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8-K - FORM 8-K - EQUITY LIFESTYLE PROPERTIES INC | c62651e8vk.htm |
Exhibit 99.1
News Release
CONTACT:
|
Michael Berman | FOR IMMEDIATE RELEASE | ||
(312) 279-1496 | January 24, 2011 |
ELS REPORTS FOURTH QUARTER RESULTS
Maintains 2011 FFO Guidance Range
Maintains 2011 FFO Guidance Range
CHICAGO, IL January 24, 2011 Equity LifeStyle Properties, Inc. (NYSE: ELS) (the
Company) today announced results for the quarter and year ended December 31, 2010.
a) Financial Results
For the fourth quarter 2010, Funds From Operations (FFO) were $25.9 million, or $0.73 per
share on a fully-diluted basis, compared to $27.7 million, or $0.79 per share on a fully-diluted
basis for the same period in 2009. For the year ended December 31, 2010, FFO was $123.2 million,
or $3.47 per share on a fully-diluted basis, compared to $118.1 million, or $3.58 per share on a
fully-diluted basis for the same period in 2009.
Net income available to common stockholders totaled $5.7 million, or $0.18 per share on a
fully-diluted basis for the quarter ended December 31, 2010. This compares to net income available
to common stockholders of $6.3 million, or $0.21 per share on a fully-diluted basis for the same
period in 2009. Net income available to common stockholders totaled $38.4 million, or $1.25 per
share on a fully-diluted basis for the year ended December 31, 2010. This compares to net income
available to common stockholders of $34.0 million, or $1.22 per share on a fully-diluted basis for
the same period in 2009. As previously discussed in our December 15, 2010 press release, the
results for the quarter and year ended December 31, 2010 include a non-cash charge related to the
write-off of goodwill in the fourth quarter of 2010 of approximately $3.6 million, or $0.10 per
fully diluted share. See the attachment to this press release for a reconciliation of FFO and FFO
per share to net income available to common shares and net income per common share, respectively,
the most directly comparable GAAP measure.
b) Portfolio Performance
Fourth quarter 2010 property operating revenues were $117.9 million, compared to $115.0
million in the fourth quarter of 2009. Our property operating revenues for the year ended December
31, 2010 were $491.7 million, compared to $479.3 million for the year ended December 31, 2009.
For the quarter ended December 31, 2010, our Core property operating revenues increased
approximately 1.3 percent and Core property operating expenses decreased approximately 0.1 percent,
resulting in an increase of approximately 2.8 percent to income from Core property operations over
the quarter ended December 31, 2009. For the year ended December 31, 2010, our Core property
operating revenues increased approximately 1.5 percent and Core property operating expenses
increased approximately 1.0 percent, resulting in an increase of approximately 2.1 percent to
income from Core property operations over the year ended
December 31, 2009. See the attachment to this press release for a reconciliation of income
from property operations.
For the quarter ended December 31, 2010, the Company had 20 new home sales (including six
third-party dealer sales), which represents a 41.2 percent decrease as compared to the quarter
ended December 31, 2009. Gross revenues from home sales were $1.4 million for the quarter ended
December 31, 2010, compared to $2.1 million for the same period in 2009. For the year ended
December 31, 2010, the Company had 82 new home sales (including 19 third-party dealer sales), which
represents a 27.4 percent decrease as compared to the same period in 2009. Gross revenues from
home sales were $6.1 million for the year ended December 31, 2010, compared to $7.1 million for the
same period in 2009.
c) Balance Sheet
Our average long-term secured debt balance was approximately $1.4 billion in the quarter, with
a weighted average interest rate, including amortization, of approximately 6.04 percent per annum.
Interest coverage was approximately 2.4 times in the quarter ended December 31, 2010.
During the quarter ended December 31, 2010, the Company paid off approximately $2.4 million of
financing encumbering one resort property with a stated interest rate of 5.58 percent per annum.
In 2011, the Company has approximately $52 million of secured mortgage debt maturing, the
majority of which we expect to pay off during the first six months of 2011.
d) Executive Officers
Mr. Joe McAdams, age 67, the Companys current President, has expressed a desire to reduce his
involvement in the day-to-day operations of the Company. Effective February 1, 2011, Mr. McAdams
will become president of a subsidiary of the Company involved in ancillary activities and
relinquish his role as President of ELS. Mr. Thomas Heneghan, ELS CEO, commented that, We
appreciate Joes willingness to continue to be a part-time resource for the Company and thank him
for his contribution to the Companys steady performance over the last few years in a challenging
economic environment.
