EQUITY LIFESTYLE PROPERTIES INC - 10-Q Quarterly Report

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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 1-11718

EQUITY LIFESTYLE PROPERTIES, INC.
(Exact name of registrant as specified in its Charter)

MARYLAND 36-3857664
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

TWO NORTH RIVERSIDE PLAZA, SUITE 800, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)

(312) 279-1400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

23,034,393 shares of Common Stock as of May 5, 2005.

EQUITY LIFESTYLE PROPERTIES, INC.

TABLE OF CONTENTS

2

EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

3

EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

4

EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE QUARTERS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

5

EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

6

EQUITY LIFESTYLE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE QUARTERS ENDED MARCH 31, 2005 AND 2004
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

7

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFINITION OF TERMS:

Equity Lifestyle Properties, Inc., together with MHC Operating Limited
Partnership (the "Operating Partnership") and other consolidated subsidiaries
("Subsidiaries"), are referred to herein as the "Company", "ELS", "we", "us",
and "our". Capitalized terms used but not defined herein are as defined in the
Company's Annual Report on Form 10-K (as amended by the Form 10-K/A filed on
March 31, 2005, the "2004 Form 10-K") for the year ended December 31, 2004.

PRESENTATION:

These unaudited Consolidated Financial Statements of ELS, a Maryland
corporation, have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the financial statements and notes thereto included in the 2004 Form 10-K. The
following Notes to Consolidated Financial Statements highlight significant
changes to the Notes included in the 2004 Form 10-K and present interim
disclosures as required by the SEC. The accompanying Consolidated Financial
Statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature. Certain reclassifications have been made
to the prior periods' financial statements in order to conform with current
period presentation.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Consolidation

The Company consolidates its majority-owned subsidiaries in which it has
the ability to control the operations of the subsidiaries and all variable
interest entities with respect to which the Company is the primary beneficiary.
All inter-company transactions have been eliminated in consolidation. The
Company's acquisitions were all accounted for as purchases in accordance with
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141").

In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R")
- - an interpretation of ARB 51. The objective of FIN 46R is to provide guidance
on how to identify a variable interest entity ("VIE") and determine when the
assets, liabilities, non-controlling interests, and results of operations of a
VIE need to be included in a company's consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate such
entity if the company absorbs a majority of the entity's expected losses or
receives a majority of the entity's expected residual returns if they occur, or
both (i.e., the primary beneficiary). The Company will apply FIN 46R to all
types of entity ownership (general and limited partnerships and corporate
interests).

The Company will re-evaluate and apply the provisions of FIN 46R to
existing entities if certain events occur which warrant re-evaluation of such
entities. In addition, the Company will apply the provisions of FIN 46R to all
new entities in the future. The Company also consolidates entities in which it
has a controlling direct or indirect voting interest. The equity method of
accounting is applied to entities in which the Company does not have a
controlling direct or indirect voting interest, but can exercise influence over
the entity with respect to its operations and major decisions. The cost method
is applied when (i) the investment is minimal (typically less than 5%) and (ii)
the Company's investment is passive.

(b) Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

8

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(c) Segments

We manage all our operations on a property-by-property basis. Since each
Property has similar economic and operational characteristics, the Company has
one reportable segment, which is the operation of land lease Properties. The
distribution of the Properties throughout the United States reflects our belief
that geographic diversification helps insulate the portfolio from regional
economic influences. We intend to target new acquisitions in or near markets
where the Properties are located and will also consider acquisitions of
Properties outside such markets.

(d) Inventory

Inventory consists of new and used Site Set homes and is stated at the
lower of cost or market after consideration of the N.A.D.A. (National Automobile
Dealers Association) Manufactured Housing Appraisal Guide and the current market
value of each home included in the home inventory. Inventory sales revenues and
resale revenues are recognized when the home sale is closed. Resale revenues are
stated net of commissions paid to employees of $338,000 and $256,000 for the
quarters ended March 31, 2005 and 2004, respectively.

(e) Real Estate

In accordance with SFAS No. 141, we allocate the purchase price of
Properties we acquire to net tangible and identified intangible assets acquired
based on their fair values. In making estimates of fair values for purposes of
allocating purchase price, we utilize a number of sources, including independent
appraisals that may be available in connection with the acquisition or financing
of the respective Property and other market data. We also consider information
obtained about each Property as a result of our due diligence, marketing and
leasing activities in estimating the fair value of the tangible and intangible
assets acquired.

Real estate is recorded at cost less accumulated depreciation. Depreciation
is computed on the straight-line basis over the estimated useful lives of the
assets. We use a 30-year estimated life for buildings acquired and structural
and land improvements, a ten-to-fifteen-year estimated life for building
upgrades and a three-to-seven-year estimated life for furniture, fixtures and
equipment. The values of the above and below market leases are amortized and
recorded as either an increase (in the case of below market leases) or a
decrease (in the case of above market leases) to rental income over the
remaining term of the associated lease. The value associated with in-place
leases is amortized over the expected term, which includes an estimated
probability of lease renewal. Expenditures for ordinary maintenance and repairs
are expensed to operations as incurred, and significant renovations and
improvements that improve the asset and extend the useful life of the asset are
capitalized and then expensed over their estimated useful life. However, the
useful lives, salvage value, and customary depreciation method used for land
improvements and other significant assets may significantly and materially
overstate the depreciation of the underlying assets and therefore understate the
net income of the Company.

We evaluate our Properties for impairment when conditions exist which may
indicate that it is probable that the sum of expected future cash flows
(undiscounted) from a Property over the anticipated holding period is less than
its carrying value. Upon determination that a permanent impairment has occurred,
the applicable Property is reduced to fair value.

For Properties to be disposed of, an impairment loss is recognized when the
fair value of the Property, less the estimated cost to sell, is less than the
carrying amount of the Property measured at the time the Company has a
commitment to sell the Property and/or is actively marketing the Property for
sale. A Property to be disposed of is reported at the lower of its carrying
amount or its estimated fair value, less costs to sell. Subsequent to the date
that a Property is held for disposition, depreciation expense is not recorded.
The Company accounts for its Properties held for disposition in accordance with
Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets". Accordingly,
the results of operations for all assets sold or held for sale after January 1,
2003 have been classified as discontinued operations in all periods presented.

9

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(f) Cash and Cash Equivalents

We consider all demand and money market accounts and certificates of
deposit with a maturity, when purchased, of three months or less to be cash
equivalents.

