll continue to keep our eye on it. But at this point, that's a significant hurdle.

And when does that passage of time, when does it -- when do you sort of get over at least a hurdle for the majority of that to seasons? Is it mid-next year, or is it more 2014?

No, I think of them further into 2014. Keep in mind those maturities in 2015, which is the biggest block, about $500 million of that comes due at the end of that year. So, we have to make it all the way through '14 and then through most of '15 before we have ready access to prepay that debt.

Right. So the free cash flow generation you're saving by not increasing the dividend is effectively much, much -- that's building up cash resources for acquisitions, just given the fact you can't prepay and of the debt. You have only $80 million of debt maturing in 2013. Is that a fair way to think about it?

I think it provides for acquisitions or for any other opportunities we have, it provides us that flexibility.

Okay, thank you.

Gaurav Mehta, Cantor Fitzgerald.

Thank you, good morning. Can you talk about the trends on the home sales side, especially on the used home and brokered home resales and what are you expecting over next 6 to 12 months?

Sure. Within our portfolio on the resale side, we see -- we still see strong demand for resales. That's just one homeowner selling to another homeowner. In a given year, we sell about 7000 resales -- or 7000 resales happen in our portfolio in our properties. The vast majority of these sales are cash sales. I think about 96% are cash sales. We continue to be able -- unable sell new homes, but we do have -- we have seen an increase in used homes in the portfolio. I think this year-to-date we've increased used homes sales in the MH portfolio about 20%. What we're planning to do for 2013 is concentrate on areas where we can begin to see larger volumes of transactions happening, and in certain areas where we maybe wait an extra couple of days to sell versus rent and adjust our focus at the field level to be able to effectuate that.

Thanks. The second question I have was on the RV distribution program. Have you made -- are you in talks with any additional RV dealers and have you made any progress?

We've increased, I think as I said in my comments, have about 700 RV memberships embedded in the sale of the RV. That's with six different dealers that we are working with. We intend to increase that program this year, 2013. There are about 2500 dealers across the country, so we intend to be able to increase that program. We are seeing that the dealers are pretty pleased with the program, as are we. It's bringing in customers to the dealers, and it's bringing new customers to ELS, which is very positive for us.

And lastly on your balance sheet, you announced $125 million ATM program in September. Can you talk about how you plan to use the proceeds and have you issued any stock under that program?

We have not issued any stock under the program and currently don't have any plans to do so. The decision to put the ATM in place really was a strategic one. As we've evaluated our avenue to access capital, we thought it was a good idea to have an ATM program in place as many other REITs do, so we established the program. It's a $125 million program and, again, we don't have any current plans to use it. To the extent that transaction or other opportunity presents itself, we may. But no current plans.

That's all I have. Thank you.

Paul Adornato, BMO Capital Markets.

Thanks very much. Congratulations on everyone's new roles. Marguerite, I think you mentioned in your comments that the Hometown portfolio experienced a 160 -- or I should say occupancy increased by 160 sites in the Hometown portfolio. I was wondering if you could drill down and let us know where geographically or what products drove that increase.

It was an increase in rentals and it mainly came from both Florida and Michigan.

So those are owned homes that are rented to customers?

Right, correct.

And so given that success, do you anticipate investing more in a rental program?

When we set our guidance for the year, we set it out as flat occupancy for the year, year-over-year. And we really look at the rental program investment on an incremental basis and reevaluate it frankly constantly as we make a decision about where we are going to put our capital. So, I would say we would continue to make those decisions on a very regular basis as to where we are going to put homes.

And could you talk a little bit about the underwriting process for someone who comes in and wants to rent a home?

If someone wants to rent a home, they are subject to kind of the same underwriting standards that an owner would have. We see FICO scores of about 650. We look to rent-to-income ratios and we do a complete background check on those individuals.

Okay. And looking at subscriptions, I think you have plans to go from 9000 to 12,000 next year. How do you expect to achieve that? Is that through a change in marketing strategy?

Some of the growth would come from the RV dealer program that I was talking about earlier. So that's going to expose us to new customers. And the other is through just the field effort and efforts at the call center to get our name out and to get more awareness of this product to our RVers to the 8 million installed base of RVers.

And has this program been tested? Is this -- is that a bankable number in your mind?

It's been tested. We've run the Zone Park Pass program for I think it's coming up on three years now. So I think we put in guidance we continue to increase each year and this is in line with the increases we've had year-over-year.

Okay. And just finally with respect to seasonality, given the integration of the Hometown portfolio, I was wondering if you could just give us an update as to how we should slice up the quarters in terms of seasonality.

I don't have that in front of me here. I think we generally would give you the quarter breakdown on the next call.

Okay, great. Thank you.

Todd Stender, Wells Fargo.

Thanks, and thanks for the color on management's thoughts regarding the dividend. Can you expand on that, just share some of your budgeting thought for next year regarding CapEx and maybe your thoughts on deleveraging in general?