Mr. Heneghan will re-assume the role of President of the Company, in addition to his current
role as Chief Executive Officer. As a result, effective February 1, 2011, the following executive
officers will be reporting to Mr. Heneghan: Michael Berman, our Executive Vice President and Chief
Financial Officer; Ellen Kelleher, our Executive Vice President Property Management; Roger
Maynard, our Executive Vice President Asset Management; Marguerite Nader, our Executive Vice
President New Business Development; and Seth Rosenberg, Senior Vice President of Sales and
Marketing. Mrs. Kelleher will no longer act as Secretary of the Company as such duties will be
transitioned to the Companys General Counsel. Mr. Rosenberg joined the Company in February, 2010
and was previously a General Manager for a division of Active Network, Inc., a leading provider of
software and marketing services used by campgrounds and other outdoor recreation providers.
e) Guidance
Guidance for 2011 FFO per share, on a fully-diluted basis, is projected to be in the range of
$3.75 to $3.95 for the year ending December 31, 2011 and in the range of $1.06 to $1.16 for the
quarter ending March 31, 2011. The Company estimates that Core property operating revenue for 2011
is expected to grow at approximately 1.0 to 1.5 percent over 2010, assuming stable occupancy.
Income from Core property
operations, excluding property management expenses, is expected to grow at approximately 2.5
to 3.0 percent over 2010.
The Companys guidance ranges acknowledge the existence of volatile economic conditions, which
may impact our current guidance assumptions. Factors impacting 2011 guidance include i) the mix of
site usage within the portfolio; ii) yield management on our short-term resort sites; iii)
scheduled or implemented rate increases on community and resort sites; iv) scheduled or implemented
rate increases of annual payments under right-to-use contracts, v) occupancy changes; and vi) our
ability to retain and attract customers renewing or purchasing right-to-use contracts. Results for
2011 also may be impacted by, among other things i) continued competitive housing options and new
home sales initiatives impacting occupancy levels at certain properties; ii) variability in income
from home sales operations, including anticipated expansion projects; iii) potential effects of
uncontrollable factors such as environmental remediation costs and hurricanes; iv) potential
acquisitions, investments and dispositions; v) mortgage debt maturing during 2011; vi) changes in
interest rates; and vii) continued initiatives regarding rent control legislation in California and
related legal fees. Quarter-to-quarter results during the year are impacted by the seasonality at
certain of the properties.
Equity LifeStyle Properties, Inc. owns or has an interest in 307 quality properties in 27
states and British Columbia consisting of 110,984 sites. The Company is a self-administered,
self-managed, real estate investment trust (REIT) with headquarters in Chicago.
A live webcast of Equity LifeStyle Properties, Inc.s conference call discussing these results
will be available via the Companys website in the Investor Info section at www.equitylifestyle.com
at 10:00 a.m. Central time on January 25, 2011.
This news release includes certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. When used, words such as anticipate, expect,
believe, project, intend, may be and will be and similar words or phrases, or the
negative thereof, unless the context requires otherwise, are intended to identify forward-looking
statements. These forward-looking statements are subject to numerous assumptions, risks and
uncertainties, including, but not limited to:
| our ability to control costs, real estate market conditions, the actual rate of decline in customers, the actual use of sites by customers and our success in acquiring new customers at our properties (including those recently acquired); | ||
| our ability to maintain historical rental rates and occupancy with respect to properties currently owned or that we may acquire; | ||
| our assumptions about rental and home sales markets; | ||
| in the age-qualified properties, home sales results could be impacted by the ability of potential homebuyers to sell their existing residences as well as by financial, credit and capital markets volatility; | ||
| results from home sales and occupancy will continue to be impacted by local economic conditions, lack of affordable manufactured home financing and competition from alternative housing options including site-built single-family housing; | ||
| impact of government intervention to stabilize site-built single family housing and not manufactured housing; |
| the completion of future acquisitions, if any, and timing with respect thereto and the effective integration and successful realization of cost savings; | ||
| ability to obtain financing or refinance existing debt on favorable terms or at all; | ||
| the effect of interest rates; | ||
| the dilutive effects of issuing additional common stock; | ||
| the effect of accounting for the sale of agreements to customers representing a right-to-use the properties under the Codification Topic Revenue Recognition; and | ||
| other risks indicated from time to time in our filings with the Securities and Exchange Commission. |
These forward-looking statements are based on managements present expectations and beliefs
about future events. As with any projection or forecast, these statements are inherently
susceptible to uncertainty and changes in circumstances. The Company is under no obligation to, and
expressly disclaims any obligation to, update or alter its forward-looking statements whether as a
result of such changes, new information, subsequent events or otherwise.