(g) Notes Receivable

Notes receivable generally are stated at their outstanding unpaid principal
balances net of any deferred fees or costs on originated loans, or unamortized
discounts or premiums net of a valuation allowance. Interest income is accrued
on the unpaid principal balance. Discounts or premiums are amortized to income
using the interest method. In certain cases we finance the sales of homes to our
customers (referred to as "Chattel Loans") which loans are secured by the homes.
The valuation allowance for the Chattel Loans is calculated based a comparison
of the outstanding principal balance of each note compared to the N.A.D.A. value
and the current market value of the underlying manufactured home collateral.

(h) Investments in Joint Ventures

Investments in joint ventures in which the Company does not have a
controlling direct or indirect voting interest, but can exercise significant
influence over the entity with respect to its operations and major decisions,
are accounted for using the equity method of accounting whereby the cost of an
investment is adjusted for the Company's share of the equity in net income or
loss from the date of acquisition and reduced by distributions received. The
income or loss of each entity is allocated in accordance with the provisions of
the applicable operating agreements. The allocation provisions in these
agreements may differ from the ownership interests held by each investor.
Differences between the carrying amount of the Company's investment in the
respective entities and the Company's share of the underlying equity of such
unconsolidated entities are amortized over the respective lives of the
underlying assets, as applicable.

In applying the provisions of FIN 46R (see Basis of Consolidation, above),
the Company determined that its Mezzanine Investment (as hereinafter defined) is
a VIE; however, the Company concluded that it is not the primary beneficiary. As
such, the adoption of this pronouncement had no effect on the Company's
financial statements.

10

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(i) Income from Other Investments

Income from other investments consists of ground lease income from the
Thousand Trails Transaction of $4.0 million and $0 million for the three months
ended March 31, 2005 and 2004, respectively and income from the College Heights
preferred limited partnership investment of approximately $0.3 million for the
three months ended March 31, 2005 and 2004.

(j) Insurance Claims

The Properties are covered against fire, flood, property, earthquake, wind
storm and business interruption by insurance policies containing various
deductible requirements and coverage limits. Recoverable costs are classified in
other assets as incurred. Proceeds are applied against the asset when received.
Recoverable costs relating to capital items are treated in accordance with the
Company's capitalization policy. The book value of the original capital item is
written off in the replacement period. Insurance proceeds relating to the
capital costs will be recorded as income in the period they are received.

As indicated in the 2004 Form 10-K, approximately 70 Florida Properties
suffered damage from the four hurricanes that struck Florida during August and
September 2004. As of March 31, 2005, total expenditures related thereto
approximated $9.5 million partially offset by receipts of $0.5 million.
Approximately $1.4 million has been charged to operations as non-recoverable.
The remaining portion is included in other assets as a receivable from insurance
providers. The Company expects to incur additional expenditures to complete the
work necessary to restore these Properties to their pre-hurricanes condition.

As of March 31, 2005, approximately $7.3 million of these claims have been
submitted to carriers for reimbursement. The Company continues to compile the
information and supporting documentation required to submit additional claims
for reimbursement. While the Company believes that it has provided timely notice
to its insurance providers and submitted claims in a timely fashion, the
recoverability of such claims and the timing of reimbursements are based on
several factors, some of which are out of the Company's control. This process
will continue to impact the Company's balance sheet and cash flow until such
claims are resolved, as there will continue to be a lag between expenditures
incurred by the Company and reimbursements received from the insurance
providers, as reflected by the receivable associated therewith. In addition,
there is a risk that the insurance providers will dispute some or all of the
Company's claims. However, the Company believes, based on consultation with its
legal and other advisors, that all amounts claimed and to be claimed are
recoverable under the Company's policies.

(k) Restatement

During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company expensed
$570,000 and $629,000 for the three months ended March 31, 2005 and 2004,
respectively, because the previous method of accounting for the costs was
determined to be incorrect. The Company had historically classified these costs,
primarily legal, in other assets. To the extent the Company's efforts to
effectively change the use and operations of the Properties were successful, the
Company capitalized the costs to land improvements as an increase in the
established value of the revised project and depreciated them over 30 years. To
the extent these efforts were not successful, the costs would have been
expensed.

(l) Reclassifications

Certain 2004 amounts have been reclassified to conform to the 2005
financial presentation. Such reclassifications have no effect on the operations
or equity as originally presented.

11

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - EARNINGS PER COMMON SHARE

Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128") defines the calculation
of basic and fully diluted earnings per share. Basic and fully diluted earnings
per share are based on the weighted average shares outstanding during each
period and basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. The conversion of OP Units has been
excluded from the basic earnings per share calculation. The conversion of an OP
Unit to a share of Common Stock has no material effect on earnings per common
share.

The following table sets forth the computation of basic and diluted
earnings per share for the quarters ended March 31, 2005 and 2004 (amounts in
thousands):

12

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - COMMON STOCK AND RELATED TRANSACTIONS

On March 24, 2005, the Operating Partnership issued $25 million of 8.0625%
Series D Cumulative Redeemable Perpetual Preference Units (the "Series D 8%
Units"), to institutional investors. The Series D 8% Units are non-callable for
five years. In addition, the Operating Partnership had an existing $125 million
of 9.0% Series D Cumulative Redeemable Perpetual Preference Units (the "Series D
9% Units") outstanding that were callable by the Company as of September 2004.
In connection with the new issue, the Operating Partnership has agreed to extend
the non-call provision of the Series D 9% Units to be coterminous with the new
issue, and the institutional investors holding the Series D 9% Units have agreed
to lower the rate on such units to 8.0625%. All of the units have no stated
maturity or mandatory redemption. Net proceeds from the offering were used to
pay down amounts outstanding under the Company's line of credit.

On April 8, 2005, the Company paid a $0.025 per share distribution for the
quarter ended March 31, 2005 to stockholders of record on March 25, 2005. On
March 24, 2005, the Operating Partnership paid distributions of 9.0% per annum
on the $125 million of Series D 9% Units, and for the seven days ended March 31,
2005, the Operating Partnership paid distributions of 8.0625% per annum on the
$150 million Series D 8% Units.

NOTE 4 - INVESTMENT IN REAL ESTATE

Investment in Real Estate is comprised of (amounts in thousands):

We actively seek to acquire additional Properties and currently are engaged
in negotiations relating to the possible acquisition of a number of Properties.
At any time these negotiations are at varying stages which may include contracts
outstanding to acquire certain Properties which are subject to satisfactory
completion of our due diligence review.