Sure. With respect to our budget, I think we kind of start with a zero-based budget, and we pay close attention to CPI with respect to our manufactured housing leases as they're tied to CPI in one form or another. On the budget process, we also look to expenses. Paul mentioned that we've had -- seen some pressure on real estate taxes and insurance within our budgeting process. In terms of CapEx, I think we are -- $25 million to $30 million of recurring CapEx is what we are anticipated for this year -- for 2013.

Okay. How about the 2013 debt maturities? I think it's $80 million comes due. What's the timing on that?

The bulk of that $80 million comes due towards the end of the year. It's about $20 million in the first half and then I think it's $60 million in the first quarter.

Could that be pre-payable and coincide with any deleveraging thoughts?

There will be a window. Generally there's a window, call it 90 days prior to maturity, that we can prepay without penalty. And we typically take advantage of those opportunities. We are carrying cash on our balance sheet to satisfy those maturities, so subject to any other use of that cash, that would be our first choice.

Okay, thanks. And just looking at the Hometown portfolio, Michigan seems to be exceeding the average when it comes to the rent. But yet occupancy is considerably lower than the average. Any thoughts about driving occupancy by lowering rent, or how do you kind of think about that?

It's Tom. Actually up in Michigan there is a lot of demand for housing right now as you've seen in the increase in occupancy. So demand is going to be in the form of rental and the rents we are setting on the homes are competitive in the marketplace compared to the other alternatives, be it apartment housing and/or single-family housing rental that's going on in the marketplace.

We think we are well positioned up in Michigan. Again, there's a lot of traffic up there; there's a lot of demand for housing up there. And thus far, we've seen our ability to increase occupancy up in Michigan being limited to our investment in the homes.

Along those themes, rental home revenues just as a percentage of total MH revenues continues to edge higher. And the NOI portion has exceeded 10%. Where do those percentages go to, or maybe what do you let them go to? I don't know if you think about it as core owner occupied communities, you don't want to get it to a certain level. So I guess ultimately where does the percentage of total MH go to?

I think what we do with respect to this is make those decisions at the margin, determine where we can increase the rentals. And, frankly, where we are increasing rentals is where we think that we will have the opportunities to sell and have those renters become owners. So, is there an amount set where a target rate? No, it's really just an incremental decision based on the marketplace.

And just more broadly, I think the issue that's going to play in terms of how we react to the housing market is really a much larger question of what's going on in the housing market generally. And I think there needs to be some more healing in the single-family housing market before you'll see home sales in the manufactured home community business kind of return to some normalized number. And the other factor that's going to play is just the availability of chattel financing coming back to the manufactured housing industry as well.

Okay, thanks. Finally, looking at your acquisition pipeline, what appears more attractive right now? Are you looking at more all-age manufactured housing, RV, age restricted? Can you maybe break those out for us?

Like -- as mentioned earlier, we are not seeing a lot of transactions out there. But in terms of what would be attractive to us, certainly in the real estate locations where we are, coastal locations are attractive to us. It's all about the real estate, frankly. And whether or not that's an RV or an MH, we are in different just based on where we can get a well-located asset.

Okay, thank you.

Andrew McCulloch, Green Street Advisors.

Good morning. You said earlier that you may be able to start pushing some incremental home sales in certain markets. What markets are those specifically?

We've seen in this year Florida and Arizona is contributing to our increase in used home sales. But again, that's the used home sales, not on the new home sales.

Is that incremental buyer that started to come back an all cash senior buyer, or is it all age buyer that's financing the homes?

It's an all-cash buyer. It's an all-cash buyer that's coming back.

Tom, you just mentioned chattel financing. Can you give us an update on the market for chattel loans? Has there been any significant change in rates or availability for mortgage financing for home buyers?

There has not been a significant change in availability for customers. Their rates are still call it 8% to 11-ish% range, and they need to have a high FICO score and they need to have good quality down payment and they need to have -- need to be able to demonstrate income. So, it continues to be challenging, and the sources are few. And the requirements for programs are recourse to the community owners. So those community owners that are offering financing are backstopping the debt that is being provided to those customers.

Great, thank you.

(Operator Instructions). Eric Wolfe, Citigroup.

It's Michael Bilerman again. I guess this is both for Tom and from Marguerite. I guess when you sit back and you think about the stock is up a couple of percent but obviously dramatically underperforming the REIT sector despite what is very positive news on the core front, very positive news on earnings this year, very positive news growth into next year, very positive news on the dividend, yet the stock is still at a material discount relative to net asset value and obviously material discount relative to peers. And so you sort of take all that and then you look at your balance sheet, you're sitting on $150 million of cash, you're generating $20 million to $25 million of cash a quarter. You have nothing drawn on the line. It doesn't sound like there's this big acquisition that sort of in the works. You have no debt maturities really next year. Why not be more aggressive with your own stock?

Tom, you as a manager and the CEO have been -- in the past, you go back to late '90s, you think about the leverage recap in 2004, you guys have taken advantage of your own stock when you believed it was trading at a discount. I know you put the ATM in place but you didn't issue anything, so that sort of highlights what you feel about your stock. Why not buy it back?