Tables follow:
Equity LifeStyle Properties, Inc.
Selected Financial Data
(Unaudited)
(Amounts in thousands except for per share data)
Selected Financial Data
(Unaudited)
(Amounts in thousands except for per share data)
Quarters Ended | Years Ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Community base rental income |
$ | 65,285 | $ | 63,488 | $ | 259,351 | $ | 253,379 | ||||||||
Resort base rental income |
28,041 | 27,056 | 129,481 | 124,822 | ||||||||||||
Right-to-use annual payments |
12,203 | 12,372 | 49,831 | 50,765 | ||||||||||||
Right-to-use contracts current period, gross |
4,326 | 5,000 | 19,496 | 21,526 | ||||||||||||
Right-to-use contracts, deferred, net of prior period
amortization |
(3,027 | ) | (4,121 | ) | (14,856 | ) | (18,882 | ) | ||||||||
Utility and other income |
11,060 | 11,230 | 48,357 | 47,685 | ||||||||||||
Gross revenues from home sales |
1,361 | 2,061 | 6,120 | 7,136 | ||||||||||||
Brokered resale revenues, net |
200 | 202 | 918 | 758 | ||||||||||||
Ancillary services revenues, net |
46 | (170 | ) | 2,504 | 2,745 | |||||||||||
Interest income |
1,182 | 1,336 | 4,419 | 5,119 | ||||||||||||
Income from other investments, net |
496 | 1,440 | 5,740 | 8,168 | ||||||||||||
Total revenues |
121,173 | 119,894 | 511,361 | 503,221 | ||||||||||||
Expenses: |
||||||||||||||||
Property operating and maintenance |
43,839 | 42,892 | 185,786 | 180,870 | ||||||||||||
Real estate taxes |
7,532 | 7,028 | 32,110 | 31,674 | ||||||||||||
Sales and marketing, gross |
2,706 | 3,370 | 12,606 | 13,536 | ||||||||||||
Sales and marketing, deferred commissions, net |
(1,182 | ) | (1,194 | ) | (5,525 | ) | (5,729 | ) | ||||||||
Property management |
7,733 | 8,224 | 32,639 | 33,383 | ||||||||||||
Depreciation on real estate and other costs |
17,166 | 17,107 | 68,125 | 69,049 | ||||||||||||
Cost of home sales |
1,078 | 1,865 | 5,396 | 7,471 | ||||||||||||
Home selling expenses |
690 | 393 | 2,078 | 2,383 | ||||||||||||
General and administrative |
5,517 | 4,625 | 22,559 | 22,279 | ||||||||||||
Rent control initiatives |
1 | 48 | 1,120 | 456 | ||||||||||||
Impairment |
3,635 | | 3,635 | | ||||||||||||
Depreciation on corporate assets |
245 | 179 | 1,080 | 1,039 | ||||||||||||
Interest and related amortization |
21,930 | 24,243 | 91,151 | 98,311 | ||||||||||||
Total expenses |
110,890 | 108,780 | 452,760 | 454,722 | ||||||||||||
Income before equity in income of unconsolidated
joint ventures |
10,283 | 11,114 | 58,601 | 48,499 | ||||||||||||
Equity in income of unconsolidated joint ventures |
313 | 289 | 2,027 | 2,896 | ||||||||||||
Consolidated income from continuing operations |
10,596 | 11,403 | 60,628 | 51,395 | ||||||||||||
Discontinued Operations: |
||||||||||||||||
Discontinued operations |
| 21 | | 181 | ||||||||||||
Income (loss) from discontinued real estate |
| (37 | ) | (231 | ) | 4,685 | ||||||||||
Income (loss) income from discontinued operations |
| (16 | ) | (231 | ) | 4,866 | ||||||||||
Consolidated net income |
10,596 | 11,387 | 60,397 | 56,261 | ||||||||||||
Income allocated to non-controlling interests: |
||||||||||||||||
Common OP Units |
(821 | ) | (1,021 | ) | (5,903 | ) | (6,113 | ) | ||||||||
Perpetual OP Units |
(4,039 | ) | (4,039 | ) | (16,140 | ) | (16,143 | ) | ||||||||
Net income available for Common Shares |
$ | 5,736 | $ | 6,327 | $ | 38,354 | $ | 34,005 | ||||||||
Net income per Common Share Basic |
$ | 0.19 | $ | 0.21 | $ | 1.26 | $ | 1.23 | ||||||||
Net income per Common Share Fully Diluted |
$ | 0.18 | $ | 0.21 | $ | 1.25 | $ | 1.22 | ||||||||
Average Common Shares Basic |
30,728 | 30,145 | 30,517 | 27,582 | ||||||||||||
Average Common Shares and OP Units Basic |
35,271 | 35,060 | 35,247 | 32,658 | ||||||||||||
Average Common Shares and OP Units Fully Diluted |
35,597 | 35,248 | 35,518 | 32,944 |
Equity LifeStyle Properties, Inc.
