UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: March 3, 2005
(Date of earliest event reported)
EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 1-11718 36-3857664
(State or other jurisdiction of (Commission File No.) (IRS Employer
incorporation or organization) Identification Number)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
(312) 279-1400
(Registrant's telephone number, including area code)
================================================================================
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
================================================================================
ITEM 8.01 OTHER EVENTS.
Equity LifeStyle Properties, Inc. (NYSE: ELS) announced updated disclosure
related to its 2004 year-end press release.
On November 12, 2004, the Company received a comment letter from the
Securities and Exchange Commission ("SEC") related to its Form 10-K filing for
the year ended December 31, 2003, and Form 8-K filings for 2004. On December 10,
2004, the Company submitted a response to the comments. On February 24, 2005,
the Company received an additional comment letter with four remaining comments.
Three of the comments related to accounting policies used by the Company and one
comment related to an 8-K filing made during 2004 in connection with an
acquisition.
On January 24, 2005, the Company issued its press release containing its
results of operations for the year ended December 31, 2004. As a result of the
additional comments received subsequent to its earnings release and due to an
upcoming analyst conference to be attended by the Company's management, the
Company wishes to update the disclosure of its 2004 earnings release to take
into account the comments still outstanding with respect to its accounting
policies. The Company intends to provide a written response in support of its
accounting policies to the SEC and is hopeful that a resolution of the matter
can be achieved by the March 15, 2005 filing date for its Form 10-K for the year
ended December 31, 2004. As some of these issues are complex and involve
interpretation and subjective analysis, the Company believes it appropriate to
disclose the nature of the accounting issues while it carefully considers the
SEC staff's comments and, at the same time, is able to discuss its business with
shareholders and analysts. During the relevant years, the Company has received
unqualified opinions from its independent auditing firm, Ernst & Young. The
following is a summary of the relevant comments:
Consolidation Policy
The SEC staff's comment involves three joint venture investments totaling
approximately $1.8 million as of December 31, 2003. The total gross assets of
the joint ventures on a combined basis were approximately $8.6 million at
December 31, 2003. The Company was asked to supplementally provide the SEC staff
with its analysis that accounting policies, which result in the consolidation of
the joint ventures, would not materially impact its consolidated financial
statements. The Company believes that consolidating the joint ventures would
have no material
impact on reported net income or stockholders' equity. In addition, no line item
in its results of operations or statement of financial position would be
materially impacted.
Accounting for Homes Sales
The staff's comment involves the accounting for new home sales. The Company
applies Accounting Research Bulletin No. 43 in accounting for inventory and has
done so consistently since its initial public offering. The staff has inquired
as to the application of Statement of Financial Accounting Standards ("SFAS") 66
- Accounting for Sales of Real Estate ("SFAS 66"). Under SFAS 66, the sale of
property improvements subject to an underlying lease may result in the two
transactions being treated as one transaction in the financial statements. Under
this policy, a portion of the profit on the sale of the home would be deferred
and amortized over the expected length of the underlying lease. The primary
issue that determines the applicable accounting pronouncement is whether
manufactured homes are considered permanent improvements to real estate. The
Company believes that manufactured homes are personal property owned by third
parties that can be and are removed from sites throughout the industry. The
Company believes examples of property improvements for purposes of SFAS 66
include power plants, manufacturing facilities and office buildings. At this
time, the Company cannot quantify the impact on its results of operation or
financial condition. If SFAS 66 is applied, the principal impact will be the
deferral of a portion of current period gross profits offset by the recognition
of prior year gross profits that had been previously deferred. For the years
ended December 31, 2003 and December 31, 2004 the Company recorded gross profits
of approximately $4.4 million and approximately $5.3 million, respectively. The
Company does not believe there will be any material impact on its funds from
operations calculated in accordance with the National Association of Real Estate
Investment Trusts since the deferrals and amortization under SFAS 66 would be
inherently related to real estate improvements.