13

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INVESTMENT IN REAL ESTATE (CONTINUED)

As of March 31, 2005, the Company designated seven Properties as held for
disposition pursuant to SFAS No. 144. The Company determined that these
Properties no longer met its investment criteria. The Company expects to sell
these properties within 12 months for proceeds greater than their net book
value. As such, the results from operations of these Properties have been
classified as income from discontinued operations. The seven Properties
classified as held for disposition are summarized in the table below.

The following table summarizes the combined results of operations of the
seven Properties held for sale for the three months ended March 31, 2005, and
eight Properties, including one Property sold during the second quarter of 2004,
for the three months ended March 31, 2004 (amounts in thousands).

14

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - NOTES RECEIVABLE

As of March 31, 2005 and December 31, 2004, the Company had approximately
$13.1 million and $13.3 million in notes receivable, respectively. The Company
has approximately $12.7 million in Chattel Loans receivable, which yield
interest at a per annum average rate of approximately 9.4%, have an average term
and amortization of 5 to 15 years, require monthly principal and interest
payments and are collateralized by manufactured homes at certain of the
Properties. The Company has approximately $403,000 in notes which bear interest
at a per annum rate of prime plus 0.5% and mature on December 31, 2011. The
notes are collateralized with a combination of Common OP Units and partnership
interests in certain joint ventures.

NOTE 6 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES

The following table summarizes the Company's investments in unconsolidated
joint ventures:

(a) The percentages shown approximate the Company's economic interest. The
Company's legal interest may differ.

The following tables represent combined summarized financial information of the
unconsolidated real estate joint ventures.

15

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - INVESTMENT IN AND ADVANCES TO JOINT VENTURES (CONTINUED)

The Company recorded approximately $717,000 and $762,000 of net income from
joint ventures, net of $426,000 and $206,000 depreciation, in the quarters ended
March 31, 2005 and 2004, respectively, and received approximately $2.5 million
and $150,000 in distributions for the quarters ended March 31, 2005 and 2004,
respectively. Included in such distributions is $1.7 million return of capital
received from proceeds from a refinancing. Due to the Company's inability to
control the joint ventures, the Company accounts for its investment in the joint
ventures using the equity method of accounting.

During the quarter ended March 31, 2004, the Company invested approximately
$29.7 million in preferred equity interests (the "Mezzanine Investment") in six
entities controlled by Diversified Investments, Inc. ("Diversified"). These
entities own in the aggregate 11 Properties, containing 5,054 sites.
Approximately $11.7 million of the Mezzanine Investment accrues at a per annum
average rate of 10%, with a minimum pay rate of 6.5%, payable quarterly, and
approximately $17.9 million of the Mezzanine Investment accrues at a per annum
average rate of 11%, with a minimum pay rate of 7%, payable quarterly. To the
extent the minimum pay rates on the respective Mezzanine Investments are not
achieved, the accrual rates increase to 12% and 13%, respectively. The Company
can acquire these Properties in the future at capitalization rates of between 8%
and 8.5%, beginning in 2006. The Company invested approximately $1.4 million in
the Diversified entities managing these 11 Properties, which is included in
prepaid expenses and other assets on the Company's Consolidated Balance Sheets.
In addition, the Company invested approximately $1.4 million with Diversified in
four separate Property owning entities. The Company can acquire these Properties
in the future at capitalization rates of between 8% and 8.5%, beginning in 2006.

NOTE 7 - LONG-TERM BORROWINGS

As of March 31, 2005 and December 31, 2004, the Company had outstanding
mortgage indebtedness for Properties held for the long-term of approximately
$1,398 million and $1,402 million, respectively, and $15 million as of March 31,
2005 and December 31, 2004 for Properties held for sale, encumbering 165 of the
Company's Properties. As of March 31, 2005 and December 31, 2004, the carrying
value of such Properties was approximately $1,642 million and $1,653 million,
respectively.

16

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM BORROWINGS (CONTINUED)

The outstanding mortgage indebtedness as of March 31, 2005 consists of:

o Approximately $498.3 million of mortgage debt (the "Recap")
consisting of 49 loans collateralized by 51 Properties
beneficially owned by separate legal entities that are
Subsidiaries of the Company, which we closed on October 17,
2003. Of this Mortgage Debt, $165.5 million bears interest at
5.35% per annum and matures November 1, 2008; $80.4 million
bears interest at 5.72% per annum and matures November 1,
2010; $79.1 million bears interest at 6.02% per annum and
matures November 1, 2013; and $173.3 million bears interest at
6.33% per annum and matures November 1, 2015. The Mortgage
Debt amortizes over 30 years.

o A $265.0 million mortgage note (the "$265 Million Mortgage")
collateralized by 28 Properties beneficially owned by MHC
Financing Limited Partnership. The $265 Million Mortgage has a
maturity date of January 2, 2028 and bears interest at 7.015%
per annum. There is no principal amortization until February
1, 2008, after which principal and interest are to be paid
from available cash flow and the interest rate will be reset
at a rate equal to the then 10-year U.S. Treasury obligations
plus 2.0%. The $265 Million Mortgage is presented net of a
settled hedge of $3.0 million (net of accumulated amortization
of $494,500), which is being amortized into interest expense
over the life of the loan.

o A $90.2 million mortgage note (the "DeAnza Mortgage")
collateralized by 6 Properties beneficially owned by
MHC-DeAnza Financing Limited Partnership. The DeAnza Mortgage
bears interest at a rate of 7.82% per annum, amortizes
beginning August 1, 2000 over 30 years and matures July 1,
2010.

o A $48.2 million mortgage note (the "Stagecoach Mortgage")
collateralized by 7 Properties beneficially owned by MHC
Stagecoach L.L.C. The Stagecoach Mortgage bears interest at a
rate of 6.98% per annum, amortizes beginning September 1, 2001
over 10 years and matures September 1, 2011.

o A $43.4 million mortgage note (the "Bay Indies Mortgage")
collateralized by one Property beneficially owned by MHC Bay
Indies, L.L.C. The Bay Indies Mortgage bears interest at a
rate of 5.69% per annum, amortizes beginning April 17, 2003
over 25 years and matures May 1, 2013.

o A $15.2 million mortgage note (the "Date Palm Mortgage")
collateralized by one Property beneficially owned by MHC Date
Palm, L.L.C. The Date Palm Mortgage bears interest at a rate
of 7.96% per annum, amortizes beginning August 1, 2000 over 30
years and matures July 1, 2010

o Approximately $455.7 million of mortgage debt on 71 other
Properties, net of a recorded $8.7 million premium being
amortized over the life of the loans using the effective
interest rate method. Scheduled maturities for the outstanding
indebtedness are at various dates through November 1, 2027,
and fixed interest rates range from 5.16% to 8.55% per annum.
Included in this debt, the Company has a $2.4 million loan
recorded to account for a direct financing lease entered into
in May 1997.