(Unaudited)
(Unaudited)
Quarters Ended | Years Ended | |||||||||||||||
Reconciliation of Net Income to FFO and FAD | December 31, | December 31, | December 31, | December 31, | ||||||||||||
(amounts in 000s, except for per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Computation of funds from operations: |
||||||||||||||||
Net income available for Common Shares |
$ | 5,736 | $ | 6,327 | $ | 38,354 | $ | 34,005 | ||||||||
Income allocated to common OP Units |
821 | 1,021 | 5,903 | 6,113 | ||||||||||||
Right-to-use contract sales, deferred, net (1) |
3,027 | 4,121 | 14,856 | 18,882 | ||||||||||||
Right-to-use contract commissions, deferred, net(2) |
(1,182 | ) | (1,194 | ) | (5,525 | ) | (5,729 | ) | ||||||||
Depreciation on real estate assets and other |
17,166 | 17,107 | 68,125 | 69,049 | ||||||||||||
Depreciation on unconsolidated joint ventures |
305 | 305 | 1,218 | 1,250 | ||||||||||||
(Gain) loss on real estate |
| 37 | 231 | (5,488 | ) | |||||||||||
Funds from operations (FFO) |
$ | 25,873 | $ | 27,724 | $ | 123,162 | $ | 118,082 | ||||||||
Non-revenue producing improvements to real estate |
(6,762 | ) | (4,699 | ) | (25,352 | ) | (17,415 | ) | ||||||||
Funds available for distribution (FAD) |
$ | 19,111 | $ | 23,025 | $ | 97,810 | $ | 100,667 | ||||||||
FFO per Common Share Basic |
$ | 0.73 | $ | 0.79 | $ | 3.49 | $ | 3.62 | ||||||||
FFO per Common Share Fully Diluted |
$ | 0.73 | $ | 0.79 | $ | 3.47 | $ | 3.58 | ||||||||
FAD per Common Share Basic |
$ | 0.54 | $ | 0.66 | $ | 2.77 | $ | 3.08 | ||||||||
FAD per Common Share Fully Diluted |
$ | 0.54 | $ | 0.65 | $ | 2.75 | $ | 3.05 |
(1) | The Company is required by GAAP to defer recognition of the non-refundable upfront payments from the sale of right-to-use contracts over the estimated customer life. The customer life is currently estimated to range from one to 31 years and is determined based upon historical attrition rates provided to the Company by Privileged Access. The amount shown represents the deferral of a substantial portion of current period contract sales, offset by the amortization of prior period sales. | |
(2) | The Company is required by GAAP to defer recognition of the commission paid related to the sale of right-to-use contracts. The deferred commissions will be amortized on the same method as the related non-refundable upfront payments from the sale of right-to-use contracts. The amount shown represents the deferral of a substantial portion of current period contract commissions, offset by the amortization of prior period commissions. |
Income from Property Operations Detail
(Amounts in thousands)
(Amounts in thousands)
Quarters Ended | Years Ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Community base rental income |
$ | 65,285 | $ | 63,488 | $ | 259,351 | $ | 253,379 | ||||||||
Resort base rental income |
28,041 | 27,056 | 129,481 | 124,822 | ||||||||||||
Right-to-use annual payments |
12,203 | 12,372 | 49,831 | 50,765 | ||||||||||||
Right-to-use contracts current period, gross |
4,326 | 5,000 | 19,496 | 21,526 | ||||||||||||
Utility and other income |
11,060 | 11,230 | 48,357 | 47,685 | ||||||||||||
Property operating revenues, excluding deferrals |
120,915 | 119,146 | 506,516 | 498,177 | ||||||||||||
Property operating and maintenance |
43,839 | 42,892 | 185,786 | 180,870 | ||||||||||||
Real estate taxes |
7,532 | 7,028 | 32,110 | 31,674 | ||||||||||||
Sales and marketing, gross |
2,706 | 3,370 | 12,606 | 13,536 | ||||||||||||
Property operating expenses, excluding deferrals and
Property management |
54,077 | 53,290 | 230,502 | 226,080 | ||||||||||||
Income from property operations, excluding
deferrals and
Property management |
66,838 | 65,856 | 276,014 | 272,097 | ||||||||||||
Property management |
7,733 | 8,224 | 32,639 | 33,383 | ||||||||||||
Income from property operations, excluding
deferrals |
$ | 59,105 | $ | 57,632 | $ | 243,375 | $ | 238,714 | ||||||||
Equity LifeStyle Properties, Inc.