Rent Control Initiatives
The Company has been an owner of assets in California that have been
subject to various rent control ordinances. As the disparity between the value
of rent received under rent control widened in comparison to the rent which
would reflect the value of the real estate, it became incumbent on management to
initiate investments designed to realize these substantial economic benefits.
The details of these initiatives have been disclosed in the Company's filings
since 2001. The Company's initiatives included a decision to ultimately close
certain properties if they remained subject to the then existing rent control
ordinances; however, in one instance, the Company entered into a settlement
agreement involving leases in excess of 30 years which
allowed increases to market rents on turnover. The Company has realized
substantial benefits from these initiatives and expects to receive substantial
benefits in future years.
The Company has capitalized and depreciated the cost of these initiatives
in accordance with SFAS No. 67 - Accounting for Costs and Initial Rental
Operations of Real Estate Projects ("SFAS 67"), subject to an impairment test
based on the incremental current and expected increase in cash flow of the
applicable property. The SEC comment questions the application of SFAS 67 and
whether the economic benefits the Company expected to receive as a result of the
initiatives were probable and measurable. At this time the Company is not sure
what the impact of the resolution of this comment will have on its results of
operations or its financial position. The Company believes such application was
and is appropriate; however, the Company believes one possible resolution may
result in these costs being expensed as incurred. For the years ended December
31, 2003 and December 31, 2004, assuming these costs were expensed as incurred,
net income would be reduced by approximately $1.8 million and approximately $1.9
million respectively, or approximately $0.08 and approximately $0.08 per fully
diluted share, respectively, and net income in 2005 and subsequent periods would
increase due to the absence of future depreciation, amortization or write-off of
these capitalized costs.
Form 8-K
The SEC staff has requested supplemental information regarding the
Company's determination that its acquisition of 57 properties from Thousand
Trails, Inc. did not meet certain significance tests. The Company does not
believe that the purchase would be considered significant under SEC
publications.
The Company appreciates the SEC staff's efforts to assist us in our
compliance with applicable disclosure requirements and enhance the overall
disclosure in our required filings. The resolution of the remaining comments
have no material impact on the underlying operations of our business and the
decisions we expect to make regarding joint ventures, home sale operations, or
rent control initiatives. The comments only relate to how such decisions and
related transactions will be presented in the Company's filings.
Guidance for 2005
The Company believes that the operating conditions underlying its guidance
for 2005 remain unchanged; however, the resolution of the accounting principle
to be applied to its rent
control initiatives could result in costs associated with these efforts being
expensed as incurred. In this connection, the United States Supreme Court heard
oral arguments in mid-February on a property rights issue more fully discussed
in the Company's Form 10-Q for the quarter and nine months ended September 30,
2004. A ruling on claims the Company made against one municipality including for
breach of contract, unconstitutional ordinance and park closure, is pending. The
judge in that case has indicated a desire to review the United States Supreme
Court ruling before issuing his ruling. The ruling in the Company's case may
impact the timing and/or amount of costs incurred in 2005.
The forward-looking statements contained in this news release are subject
to certain risks and uncertainties including, but not limited to, the Company's
ability to maintain rental rates and occupancy with respect to properties
currently owned or pending acquisitions; the Company's assumptions about rental
and home sales markets; the completion of pending acquisitions and timing with
respect thereto; the effect of interest rates as well as other risks indicated
from time to time in the Company's filings with the Securities and Exchange
Commission. The Company assumes no obligation to update or supplement
forward-looking statements that become untrue because of subsequent events.
Equity LifeStyle Properties, Inc. owns or has an interest in 275 quality
communities in 25 states and British Columbia consisting of 101,232 sites. The
Company is a self-administered, self-managed, real estate investment trust
(REIT) with headquarters in Chicago.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY LIFESTYLE PROPERTIES, INC.
BY: /s/ Michael B. Berman
--------------------------------
Michael B. Berman
Vice President, Treasurer and
Chief Financial Officer
Date: March 4, 2005