UNSECURED LOANS

TERM LOAN

The Company entered into a Term Loan agreement, pursuant to which it
borrowed $120 million, on an unsecured basis, at LIBOR plus 1.75% per annum. The
Term Loan will be due and payable on November 10, 2007, unless this initial
maturity date is extended by the borrower for an additional two years upon
satisfaction of certain conditions. Proceeds from this debt were used to acquire
KTTI Holding Company, Inc. as part of the Thousand Trails transaction.

During the three months ended March 31, 2005, the Company made a principal
repayment of $7.2 million.

17

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM BORROWINGS (CONTINUED)

LINES OF CREDIT

The Company has a $110 million credit facility with a group of banks,
bearing interest at LIBOR plus 1.65% per annum that matures on August 9, 2006,
which can be extended by the borrower for an additional year to August 9, 2007.
As of March 31, 2005, $64.2 million was available under this facility.

The Company entered into a $50 million facility with Wells Fargo Bank in
May 2004, bearing interest at LIBOR plus 1.65% per annum that matures on May 4,
2006, which can be extended by the borrower for an additional year to May 4,
2007. As of March 31, 2005, $6.8 million was available under this facility.

In December 2004, we fixed $180 million of this floating rate debt for one
year with a weighted average interest rate of 4.7% per annum.

OTHER LOANS

During the three months ended March 31, 2005, the Company borrowed $2.4
million to finance its insurance premium payments. This loan is due in January
2006 and bears interest at 4.07% per annum.

NOTE 8 - STOCK-BASED COMPENSATION

We account for our stock-based compensation in accordance with SFAS No. 123
and its amendment (SFAS No. 148), "Accounting for Stock Based Compensation",
which results in compensation expense being recorded based on the fair value of
the stock option compensation issued. SFAS No. 148 provided three possible
transition methods for changing to the fair value method. Effective January 1,
2003, we elected to use the modified-prospective method, which required that we
recognize stock-based employee compensation cost from the beginning of the
fiscal year in which the recognition provisions are first applied as if the fair
value method had been used to account for all employee awards granted, or
settled, in fiscal years beginning after December 15, 1994. Stock-based
compensation expense was approximately $680,000 and $683,000 for the quarters
ended March 31, 2005 and 2004, respectively.

Pursuant to the Stock Option Plan as discussed in Note 14 to the 2004 Form
10-K, certain officers, directors, employees and consultants have been offered
the opportunity to acquire shares of common stock of the Company through stock
options ("Options"). During the quarter ended March 31, 2005, Options for 12,968
shares of common stock were exercised for proceeds of approximately $229,000.

18

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS AND CONTINGENCIES

DEANZA SANTA CRUZ

The customers of DeAnza Santa Cruz Mobile Estates, a Property located in
Santa Cruz, California, brought several actions opposing fees and charges in
connection with water service at the Property. As a result of one action, the
Company rebated approximately $36,000 to the customers. The DeAnza Santa Cruz
Homeowners Association ("HOA") then proceeded to a jury trial alleging these
"overcharges" entitled them to an award of punitive damages. In January 1999, a
jury awarded the HOA $6.0 million in punitive damages. On December 21, 2001 the
California Court of Appeal for the Sixth District reversed the $6.0 million
punitive damage award, the related award of attorneys' fees, and, as a result,
all post-judgment interest thereon, on the basis that punitive damages are not
available as a remedy for a statutory violation of the California Mobilehome
Residency Law ("MRL"). The decision of the appellate court left the HOA, the
plaintiff in this matter, with the right to seek a new trial in which it must
prove its entitlement to either the statutory penalty and attorneys' fees
available under the MRL or punitive damages based on causes of action for fraud,
misrepresentation or other tort. In order to resolve this matter, the Company
accrued for and agreed to pay $201,000 to the HOA. This payment resolved the
punitive damages claim. The HOA's attorney made a motion asking for an award of
attorneys' fees and costs in the amount of approximately $1.5 million as a
result of this resolution of the litigation. On April 2, 2003 the court awarded
attorney's fees to the HOA's attorney in the amount of $593,000 and court costs
of approximately $20,000. The Company appealed this award. On July 13, 2004, the
California Court of Appeal affirmed the award of attorney's fees in favor of the
HOA's attorney. In August 2004, the Company paid all related fees, costs, and
interest.

OTHER CALIFORNIA RENT CONTROL LITIGATION

As part of the Company's effort to realize the value of its Properties
subject to rent control, the Company has initiated lawsuits against several
municipalities in California. The Company's goal is to achieve a level of
regulatory fairness in California's rent control jurisdictions, and in
particular those jurisdictions that prohibit increasing rents to market upon
turnover. Regulations in California allow tenants to sell their homes for a
premium representing the value of the future discounted rent-controlled rents.
In the Company's view, such regulation results in a transfer of the value of the
Company's stockholders' land, which would otherwise be reflected in market
rents, to tenants upon the sales of their homes in the form of an inflated
purchase price that cannot be attributed to the value of the home being sold. As
a result, in the Company's view, the Company loses the value of its asset and
the selling tenant leaves the Property with a windfall premium. The Company has
discovered through the litigation process that certain municipalities considered
condemning the Company's Properties at values well below the value of the
underlying land. In the Company's view, a failure to articulate market rents for
sites governed by restrictive rent control would put the Company at risk for
condemnation or eminent domain proceedings based on artificially reduced rents.
Such a physical taking, should it occur, could represent substantial lost value
to stockholders. The Company is cognizant of the need for affordable housing in
the jurisdictions, but asserts that restrictive rent regulation does not promote
this purpose because the benefits of such regulation are fully capitalized into
the prices of the homes sold. The Company estimates that the annual rent subsidy
to tenants in these jurisdictions is approximately $15 million. In a more well
balanced regulatory environment, the Company would receive market rents that
would eliminate the subsidy and homes would trade at or near their intrinsic
value.