(Unaudited)
(Unaudited)
As Of | As Of | |||||||
December 31, | December 31, | |||||||
Total Common Shares and OP Units Outstanding: | 2010 | 2009 | ||||||
Total Common Shares Outstanding |
30,972,353 | 30,350,745 | ||||||
Total Common OP Units Outstanding |
4,431,420 | 4,914,040 |
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Selected Balance Sheet Data: | (amounts in 000s) | (amounts in 000s) | ||||||
Net investment in real estate |
$ | 1,884,321 | $ | 1,908,447 | ||||
Cash and short-term investments |
$ | 64,925 | $ | 145,128 | ||||
Total assets |
$ | 2,048,395 | $ | 2,166,319 | ||||
Mortgage notes payable |
$ | 1,412,919 | $ | 1,547,901 | ||||
Unsecured lines of credit |
$ | | $ | | ||||
Total liabilities |
$ | 1,588,237 | $ | 1,711,892 | ||||
Perpetual Preferred OP Units |
$ | 200,000 | $ | 200,000 | ||||
Total equity |
$ | 260,158 | $ | 254,427 |
Summary of Total Sites as of December 31, 2010:
Sites | ||||
Community sites |
44,200 | |||
Resort sites: |
||||
Annuals |
20,600 | |||
Seasonal |
8,900 | |||
Transient |
9,900 | |||
Membership (1) |
24,300 | |||
Joint Ventures (2) |
3,100 | |||
111,000 | ||||
(1) | Sites primarily utilized by approximately 108,000 members. | |
(2) | Joint Venture income is included in Equity in income from unconsolidated joint ventures. |
Equity LifeStyle Properties, Inc.
(Unaudited)
(Unaudited)
Quarters Ended | Years Ended | |||||||||||||||
Manufactured Home Site Figures and | December 31, | December 31, | December 31, | December 31, | ||||||||||||
Occupancy Averages: (1) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Total Sites |
44,232 | 44,230 | 44,232 | 44,231 | ||||||||||||
Occupied Sites |
39,965 | 39,813 | 39,880 | 39,897 | ||||||||||||
Occupancy % |
90.4 | % | 90.0 | % | 90.2 | % | 90.2 | % | ||||||||
Monthly Base Rent Per Site |
$ | 544.58 | $ | 531.67 | $ | 542.01 | $ | 529.38 | ||||||||
Core (2) Monthly Base
Rent Per Site |
$ | 544.52 | $ | 531.55 | $ | 541.94 | $ | 529.24 |
Quarters Ended | Years Ended | |||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||
Home Sales:(1) (Dollar amounts in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
New Home Sales Volume (3) |
20 | 34 | 82 | 113 | ||||||||||||
New Home Sales Gross Revenues |
$ | 584 | $ | 948 | $ | 2,695 | $ | 3,397 | ||||||||
Used Home Sales Volume (4) |
218 | 229 | 795 | 747 | ||||||||||||
Used Home Sales Gross Revenues |
$ | 777 | $ | 1,113 | $ | 3,425 | $ | 3,739 | ||||||||
Brokered Home Resale Volume |
148 | 151 | 673 | 612 | ||||||||||||
Brokered Home Resale Revenues, net |
$ | 200 | $ | 202 | $ | 918 | $ | 758 |
(1) | Results of continuing operations, excludes discontinued operations. | |
(2) | The Core Portfolio may change from time-to-time depending on acquisitions, dispositions and significant transactions or unique situations. The 2010 Core Portfolio includes all Properties acquired prior to December 31, 2008 and which have been owned and operated by the Company continuously since January 1, 2009. Core growth percentages exclude the impact of GAAP deferrals of membership sales and related commission. | |
(3) | The quarter and years ended December 31, 2010, includes six and 19 third-party dealer sales, respectively. The quarter and years ended December 31, 2009, includes nine and 28 third-party dealer sales, respectively. | |
(4) | The quarter and years ended December 31, 2010, includes zero and 10 third-party dealer sales, respectively. The quarter and years ended December 31, 2009, includes one and seven third-party dealer sales, respectively. |
Net Income and FFO per Common Share Guidance | First Quarter 2011 | Full Year 2011 | ||||||||||||||
on a fully diluted basis (unaudited): | Low | High | Low | High | ||||||||||||
Projected net income (1) |
