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Equity LifeStyle Properties (NYSE:ELS)

Q1 2014 Earnings Conference Call

April 22, 2014 11:00 a.m. ET

Executives

Marguerite M. Nader – Chief Executive Officer, President and Director

Paul Seavey – Chief Financial Officer, Executive Vice President and Treasurer

Patrick Waite – Executive Vice President of Operations.

Analysts

Nicholas Joseph – Citigroup Inc, Research Division

Gaurav Mehta – Cantor Fitzgerald & Co., Research Division

Todd Stender – Wells Fargo Securities

David Bragg – Green Street Advisors

Paula Poskon – Robert Baird

Jana Galan – BofA Merrill Lynch, Research Division

Operator

Good day, everyone, and thank you all for joining us to discuss Equity LifeStyle Properties' First Quarter 2014 Results. Our featured speakers today are Marguerite Nader, our President and CEO; Paul Seavey, our Executive Vice President and CFO; and Patrick Waite, our Executive Vice President of Operations. 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 securities 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 Marguerite Nader, our President and CEO. Please go ahead.

Marguerite M. Nader

Good morning, and thank you for joining us today. As Paul will more fully describe, our normalized FFO for the first quarter was $0.79 per share, an increase of $0.03 from guidance. Our guidance for the full year 2014 assumed the 7% growth in normalized FFO. Our results for the quarter showed the strength of our business, which is supported by our quality real estate locations, stability of our cash flow and flexibility of our product offering. The fundamental drivers of our business operated better than our expectations. For our MH properties, our properties offered value to both empty-nesters and families who desire a quality lifestyle. We continue to see strong demands for our MH product.

We had our 18th successive quarter of occupancy growth. On the operating front we improved the quality of our occupancy by gaining more homeowners and renters. We see more and more customers choosing the option of buying a home from us or resale as a desired housing choice. They see the value of owning a home in our locations.

For the quarter, we sold 30 new homes in our MH communities at a price point of around $67,000. We were successful in selling 11 additional homes in the quarter at our 2,000 site RV resort in Mesa, Arizona. This property is a highly amenitized community complete with the 27-hole golf course and the section of the property that is the MH. Late last year we started developing some vacant land at this property and has sold 24 MH homes during that time period. We will continue to update you on the demand for this development.

Half of the new homes we sold this quarter in our MH communities was through the joint venture with Cavco. We like the trend we are seeing with this joint venture and have increased our homeowners. We also had an increase in used home sales of 13%. We have seen a decrease in title turning activity, which is a positive for us and that means more homeowners continue with us as residence and result in fewer homes coming back to our balance sheet.

Our sales activity comes from both local and national traffic and we have directed our marketing efforts to comfort these types of customers. In the quarter, we have seen an increase in onsite ownership conversion. This is mainly achieved from a renter living in our community and deciding to buy either an ELS inventory home or a resale home.

Our RV portfolio performed well this quarter with 6.6% growth from 2013. Our largest revenue segment within our RV revenue is from our annual. As we have long said we like this revenue stream because it limits the MH cash flow. A long-term customer base who has an established home or RV on our property. The growth in the annual for the quarter was in excess of 5%, which is 100 basis points higher than last year. We believe this shows the strength of the demand for this product offering and length of residency.

From a marketing perspective we are driving new customers to our resorts. We have increased our presence at rallies, trades shows and travel websites. We are focused on having a presence wherever in (indiscernible) enthusiasts looking for their vacation adventure. I am pleased to announce that we have signed a marketing agreement with Lazydays RV dealer in Florida. They are one of the nation's largest RV dealers with locations in Florida and Arizona. We've put together a program that will allow their customer access to our properties similar to our existing marketing partnerships just on a larger scale.

We have a continued focus on customer service, including a newly launched customer feedback tool for our RV properties which provides the real-time data points for us to gauge the level of satisfaction at the property level. The experience that a customer has at the property will dictate their future travel patterns with us. So we continue to be focused on customer experience.