In connection with such efforts, the Company announced it has entered into
a settlement agreement with the City of Santa Cruz, California and that,
pursuant to the settlement agreement, the City amended its rent control
ordinance to exempt the Company's Property from rent control as long as the
Company offers a long term lease which gives the Company the ability to increase
rents to market upon turnover and bases annual rent increases on the CPI. The
settlement agreement benefits the Company's stockholders by allowing them to
receive the value of their investment in this Property through vacancy decontrol
while preserving annual CPI based rent increases in this age restricted
Property.

19

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company has filed two lawsuits in Federal court against the City of San
Rafael, challenging its rent control ordinance on constitutional grounds. The
Company believes that one of those lawsuits was settled by the City agreeing to
amend the ordinance to permit adjustments to market rent upon turnover. The City
subsequently rejected the settlement agreement. The Court initially found the
settlement agreement was binding on the City, but then reconsidered and
determined to submit the claim of breach of the settlement agreement to a jury.
In October 2002, the first case against the City went to trial, based on both
breach of the settlement agreement and the constitutional claims. A jury found
no breach of the settlement agreement; the Company then filed motions asking the
Court to rule in its favor on that claim, notwithstanding the jury verdict. The
Court has postponed decision on those motions and on the constitutional claims,
pending a ruling on some property rights issues by the United States Supreme
Court. In the event that the Court does not rule in favor of the Company on
either the settlement agreement or the constitutional claims, then the Company
has pending claims seeking a declaration that it can close the Property and
convert it to another use.

The Company's efforts to achieve a balanced regulatory environment
incentivize tenant groups to file lawsuits against the Company seeking large
damage awards. The homeowners association at Contempo Marin ("CMHOA"), a 396
site Property in San Rafael, California, sued the Company in December 2000 over
a prior settlement agreement on a capital expenditure pass-through after the
Company sued the City of San Rafael in October 2000 alleging its rent control
ordinance is unconstitutional. In the Contempo Marin case, the CMHOA prevailed
on a motion for summary judgment on an issue that permits the Company to collect
only $3.72 out of a monthly pass-through amount of $7.50 that the Company
believes had been agreed to by the CMHOA in a settlement agreement. On May 23,
2004, the California Court of Appeal affirmed the trial court's order dismissing
the Company's claims against the City of San Rafael. The trial court has set a
trial date in the second quarter of 2005 on the CMHOA's remaining claims for
damages. On April 26, 2005 the trial court granted in part the Company's motion
for summary judgement. The trial court ruled that the Company's rent increases
notices which discussed the disputed amount were not unlawful as the CMHOA had
claimed. The Company intends to vigorously defend this matter. The Company
believes that such lawsuits will be a consequence of the Company's efforts to
change rent control since tenant groups actively desire to preserve the premium
value of their homes in addition to the discounted rents provided by rent
control. The Company has determined that its efforts to rebalance the regulatory
environment despite the risk of litigation from tenant groups are necessary not
only because of the $15 million annual subsidy to tenants, but also because of
the condemnation risk.

Similarly, in June 2003, the Company won a judgment against the City of
Santee in California Superior Court (case no. 777094). The effect of the
judgment was to invalidate, on state law grounds, two (2) rent control
ordinances the City of Santee had enforced against the Company and other
property owners. However, the Court allowed the City to continue to enforce a
rent control ordinance that predated the two invalid ordinances (the "prior
ordinance"). As a result of the judgment the Company was entitled to collect a
one-time rent increase based upon the difference in annual adjustments between
the invalid ordinance(s) and the prior ordinances and to adjust its base rents
to reflect what the Company could have charged had the prior ordinance been
continually in effect. The City of Santee appealed the judgment. The Court of
Appeal and California Supreme Court refused to stay enforcement of these rent
adjustments pending appeal. After the City was unable to obtain a stay, the City
and the tenant association each sued the Company in separate actions alleging
the rent adjustments pursuant to the judgment violate the prior ordinance (Case
Nos. GIE 020887 and GIE 020524). They seek to rescind the rent adjustments,
refunds of amounts paid, and penalties and damages in these separate actions. On
January 25, 2005, the California Court of Appeal reversed the judgment in part
and affirmed it in part with a remand. The Court of Appeal affirmed that one
ordinance was unlawfully adopted and therefore void and that the second
ordinance contained unconstitutional provisions. However, the Court ruled the
City had the authority to cure the issues with the first ordinance
retroactively. On remand the trial court is directed to decide the issue of
damages to the Company which the Company believes is consistent with the Company
receiving the economic benefit of invalidating one of the ordinances and also
consistent with the Company's position that it is entitled to market rent and
not merely a higher amount of regulated rent. The Company will petition the
Supreme Court of California for review of certain aspects of this decision. The
Company intends to vigorously defend the two new lawsuits.

20

EQUITY LIFESTYLE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

In addition, the Company has sued the City of Santee in Federal court alleging
all three of the ordinances are unconstitutional under the Fifth Amendment to
the United States Constitution because they fail to substantially advance a
legitimate state interest. Thus, it is the Company's position that the
ordinances are subject to invalidation as a matter of law in the Federal court
action. Separately, the Federal District Court granted the City's Motion for
Summary Judgment in the Company's Federal court lawsuit. This decision was based
not on the merits, but on procedural grounds, including that the Company's
claims were moot given its success in the state court case. The Company has
sought reconsideration of this ruling and believes the outcome will be affected
by the cases currently before the Ninth Circuit and United States Supreme Court.

Moreover, in July 2004, the Ninth Circuit Court of Appeal decided the case
of Cashman vs. City of Cotati, a Property owner's challenge to the City's rent
control ordinance, and stated that a rent control ordinance that does not on its
face provide for a mechanism to prevent the capture of a premium is
unconstitutional, as a matter of law, absent sufficient externalities rendering
a premium unavailable. This reasoning supports the legal position the Company
has put forth in its opposition to rent control in California. The City of
Cotati has petitioned the Ninth Circuit for rehearing and that petition is
pending. In addition, in October 2004, the United States Supreme Court granted
certiorari in State of Hawaii vs. Chevron USA, Inc., a Ninth Circuit Court of
Appeal case that upholds the standard that a regulation must substantially
advance a legitimate state purpose in order to be constitutionally viable. The
case was argued before the United States Supreme Court on February 22, 2005. The
ultimate outcome of these cases will guide the Company's continued efforts to
realize the value of its Properties which are subject to rent control and the
Company's efforts to achieve a level of regulatory fairness in rent control
jurisdictions.