$ | 0.54 | $ | 0.64 | $ | 1.66 | $ | 1.86 | ||||||||
Projected depreciation |
0.49 | 0.49 | 1.94 | 1.94 | ||||||||||||
Projected net deferral of right-to-use sales and commissions |
0.03 | 0.03 | 0.15 | 0.15 | ||||||||||||
Projected FFO |
$ | 1.06 | $ | 1.16 | $ | 3.75 | $ | 3.95 | ||||||||
(1) | Due to the uncertain timing and extent of right-to-use sales and the resulting deferrals, actual net income could differ materially from expected net income. |
Non-GAAP Financial Measures
Funds from Operations (FFO), is a non-GAAP financial measure. The Company believes that
FFO, as defined by the Board of Governors of the National Association of Real Estate Investment
Trusts (NAREIT), is generally an appropriate measure of performance for an equity REIT. While
FFO is a relevant and widely used measure of operating performance for equity REITs, it does not
represent cash flow from operations or net income as defined by GAAP, and it should not be
considered as an alternative to these indicators in evaluating liquidity or operating performance.
We define FFO as net income, computed in accordance with GAAP, excluding gains or actual or
estimated losses from sales of properties, plus real estate related depreciation and amortization,
and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis.
The Company receives up-front non-refundable payments from the sale of right-to-use contracts. In
accordance with GAAP, the upfront non-refundable payments and related commissions are deferred and
amortized over the estimated customer life. Although the NAREIT definition of FFO does not address
the treatment of nonrefundable right-to-use payments, the Company believes that it is appropriate
to adjust for the impact of the deferral activity in our calculation of FFO. The Company believes
that FFO is helpful to investors as one of several measures of the performance of an equity REIT.
The Company further believes that by excluding the effect of depreciation, amortization and gains
or actual or estimated losses from sales of real estate, all of which are based on historical costs
and which may be of limited relevance in evaluating current performance, FFO can facilitate
comparisons of operating performance between periods and among other equity REITs. The Company
believes that the adjustment to FFO for the net revenue deferral of upfront non-refundable payments
and expense deferral of right-to-use contract commissions also facilitates the comparison to other
equity REITs. Investors should review FFO, along with GAAP net income and cash flow from operating
activities, investing activities and financing activities, when evaluating an equity REITs
operating performance. The Company computes FFO in accordance with our interpretation of standards
established by NAREIT, which may not be comparable to FFO reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than we do. Funds available for distribution (FAD) is a non-GAAP
financial measure. FAD is defined as FFO less non-revenue producing capital expenditures.
Investors should review FFO and FAD, along with GAAP net income and cash flow from operating
activities, investing activities and financing activities, when evaluating an equity REITs
operating performance. FFO and FAD do not represent cash generated from operating activities in
accordance with GAAP, nor do they represent cash available to pay distributions and should not be
considered as an alternative to net income, determined in accordance with GAAP, as an indication of
our financial performance, or to cash flow from operating activities, determined in accordance with
GAAP, as a measure of our liquidity, nor is it indicative of funds available to fund our cash
needs, including our ability to make cash distributions.