Our strong performance in the quarter reflects the strength of our business and the hard work of our employees. Finally, I would like to comment on the litigation update we disclosed last week. We were very disappointed with the jury verdict. We managed our communities to a high standard and provide a quality lifestyle to our customers at an attractive value. Not long ago we had a similar case that we had disclosed that went to trial in 2010. That lawsuit was filed by the same law firm that filed the case against California Hawaiian.

There were the similar set of alleged circumstances and similar length of jury trial. However, the result at trial was the jury rendered verdict awarding a total of less than $44,000, that case was appealed and subject ongoing resolution. The California Hawaiian case is currently with the judge and we will have post trial motions over the next month or more. We will continue to disclose all material information as it becomes available but appreciate for now this is the [fluent] situation.

I will now turn it over to Paul, to walk through the numbers in detail.

Paul Seavey

Thank you, Marguerite, and good morning, everyone. I will discuss our first quarter results, provide details guidance for the second quarter and update guidance for the remainder of 2014. For the first quarter we reported $0.79 normalized FFO per share, $0.03 ahead of guidance. Overall, core income from property operations was better than expected as a result of the increased rental revenues across our MH and RV platform.

In the quarter, we realized some savings and property management and corporate expenses and received a distribution from one of our joint venture properties that contributed a (indiscernible) penny to our results. Core MH rent came in better than we had projected and with 3.3% higher than last year. The base rental income increase include approximately 50 basis points related to occupancy gains and 2.8% in rate growth.

We had Core occupancy gains with 75 MH sites in the quarter. Our focus on the quality of our occupancy yielded 43 homeowners in the quarter. We sold 45 new homes, including 14 to our ECHO joint venture. In our MH portfolio the used home sales volume increased almost 13% over first quarter, 2013.

Our RV business generated Core resort based rental income growth of 6.6%. Our annual growth rate was 5.2% resulting from occupancy and rate gains in Florida and the Northeast. Growth in seasonal revenues of 6.4% and growth of 12.5% in transient income was driven by rate and occupancy primarily in Florida. We continued to see strong demands for our cabin rental program across the portfolio.

On a combined basis our membership dues revenue and our membership sales and expenses were in line with guidance. During the quarter, we sold and activated almost 2,800 memberships. Our VPP membership's sales volume in the quarter was 7% higher than last year. We expect to generate 18,000 new memberships this year through sales of low cost products and activation from our RV dealer program.

Core property operating maintenance and real estate tax expenses were approximately $600,000 higher than expected in the quarter. While we did not see significant impact on our R&M expense as a result of the unusually cold and snowy weather this winter. We did see a significant increase in energy cost. Core utility expenses were approximately $1 million higher than expected in the quarter, primarily caused by electric and propane cost.

We realized an 8% increase in electric expense consisting of 5% from usage and 3% from rate. Propane expense represents less than 10% of our utility cost in total, but it was almost 50% higher in the quarter, compared to last year as a result of increased usage and rate.

In summary, first quarter Core property operating revenues were up 3.9% and Core property operating expenses were up 3.4% resulting in an increase in Core NOI before property management of 4.2%. The acquisition portfolio performed as expected contributing $2.3 million in property NOI. Property management and corporate G&A came in at $15.9 million, less than expected because of timing of certain expenses including some technology initiatives. Other income and expenses generated a net contribution of $7.1 million. The positive variance from our guidance results from a $1.2 million distribution related to one of our joint ventures.

We have increased our full year 2014 normalized FFO per share guidance by $0.04. Our range for the year is $2.67 to $2.77. Before I review guidance for the second quarter and the rest of the year, I would like to mention our assumptions related to the acquisition of the leased land at our Colony Cove property as well as the California Hawaiian litigation.

As mentioned in our release during the quarter we closed on the acquisition of the Colony Cove land resulting in termination of the ground lease. The annual ground lease expense was approximately $1.7 million and our Core NOI guidance has been adjusted to realize approximately $1.2 million in expense savings for the remainder of 2014.