OTHER

The Company is involved in various other legal proceedings arising in the
ordinary course of business. Additionally, in the ordinary course of business,
the Company's operations are subject to audit by various taxing authorities.
Management believes that all proceedings herein described or referred to, taken
together, are not expected to have a material adverse impact on the Company. In
addition, to the extent any such proceedings or audits relate to newly acquired
Properties, the Company considers any potential indemnification obligations of
sellers in favor of the Company.

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company is a fully integrated owner and operator of resort and
retirement oriented properties ("Properties"). The Company leases individual
developed areas ("sites" or "pads") with access to utilities for placement of
factory built homes or recreational vehicles. As of March 31, 2005, we owned or
had an ownership interest in a portfolio of 275 Properties located throughout
the United States containing 101,285 residential sites. These Properties are
located in 25 states and British Columbia (with the number of Properties in each
state or province shown parenthetically) - Florida (84), California (46),
Arizona (35), Texas (15), Washington (13), Colorado (10), Oregon (9), Delaware
(7), Indiana (7), Pennsylvania (7), Nevada (6), North Carolina (6), Wisconsin
(5), Virginia (4), Illinois (3), Iowa (2), Michigan (2), New Jersey (2), Ohio
(2), South Carolina (2), Tennessee (2), Utah (2), Montana (1), New Mexico (1),
New York (1), and British Columbia (1).

The following is a discussion of the Company's outlook, interim results of
operations, financial condition and liquidity and capital resources for the
three months ended March 31, 2005 compared to the corresponding period in 2004.
It should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included herein and the 2004 Form 10-K. The following discussion
may contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which reflect management's current
views with respect to future events and financial performance. Such
forward-looking statements are subject to certain risks and uncertainties,
including, but not limited to, the effects of future events on the Company's
financial performance; the adverse impact of external factors such as inflation
and consumer confidence; interest rates; and the risks associated with real
estate ownership.

22

The following chart lists the Properties acquired, invested in, or sold
since January 1, 2004.

23

OUTLOOK

Occupancy in our Properties as well as our ability to increase rental rates
directly affect revenues. We currently have approximately 58,300 annual sites
with average annual revenue of approximately $4,400 per site. We have 7,600
seasonal sites, which are leased to customers generally for 3 to 6 months, for
which we expect to collect annualized rental revenues in the range of $1,800 to
$1,900 per site. We also have 5,600 transient sites, occupied by customers who
lease on a short-term basis, for which we expect to collect annualized rental
revenues in the range of $2,000 to $2,200 per site. We expect to service 60,000
customers with these transient sites. We consider the transient revenue stream
to be our most volatile. It is subject to weather conditions, gas prices, and
other factors affecting the marginal RV customer's vacation and travel
preferences. Finally, we have approximately 17,900 Thousand Trails sites for
which we receive ground rent of $16 million annually (subject to annual
escalations). This rent is classified in Other Income in the Consolidated
Statements of Operations. We have interests in Properties containing
approximately 11,800 sites for which revenue is classified as Equity in Income
from Unconsolidated Joint Ventures in the Consolidated Statements of Operations.
The following table outlines the annual, seasonal and transient average results
for the quarter ended March 31, 2005 and for the year ended December 31, 2004:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to our Form 10-K for the year ended December 31, 2004 for a
discussion of our critical accounting policies, which includes impairment of
real estate assets and investments, investments in unconsolidated joint
ventures, and accounting for stock compensation. During the quarter ended March
31, 2005, there were no changes to these policies.

24

RESULTS OF OPERATIONS

During the three months ended March 31, 2005, the Company designated seven
Properties as held for disposition pursuant to SFAS No. 144. The Company
determined that these Properties no longer met its investment strategy. As such,
the results from operations of these Properties have been classified as income
from discontinued operations. See Note 4 for summarized information for these
Properties.

COMPARISON OF THE QUARTER ENDED MARCH 31, 2005 TO THE QUARTER ENDED MARCH 31,
2004

Since December 31, 2003, the gross investment in real estate has increased
from $1,315 million to $2,042 million. The total number of sites owned,
controlled, or in which the Company holds an investment, has increased from
52,482 as of December 31, 2003 to 101,285 as of March 31, 2005.

PROPERTY OPERATIONS

The following table summarizes certain financial and statistical data for
the Property Operations for all Properties owned throughout both periods ("Core
Portfolio") and the Total Portfolio for the quarters ended March 31, 2005 and
2004 (amounts in thousands).

Property Operating Revenues

The 3.5% increase in the Core Portfolio property revenues reflects (i) a
4.6% increase in rates for our community base rental income combined with a 0.9%
decrease in occupancy, (ii) a 7.7% increase in revenues for our resort base
income, and (iii) a decrease in utility income. Total Property revenues
increased due to our 2004 acquisitions.

Property Operating Expenses

The 5.9% increase in the Core Portfolio property operating and maintenance
expense is due primarily to increases in administrative expenses, utility
expenses, and insurance expenses. The increase in real estate taxes is generally
due to higher property assessments on certain Properties. Property management
expense, which reflects costs of managing the Properties and is estimated based
on a percentage of Property revenues, remained stable.

25

HOME SALES OPERATIONS:

The following table summarizes certain financial and statistical data for
the Home Sales Operations for the quarters ended March 31, 2005 and 2004
(amounts in thousands).

New home sales gross profit reflects a 28.3% increase in sales volume
combined with a 94% increase in the gross margin due to an increase in the
average selling price of new homes in 2005 of $8,436 or 11.6% compared to 2004.
Used home gross profit reflects a decrease in sales volume and a slight decrease
in gross margin. Brokered resale revenues reflects increased sales volume. The
increase in ancillary service revenues primarily relates to income from property
amenities at our newly acquired Properties and better than expected revenues at
our Core Properties.

OTHER INCOME AND EXPENSES:

The following table summarizes other income and expenses for the quarters
ended March 31, 2005 and 2004 (amounts in thousands).

26

Income from other investments increased as a result of income from the
Thousand Trails transaction. Other corporate expense increased due to marketing
costs for our Thousand Trails cross-marketing program. General and
administrative expense increased due to increased costs associated with
requirements of the Sarbanes-Oxley Act of 2002 as well as increased payroll
costs. Interest expense increased primarily due to higher debt balances as a
result of the 2004 acquisitions. Depreciation expense increased due to the 2004
acquisitions.