That's a great question. And I think, in order to answer that question, I guess I would ask everybody to kind of pull back. When we say underperformance, you're talking about underperformance in a relatively short period of time. If you want to talk performance over a long take of time, ELS has clearly outperformed on just about any metric you want to look at, whether it's growth in FFO, whether it's growth in NOI, whether it's total return to shareholders. So this company over a long period of time has clearly performed extremely well, so your comment may be correct relative to a finite period of time.

And then let's look at the finite period of time. Sam is out there and very public with respect to his statements, and we tend to agree with them that today is filled with uncertainty. You've had the Fed increase their balance sheet $2 trillion, you've had the federal government run with $1.5 trillion, $1 trillion-plus deficits for three years running with no end in sight. And all of that has been providing liquidity to the marketplace. That liquidity is finding its home in various asset classes. And a lot of that is determined based on transactional activity where people can actually put an axe in evaluation and get comfortable that everything else ought to be valued off of that. That's very difficult to do with ELS. And it has always been an issue with respect to finding credible comps for the valuation of ELS. That's what makes us so unique and so great of a stock to own, but at certain times it creates these differences between what everybody else is doing and what ELS is doing. But those tend to even out over time and ELS' performance continues to show itself over any long period of time.

We took the dividend up significantly this year into 2013. If you look at just kind of the retrospective, I think DLX ELS went public at $1 of FFO, and 2013 it $5 of FFO. I don't think there's many in the REIT space that have had that performance. In fact, if you look at the last five or ten years, mostly five years I would say, you'd see more flattish FFO and you would see huge multiple expansion.

I can't really comment on how everybody else is valued. I think we focus on making sure ELS is a performer over the long-term. And one of the hallmarks of our success has been balance sheet flexibility. And you are right. At certain points in time, we have been very aggressively managing our balance sheet, but given the uncertainty that we see, and given some of the big unanswered questions of what's going to happen in 2013 with respect to monetary policy and fiscal policy and what does that do to liquidity in general, we think it's prudent for us to have a balance sheet that allows us to take advantage of opportunity to the extent it comes.

Having said that, we have been in positions for quite a long period of time where we are ready to do something and there isn't much to do, and we have to wait it out a little bit. But we think that over time, being in that position and being able to execute on those transactions has been a value creation exercise for this organization. The Hometown transaction is a perfect example. We had a balance sheet that allowed us to take $1.5 billion transaction down in literally 90 days. We bought it at a cap rate that was clearly superior to what those assets would've traded on in a public market basis -- private market basis -- and clearly superior to what assets are trading at as we speak today. That was a fantastic value creation exercise for this company, and we want to put ourselves in a position to continue doing that.

So, I totally appreciate your comment, and hopefully we've at least explained our positioning for the benefit of the analyst and investor community.

Should we think about I guess adding to that balance sheet, so would you -- you didn't tap the o ATM, but would you want the balance sheet to be stronger than it is today? So should we expect further cash generating activities, whether it be an actual preferred offering, or issuance on the ATM? How should we think about where you want to take the balance sheet to be in a position to deflect some of this uncertainty in 2013, and also potential acquisition activity?

I think we are well positioned as we sit here today. I don't think we need to create more flexibility in our balance sheet. I think we've got fantastic cash flow generation. I think we've got a $380 million line of credit that's untapped. We have probably $700 million to $1 billion of leverageable assets, unencumbered asset pool, so we are in a very strong position to react to opportunities. Having said that, opportunities don't always line up when you want them to line up, but clearly this Company has done very well running its balance sheet from that perspective historically.

Then I guess just the last question, you talked about the private market in terms of the Hometown acquisition. I'm just curious how you think about your or even Sam think about ELS in that context of an organization that has derived substantial value for shareholders over time, which I totally agree with and I was just being a little bit more narrow in looking where the stock trades today, which is obviously still at a discount and a discount to NAV as well. Whether you want to explore doing something more meaningful. So if you're not going to go down the path of doing a share buyback or some sort of share, leveraged recap, would you entertain a potential sale of the Company into the private market if the cap rates are that strong?

That's a question that's difficult to answer because we trade in the marketplace every day. So obviously people can own ELS today if they want to, and they understand where ELS is trading versus the apartment space. So I'm not sure I can even answer the question other than to say ELS is preparing itself to be successful on a go-forward basis. I think it's made some very good decisions over time. I think, relative to managing the balance sheet more aggressively as we come up to 2014 and 2015 and we have solid answers with respect to what we're going to do with those rather large debt maturities, I think you might see us be much more aggressive because some of the uncertainty with respect to issues that could impact our balance sheet would be taken care of at that time. So on a go-forward basis, I think when you see some resolution on those maturities, I think you'll see much more clarity from ELS as to what it's going to do with its excess capacity either from a dividend paying capacity or from a leverage capacity.

Thank you.

There are no further questions. At this time, I'd like to turn the call back over to Tom Heneghan.

All right everyone, thank you for joining us on this call, and look forward to updating you at the end of the year. Take care everyone. Bye.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.