Regarding the California Hawaiian litigation, given the uncertainty related to both the timing and the potential outcome of the litigation we are unable to estimate the impact on our financials. Therefore, we have not included in guidance any expense related to the recently announced jury verdicts. We have adjusted our guidance to include an estimate of anticipated costs related to the ongoing litigation.

The press release and supplemental package provides 2014, full year and second quarter guidance in detail. As I discussed guidance, keep in mind my remarks are intended to provide our current estimate of future results. All growth rates and revenue and expense projections represent midpoints in our guidance range.

We expect second quarter normalized FFO at the midpoint of our range of approximately $55.8 million with a range of $0.58 to $0.64 per share. We assume no change in our MH occupancy from the end of the first quarter. Core community based rent revenue is projected to be $104.6 million, a growth rate of 3%.

For the second quarter we anticipate $35 million of rental revenue from our Core RV properties, up 5.5% from last year. We expect continued strong performance from annual 4.9% and 9.3% respectively. Seasonal revenues are projected to be up 1.4% in the quarter. Our second quarter reservation pace shows we are currently 83% reserved for our expected seasonal revenues and 53% reserved for our expected transient revenues ahead of this time last year.

Membership dues income is expected to be $11.4 million and we expect a net contribution from memberships, sales and upgrades of $600,000 in the second quarter. On a combined basis these lines are expected to generate approximately $12 million of income, roughly flat to the second quarter of 2013.

Core operating expense in the second quarter is projected to be 1.9%. As I mentioned, we have included savings related to the termination of the Colony Cove ground lease in our guidance. However, we expect continued pressure in utility related expenses in the second quarter, specifically electric expense across the portfolio to offset a portion of these savings. For the second quarter Core property operating revenues are expected to be up 3.1% and Core property operating expenses up 1.9% resulting in an increase in Core NOI of 4.1%. We anticipated the acquisition properties will contribute approximately $2.2 million of property NOI in the second quarter.

I will now comment on guidance for the remainder of 2014. For quarter 2 through 4, we assumed no change in our MH occupancy from the end of the first quarter and expect to show Core community base rent revenues of $314.7 million, which is a growth rate of 2.9% for the remainder of the year.

In our RV business, we anticipate Core RV revenues of $110.3 million for the rest of the year which is a growth rate of 3.9%. We expect the annuals to continue showing strong performance with 4.8% growth projected. It is anticipated that almost 45% of the full year transient income will come in the third quarter.

Total Core revenue from dues and net contribution from membership sales in quarters 2 through 4 are expected to be $36.2 million, flat through 2013. Operating expense growth, excluding membership sales and marketing expenses is projected to be 1.6% for the remainder of the year. This is down from our prior guidance as a result of the savings related to the Colony Cove ground lease. For the rest of the year property operating revenues are anticipated to be up to 2.7% with expenses growing at 60 basis points, resulting in an increase in Core property NOI of 4.3%.

We expect the acquisition properties will contribute about $7.2 million in income from property operations for the remainder of the year for a total of $9.5 million for the full year. Property management and corporate G&A is expected to be $52.1 million for the remainder of the year. Our full year guidance of $68 million is consistent with prior guidance. Other income and expense items are expected to be approximately $9.8 million for the rest of the year and approximately $16.8 million for the full year.

Interest expense for 2014 is expected to be approximately $113 million. We expect our average debt balance to be approximately $2.15 billion and our preferred distribution is $9.3 million. Our 2014 normalized FFO per share estimate as a midpoint is $2.72 and our share count is expected to average 91.5 million shares in 2014. We make no assumptions related to the use of future free cash flow in our earnings model.

Now some comments on our balance sheet. On April 1st, we completed the refinancing effort we started last summer and closed on two loans with proceeds of $54 million. These loans have weighted average rates of 4.54% and weighted average maturities of 22 years. To-date in 2014, we have repaid mortgages totaling $52.6 million with a weighted average rate of 5.63%.