During 2004, the Company changed the way it accounted for costs incurred in
pursuing certain rent control initiatives. As a result, the Company expensed
$570,000 and $629,000 for the three months ended March 31, 2005 and 2004,
respectively. The Company had historically classified these costs, primarily
legal, in other assets. To the extent the Company's efforts to effectively
change the use and operations of the Properties were successful, the Company
capitalized the costs to land improvements as an increase in the established
value of the revised project and depreciated them over 30 years. To the extent
these efforts were not successful, the costs would have been expensed.

Equity in Income of Unconsolidated Joint Ventures

During 2004, we invested in preferred equity interests, the Mezzanine
Investment, as defined below, in six entities containing 11 Properties and 5,054
sites. Our average return on the Mezzanine Investment accrues at a rate of 10%
per annum (see Liquidity and Capital Resources - Investing Activities). We also
invested approximately $1.4 million with Diversified in four separate Property
owning entities. These 2004 investments contributed to the increase in equity in
income from unconsolidated joint ventures.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

As of March 31, 2005, the Company had $7.8 million in cash and cash
equivalents and $71 million available on its line of credit. The Company expects
to meet its short-term liquidity requirements, including its distributions,
generally through its working capital, net cash provided by operating activities
and availability under the existing line of credit. The Company expects to meet
certain long-term liquidity requirements such as scheduled debt maturities,
Property acquisitions and capital improvements by long-term collateralized and
uncollateralized borrowings including borrowings under its existing line of
credit and the issuance of debt securities or additional equity securities in
the Company, in addition to working capital. The table below summarizes cash
flow activity for the three months ended March 31, 2005 and 2004 (amounts in
thousands).

OPERATING ACTIVITIES

Net cash provided by operating activities decreased $0.4 million from $20.7
million for the three months ended March 31, 2004. This decrease reflects
increased inventory purchases of new homes over the same period in 2004
partially offset by increases in property operating income as discussed in
"Results of Operations" above.

27

INVESTING ACTIVITIES

Net cash used in investing activities reflects the impact of the following
investing activities:

INVESTMENT IN AND ADVANCES TO JOINT VENTURES

The Company recorded approximately $717,000 and $762,000 of net income from
joint ventures, net of $426,000 and $206,000 depreciation in the quarters ended
March 31, 2005 and 2004, respectively, and received approximately $2.5 million
and $150,000 in distributions for the quarters ended March 31, 2005 and 2004,
respectively. Included in such distributions is $1.7 million return of capital
received from proceeds from a refinancing. Due to the Company's inability to
control the joint ventures, the Company accounts for its investment in the joint
ventures using the equity method of accounting.

During the three months ended March 31, 2004, the Company invested
approximately $29.7 million in preferred equity interests (the "Mezzanine
Investment") in six entities controlled by Diversified Investments, Inc.
("Diversified"). These entities own in the aggregate 11 Properties, containing
5,054 sites. Approximately $11.7 million of the Mezzanine Investment accrues at
a per annum average rate of 10%, with a minimum pay rate of 6.5%, payable
quarterly, and approximately $17.9 million of the Mezzanine Investment accrues
at a per annum average rate of 11%, with a minimum pay rate of 7%, payable
quarterly. To the extent the minimum pay rates on the respective Mezzanine
Investments are not achieved, the accrual rates increase to 12% and 13%,
respectively. The Company can acquire these Properties in the future at
capitalization rates of between 8% and 8.5%, beginning in 2006. In addition, the
Company has invested approximately $1.4 million in the Diversified entities
managing these 11 Properties, which is included in prepaid expenses and other
assets on the Company's Consolidated Balance Sheet. We also invested
approximately $1.4 million with Diversified in four separate Property owning
entities. The Company can acquire these Properties in the future at
capitalization rates of between 8% and 8.5%, beginning in 2006.

ACQUISITIONS

During the three months ended March 31, 2004, we acquired 43 Properties
(see footnote 4 to the unaudited interim financial statements). The combined
real estate investment in these 43 Properties was approximately $344 million and
was funded with monies held in short-term investments and additional debt of
$232 million.

We assumed inventory of approximately $1.1 million, other assets of $4.8
million, rents received in advance of approximately $9.6 million and other
liabilities of approximately $5.8 million in connection with the 2004
acquisitions. Another $4.3 million remained in escrow while the dispute relating
to the NHC acquisition was settled.

CAPITAL IMPROVEMENTS

Capital expenditures for improvements are identified by the Company as
recurring capital expenditures ("Recurring CapEx"), site development costs and
corporate costs. Recurring CapEx was approximately $2.4 million for the quarter
ended March 31, 2005. Site development costs were approximately $3.7 million for
the quarter ended March 31, 2005, and represent costs to develop expansion sites
at certain of the Company's Properties and costs for improvements to sites when
a smaller used home is replaced with a larger new home. Corporate costs were
approximately $62,000 for the quarter ended March 31, 2005.

28

FINANCING ACTIVITIES

Net cash used in financing activities reflects the following financing
activities:

MORTGAGES AND CREDIT FACILITIES

Throughout the three months ended March 31, 2005, the Company borrowed
$12.9 million on its line of credit and paid down $39.7 million on the line of
credit funded by the Company's operations and proceeds from a preferred
operating unit issue (see Equity Transactions below). The line of credit bears
interest at a per annum rate of LIBOR plus 1.65%. In addition, we repaid $7.2
million on the Company's Term Loan. In December 2004, we fixed $180 million of
this unsecured debt at a rate of 4.7% per annum for one year.

Certain of the Company's mortgage and credit agreements contain covenants
and restrictions including restrictions as to the ratio of secured or unsecured
debt versus encumbered or unencumbered assets, the ratio of fixed
charges-to-earnings before interest, taxes, depreciation and amortization
("EBITDA"), limitations on certain holdings and other restrictions.

As of March 31, 2005, we were subject to certain contractual payment
obligations as described in the table below (dollars in thousands).

(1) Balance excludes net premiums and discounts of $8.7 million.

(2) Includes Line of Credit repayment in 2006 of approximately $89 million. We
have an option to extend this maturity for one year to 2007.

(3) Includes a Term Loan repayment in 2007 of $105,600. We have an option to
extend this maturity for two successive years to 2009.

(4) Includes certain capital lease obligations totaling approximately $7.0
million. These agreements expire in June 2009 and are paid semi-annually.