Current secured financing terms available for MH and RV assets range from 60% to 75% LTV with rates between 4.25% and 4.75% for 10-year money. High-quality H-qualified MH will command preferred terms from life companies, Fannie Mae and the CMBS market. Generally, CMBS lenders and a few life companies are currently offering debt to finance RV assets. We have recently learned Freddie Mac has received approval from its regulators to provide manufactured home community financing. No loans have closed under this program yet but Freddie is actively reporting deals. We are pleased to see another source of debt capital into our space. Our current cash balance is approximately $50 million and we have approximately $34 million maturing before the end of the year. We have $380 million undrawn line of credit with almost 2.5 years remaining and a one year extension option.

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

Question-and-Answer Session

Operator

Thank you Ladies and Gentlemen. [Operator Instructions] Please stand by for you first question and the first question comes from the line of Nick Joseph from Citigroup. Please go ahead.

Nicholas Joseph – Citigroup Inc.

Great, thanks. You mentioned 18 consecutive Cores of occupancy gains and the expansion that you’re doing at an existing site. How many current sites have expansion opportunities in your portfolio?

Marguerite M. Nader

Nick the one I was referring to was View Point which is in our (indiscernible) property that we own, that has a component of MH. I think that as you remember in terms of the expansion opportunities that we have inside of our portfolio, the vast majority of our vacant land is (indiscernible) RV properties. So, we were pleased with the development that we have done out there at View Point out in Arizona and we will continue to kind of evaluate where we have strong demand and we can develop more sites like that.

Nicholas Joseph – Citigroup Inc.

So, what do you look for before actually deciding to expand our existing site?

Marguerite M. Nader

We will look to what the demand is within the property. I mean, as an example as the sales that have happened so far in this particular property in a very short time 60% of the people that bought homes bought the manufactory homes are from within the perk. So there really what we talked about before which is that migrating firm a smaller unit or from a shorter length of stay to (indiscernible) their primary home at the property and a larger footprint. And the 30% are referral business or people just in the property area stands you know let's get our friends to come out and then you have the --10% new guys just kind of coming through hearing our ads and we did a couple of TV advertisements to just get and understand what the demand is for the property. So we would – we invest the kind of – the way we look at is really a localized marketing efficacy where the demand is.

Nicholas Joseph – Citigroup Inc.

Great, thanks for that. And in terms of the acquisition pipeline, can you talk about what opportunities you are seeing both the terms of MH and RV?

Marguerite M. Nader

Sure. I think we mentioned last quarter that we included in the press release now that we brought two RV properties in the quarter at a total of about $25 million. To just the general marketplace, the majority of the transaction we’ve seen are in the all age sector which I think I mentioned in the last quarter's call and then we have seen some trends in RV properties trade you know recently but we are right now working with interested sellers, but the timing of any transaction is really difficult to predict as usual.

Nicholas Joseph – Citigroup Inc.

Great. Thanks.

Operator

Thank you. Your next question comes from the line of Jana Galan - BofA Merrill Lynch, Research Division. Please proceed.

Jana Galan - BofA Merrill Lynch, Research Division

Thank you, good morning.

Paul Seavey

Good morning.

Jana Galan - BofA Merrill Lynch, Research Division

Following up on the occupancy, I understand there is no change in the MH occupancy and guidance, but the trend has been consistent increases, so is there anything concerning you regarding maybe lower home sales this summer, and maybe where do you think occupancy can get to overtime?

Marguerite M. Nader

Yeah, I think maybe in terms of the home sales maybe we’ll kind of take this in two parts and Patrick Waite will just walk through from a home sales perspective where we stand.

Patrick Waite

Sure, I mean I’ll also just touch on capital as its attributable part of our home sales platform. The improvement in the 30 unit home sales for the quarter and definitely the first quarter of 2013 when we sold six new homes reflects that we are gaining momentum and we’ve increased home purchases through the capital of JP. At the end of 2013, we ordered 81 homes from the JVs and more than doubled purchases by adding 97 additional homes ordered in the first quarter. So we focus on home and inventory market for we believe we can sell increased inventories help to support additional sales going into the second and third quarters.