In addition, the Company leases land under non-cancelable operating leases
at certain of the Properties expiring in various years from 2022 to 2031 with
terms which require twelve equal payments per year plus additional rents
calculated as a percentage of gross revenues. For the quarters ended March 31,
2005 and 2004, ground lease rent was approximately $400,000. Minimum future
rental payments under the ground leases are approximately $1.6 million for each
of the next five years and approximately $26.3 million thereafter.

EQUITY TRANSACTIONS

On March 24, 2005, the Operating Partnership issued $25 million of 8.0625%
Series D Cumulative Redeemable Perpetual Preference Units (the "Series D 8%
Units"), to institutional investors. The Series D 8% Units are non-callable for
five years. In addition, the Operating Partnership had an existing $125 million
of 9.0% Series D Cumulative Redeemable Perpetual Preference Units (the "Series D
9% Units") outstanding that were callable by the Company as of September 2003.
In connection with the new issue, the Operating Partnership has agreed to extend
the non-call provision of the Series D 9% Units to be coterminous with the new
issue, and the institutional investors holding the Series D 9% Units have agreed
to lower the rate on such units to 8.0625%. All of the units have no stated
maturity or mandatory redemption. Net proceeds from the offering were used to
pay down amounts outstanding under the Company's line of credit.

29

On April 8, 2005, the Company paid a $0.025 per share distribution for the
quarter ended March 31, 2005 to stockholders of record on March 25, 2005. On
March 24, 2005, the Operating Partnership paid distributions of 9.0% per annum
on the $125 million of Series D 9% Units, and for the seven days ended March 31,
2005, the Operating Partnership paid distributions of 8.0625% per annum on the
$150 million of Series D 8% Units.

In connection with the $501 million Recap and subsequent special
distribution, on February 27, 2004, the Company contributed all of its assets to
MHC Trust, a newly formed Maryland real estate investment trust, including the
Company's entire partnership interest in the Operating Partnership. The Company
determined that a taxable transaction in connection with the special
distribution to stockholders would be in the Company's best interests. This was
accomplished by the contribution of the Company's interest in the Operating
Partnership to MHC Trust in exchange for all the common and preferred stock of
MHC Trust. Due to the Company's tax basis in its interest in the Operating
Partnership, the Company recognized $180 million of taxable income as a result
of its contribution, as opposed to a nontaxable reduction of the Company's tax
basis in its interest in the Operating Partnership. This restructuring resulted
in a step-up in the Company's tax basis in its assets, generating future
depreciation deductions, which in turn will reduce the Company's future
distribution requirements. This provides the Company with greater financial
flexibility and greater growth potential. The Company intends to continue to
qualify as a REIT under the Code, with its assets consisting of interests in MHC
Trust. MHC Trust, in turn, also intends to qualify as a real estate investment
trust under the Code and will continue to be the general partner of the
Operating Partnership. On May 1, 2004, in connection with the restructuring, MHC
Trust sold cumulative preferred stock to a limited number of unaffiliated
investors.

During the three months ended March 31, 2004, in connection with the 2004
acquisitions the Company issued 126,765 common OP units valued at $5.6 million
of which approximately $4.4 million has been classified as paid-in capital.
These were subsequently redeemed at the end of the year.

On January 16, 2004, we paid a one-time special distribution of $8.00 per
share payable to stockholders of record on January 8, 2004. Proceeds of the
Recap were used to pay the special distribution.

INFLATION

Substantially all of the leases at the Properties allow for monthly or
annual rent increases which provide the Company with the opportunity to achieve
increases, where justified by the market, as each lease matures. Such types of
leases generally minimize the risk of inflation to the Company.

FUNDS FROM OPERATIONS

Funds from Operations ("FFO") is a non-GAAP financial measure. We believe
FFO, as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"), to be 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.

FFO is defined as net income, computed in accordance with GAAP, excluding
gains or 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. We believe that FFO is helpful
to investors as one of several measures of the performance of an equity REIT. We
further believe that by excluding the effect of depreciation, amortization and
gains or 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. Investors should review FFO, along with GAAP net
income and cash flow from operating activities, investing activities and
financing activities, when evaluating an equity REIT's operating performance. We
compute FFO in accordance with 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. FFO does not represent cash

30

generated from operating activities in accordance with GAAP, nor does it
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.

The following table presents a calculation of FFO for the quarters ended
March 31, 2005 and 2004 (amounts in thousands):

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our earnings, cash flows and fair values relevant to financial
instruments are dependent on prevailing market interest rates. The primary
market risk we face is long-term indebtedness, which bears interest at fixed and
variable rates. The fair value of our long-term debt obligations is affected by
changes in market interest rates. At March 31, 2005 approximately 99% or
approximately $1.6 billion of our outstanding debt had fixed interest rates,
which minimizes the market risk until the debt matures. For each increase in
interest rates of 1% (or 100 basis points), the fair value of the total
outstanding debt would decrease by approximately $88.1 million. For each
decrease in interest rates of 1% (or 100 basis points), the fair value of the
total outstanding debt would increase by approximately $93.2 million.

At March 31, 2005 approximately 1% or approximately $21 million of our
outstanding debt was short-term and at variable rates. Earnings are affected by
increases and decreases in market interest rates on this debt. For each
increase/decrease in interest rates of 1% (or 100 basis points), our earnings
and cash flows would increase/decrease by approximately $219,000 annually.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of March 31, 2005. Based
on that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective at the reasonable assurance level as of March 31, 2005.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

To remediate the material weakness in the Company's internal control over
financial reporting described in Item 9A of the Company's Form 10-K for the year
ended December 31, 2004, during the quarter ended March 31, 2005 the Company
implemented additional review procedures over the selection and monitoring of
the application and interpretation of accounting principles affecting the costs
incurred in pursuing rent control initiatives. There were no other material
changes in the Company's internal control over financial reporting during the
quarter ended March 31, 2005.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 of the Consolidated Financial Statements contained herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matter to a vote of security holders during the
three months ended March 31, 2005.

ITEM 6. EXHIBITS

31.1 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Financial Officer Pursuant to 19 U.S.C.
Section 1350

32.2 Certification of Chief Executive Officer Pursuant to 19 U.S.C.
Section 1350

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

EQUITY LIFESTYLE PROPERTIES, INC.

BY: /s/ Thomas P. Heneghan
----------------------------
Thomas P. Heneghan
President and Chief Executive Officer
(Principal Executive Officer)

BY: /s/ Michael B. Berman
----------------------------
Michael B. Berman
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)

DATE: May 10, 2005

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