Also the (indiscernible) for used homes, we didn’t sell 372 used homes during the quarter which is an improvement of 13% over the first quarter of 2013. Just for a perspective on that trend. In 2012, we sold about 290 used homes for the quarter, 2013, we sold about 370 used homes for the quarter, so as we move through 2014, we expected, excuse me expecting year-over-year percentage increase to moderate because the rates -- comparison increased substantially in 2013 when we started to sell more used homes. So we are placing new inventory again, places where we see demand and the favorable trend that we are seeing in new home sales, I’d expect that to continue, difficult to say how we’ll finish off the year, but I would say that the trend is favorable.

Marguerite M. Nader

And then [Yana] with respect to just overall occupancy, we’re at you know 92.1 and they got high water market spend in the 95% range, so the majority I think 50% of that vacancy or those opportunities are in spite of our Florida footprint. So that’s where we continue to concentrate to just both sell additional homes and get additional occupancy into those properties.

Jana Galan - BofA Merrill Lynch, Research Division

Thank you.

Operator

Thank you for your question. Your next question comes from the line of Gaurav Mehta of Cantor Fitzgerald. Please go ahead.

Gaurav Mehta – Cantor Fitzgerald

Thanks, good morning. In your prepared remarks you talked about an increase in conversion of rental to home owners in your properties, can you talk about what you are expecting for the remainder of the year, both in terms of the conversions and are you expecting more conversion revenue on the used or the new home side?

Paul Seavey

Yeah, with respect to the trend in renter conversions, for the first quarter about 10% of the home deals, we have renter conversions as opposed to about 5% in the first quarter of 2013 we are focusing our sales staff, on-site managers on reaching out to renters who pay timely or the customers are offering them an opportunity to buy homes. I -- difficult to say we’ll have more success on the new or the used we have seen favorable trends on both.

Gaurav Mehta – Cantor Fitzgerald

Okay, great. And second question I have is on depreciation of rental homes. It seems like you raised your guidance for 2014. Can you just talk about the dynamics of the depreciation?

Paul Seavey

I’m sorry, which effects of the rental homes?

Gaurav Mehta – Cantor Fitzgerald

Well it seems like you raised the guidance to $11 million from $6.6 million for the depreciation of rental rooms, is that but does that really reflect the number of homes that you are going to sell in, rent in 2014?

Paul Seavey

Gaurav, I think with respect to the rental homes, and we’re just looking at kind of page 10 of the supplement, it consistent with what we had previously in terms of our expectations and where we are going to take the rental program.

Gaurav Mehta – Cantor Fitzgerald

Well I guess if you look on page 12, the depreciation of rental homes its $11 million versus, in your last guidance it fell $6.6.

Marguerite M. Nader

Oh, the depreciation it fell.

Paul Seavey

(Indiscernible) in the depreciation in the quarter, we made an adjustment to our depreciation policy on new and used homes essentially we have viewed over the past few years the values of the homes and adjusted our depreciation schedules, so you can see the incremental in the quarter was roughly $1 million and that’s the driver of the adjusted guidance impacting both new end users.

Gaurav Mehta – Cantor Fitzgerald

Great. Thank you.

Paul Seavey

You’re welcome.

Operator

The next question comes from the line of Todd Stender of Well Fargo. Please go ahead.

Todd Stender – Wells Fargo Securities

Hi, good morning.

Marguerite M. Nader

Good morning, Stender.

Todd Stender – Wells Fargo Securities

Just to stay on that theme on the rental side, within your guidance it looks like rental home income and expenses both are expected to increase above previous expectations. Can you just comment on, I guess the general demand for rental housing and your current thoughts on whether or not you know that a concerted effort or is there such a thing as a concerted effort to de-emphasize the rental model, just considering whether rental housing is mutual exclusive from rising home sales?

Marguerite M. Nader

I think that the change in guidance is small; it’s a very small dollar amount. I think on a percentage change it has 1% or some with a small dollar amount really where we think we are going to be for the year. What we are concentrating on is I think as Patrick has touched on is converting those renters into owners and how do we attract somebody that maybe comes down and can rent with us for a year and then decide that this is the place he wants to stay and maybe he doesn’t buy that particular home, but he may be buy the home across the street.

And so we are seeing that certainly from a rental demand, we have high demand for rentals. We have [waiting] with their properties. People are interested in staying with us, and so we see that there is an opportunity right now that we can be a little bit more PD, I guess as it relates to our occupancy and be able to say, we’ll take the next guy down who is interested in buying our homes. And so that’s kind of how we see it, and it's really location driven, property based as to what we see as the demand. There are certainly still some properties where we don’t see a sales product coming back and we’re still kind of on you know headed into the increasing of rentals.

Todd Stender – Wells Fargo Securities

That’s helpful. And are you able to quantify what the price to owned versus price to rent cost differential is for that particular candidate?

Paul Seavey

Yeah, basically it’s similar, as you had imagined on customers making the decision either a rental or --- home look for a number of factors, the cost of house all in monthly payment in order to occupy that home on that day, wanted the pricing mechanisms that we use in order to incentivize home buyers is the nature that value proposition is in line with the rental alternatives.

Todd Stender – Wells Fargo Securities

And what are those numbers; do you have an average number of what is the cost as to rent per month?

Paul Seavey

It’s about $850 per rental.

Todd Stender

Okay, that’s helpful. And I think Marguerite you gave a new home sales figures 67,000.

Marguerite M. Nader

Right.

Todd Stender – Wells Fargo Securities

And do you have a number for used homes in the quarter?

Marguerite M. Nader

You know used homes is really there’s a couple of different ways. We have the resale activity and that’s the majority of what happens at our properties, you know because it’s about 10% resale activity that happens at the properties. And that number is about between 18 to $20,000. Our unit home number is lower than that, it’s somewhere around $10,000 in terms of the sales that we are brokering, that we are selling from our used inventory portfolio. And then on the new home and the reason I highlighted it in terms of the sale price was that, that was in comparison to last year at this time I think it was somewhere around 53,000. So we are seeing an increase in that new home, that new home that ability to push a new home price.

Todd Stender – Wells Fargo Securities

And do you have a break out of the percentage of folks that buy outright in cash versus those that eat the finances?

Marguerite M. Nader

Yes, that was a – an interesting thing for us. I mean on the resale and the used home is you know 98% is all cash buyers throughout our portfolio. And again that’s a large transaction base, because you are counting all of the third party retail transaction. And then with respect to the new, that was really why we set up the venture with Cavco to try to – we understood that there was a need for financing and we thought frankly that we were going to be utilizing that financing source . And I believe in the quarter we have financed two or three of that and something along those lines in terms of the deals that we did with the joint venture.

So it’s a nice tool to have and it’s something that we are able to say that we have financing, but we have been able to primarily all cash sales.

Todd Stender – Wells Fargo Securities

Okay, thanks a lot. Just last question, any color you can provide on holiday spring selling season is coming along, whether you want to come in on March and then maybe how April is trending?

Marguerite M. Nader

With respect to new home sales?

Todd Stender – Wells Fargo Securities

Yes.

Marguerite M. Nader

You know I think it’s trending in line with what we have seen in the first quarter, we’re just starting out obviously we had a – we have been under the deep [stock] and more of their properties are now they are starting the open houses that we frankly thought we were going to start that March 1st, that didn’t seem to work very well. And so, I just look for an update as we get out a little bit more into the spring season here.

Todd Stender – Wells Fargo Securities

Okay, thank you.

Operator

Thank you for your question. Your next question comes from the line of David Bragg of Green Street Advisors. Please go ahead.

David Bragg – Green Street Advisors

Thank you, good morning.

Marguerite M. Nader

Hi Dave.

David Bragg – Green Street Advisors

My question is in the transaction market over the last year or so, it’s been reported that number of new entrants have pursued the age restricted manufactured housing space. To what extent has that increased the competition for you?

Marguerite M. Nader

No, I think that there have been a couple on the age restricted side. I think as we have mentioned or maybe we talked about for that (indiscernible) just about a couple of properties, on the age restricted side. I think that there is a heightened demand for our product, the price of the market transaction that are being supported by low interest rates and just a high demand for quality product feel we are seeing more people showing up at potential acquisition.

David Bragg – Green Street Advisors

Would you expect as a market buyers to just their underwriting yet in reaction to the improved quality of occupancy that you are seeing in your communities?

Marguerite M. Nader

I think that’s hard, someone who hasn’t really been operating in our space for a while and we often talk about and we talk about the difference between occupancy, rental occupancy and the home owner occupancy and the effect that that has on just the bottom line not necessarily FFO , but just the bottom line and just the churn within our rental program. So I’m not really sure how the – how they are thinking of it. I think we have made it clear, our view on the quality of occupancy.

David Bragg – Green Street Advisors

Last question relates to your note that Freddy is entering into the space. What’s your manufactured housing mortgage market as Fannie had today, and what are your expectations for Freddy?

Paul Seavey

I think in terms of overall share, I think they represent somewhere in the neighborhood of a quarter. I think that Fannie Mae has a difficult bulk of that financing activity that Fannie Mae generated was in the call it 2007 to 2010 timeframe they have had a bit of a tough road in the past couple of years obviously and each – had a couple of places to go with the life companies or more recently CMBS at better pricing than Fannie Mae.

I think that as it relates to Fannie Mac, a couple of things just on the overall view we have watched, we have watched in the multi family space the benefit that they have been able to take advantage of over the years just in terms of the competition between Fannie Mae and Freddie Mac when they are bidding on deals. And so I think that that will be a nice, a nice option for us to have available to us. I will say that it took quite a while for Fannie Mae to develop their program and to for us to originate any loans with them, I think that Freddy Mac is – we know people that are at Freddy and think that they are headed down the right path, but it may be a bit of time before we see significant amount of activity running through that program.

Operator

[Operator Instructions] And your next question comes from the line of Paula Poskon of Robert Baird. Please go ahead.

Paula Poskon – Robert Baird

Thanks, good afternoon, everyone.

Paul Seavey

Hello, Paula

Paula Poskon – Robert Baird

Just to follow up on that rental versus ownership discussion given the higher percentage of sales that are cash buyers, what now is driving most renters, is it that they are just seeking sort of flexibility and optionality or you still think folks that just can’t afford to buy?

Marguerite M. Nader

I think what’s driving the renters is the ability to have come down visit us for a year and not have to commit. So they will kind of take a look around, take a look around not just the community but the general area, and they feel like they can make that decision from far– they can make it from Chicago or New York. They come down, they spend a year with us and then they know, okay this is where I want to stay and I was a – I’m a home buyer up north or I am a home owner up north and I want to own my home in the south. I want to own my little slice of paradise in the south. So I think that’s been a focus for the renters and for us as we see renters and we see that they are there for a year, we know where their primary home is, we have conversations with them about and maybe now is the time for you to convert and become an owner and stay with us on a longer term basis.

Paula Poskon – Robert Baird

And Marguerite, how often would you say you lose those renters to other competing properties nearby?

Marguerite M. Nader

We have the average length of stay for our renter and our portfolio was about 18 months. And the reasons that they are leaving is in some ways they just said you know Florida or Arizona is not for me, I just, I wanted to try it and I’m leaving and then there is some, there is a portion that make a decision to go to a different community. But I would say the majority are kind of staying inside, they understood what being in a life style community means that they are kind of staying within those (inaudible).

Paula Poskon – Robert Baird

That’s all I have. Thanks very much.

Marguerite M. Nader

Thanks very much, Paula.

Operator

Thank you very much for your questions, ladies and gentlemen. I would now like to turn the call over to Marguerite Nader for the closing remarks.

Marguerite M. Nader

Thank you very much. Paul will be available after the call for any questions.

Operator

Thank you for joining today’s conference ladies and gentlemen. This concludes the presentation. You may now disconnect. Good day.

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