Notes Receivable

3 Months Ended

Mar. 31, 2013

Notes Receivable

Notes Receivable

In certain cases, we make loans to finance the sale of homes to our customers or purchase loans made by others to finance the sale of homes to our customers (referred to as “Chattel Loans”), which loans are secured by the homes. Included in notes receivable, as of March 31, 2013 and December 31, 2012, are approximately $30.7 million and $32.7 million, respectively, in Chattel Loans receivable, which require monthly principal and interest payments and are collateralized by homes at certain of the Properties. As of March 31, 2013, the Chattel Loans receivable had a stated per annum average rate of approximately 7.8%, with a yield of 18.2%, and had an average term remaining of approximately 14 years. These loans are recorded net of allowances of approximately $0.4 million as of March 31, 2013 and December 31, 2012. During the quarters ended March 31, 2013 and March 31, 2012, approximately $1.3 million and $1.8 million, respectively, was repaid, and we purchased an additional $0.2 million of loans in each year, and approximately $0.6 million and $1.9 million, respectively, of homes serving as collateral for Chattel Loans were repossessed and converted to rental units. Chattel Loans receivable at March 31, 2013 includes $23.8 million of Chattel Loans acquired in connection with the purchase of the 2011 Acquisition Properties. During 2012, management reviewed the default and asset recovery performance of these loans and determined that the yield of this portfolio should be increased from 17.0% to 21.0% due to the accelerated timing of cash collections and asset recoveries being experienced in the portfolio. No significant changes in the yield were noted during the quarter ended March 31, 2013. Increases in default rates or declines in recovery rates in the future could, if significant, result in an impairment of the loans. Changes in default rates or recovery rates in the future could, if significant, result in future changes to the yield. 

We also provide financing for nonrefundable up-front payments on sales of new, or upgrades of existing, right to use contracts (“Contracts Receivable”). As of March 31, 2013 and December 31, 2012, we had approximately $15.6 million and $16.1 million of Contracts Receivable, including allowances of approximately $0.6 million and $0.7 million, respectively. These Contracts Receivable represent loans to customers who have entered into right-to-use contracts. The Contracts Receivable yield interest at a stated per annum average rate of 16%, have a weighted average term remaining of approximately four years and require monthly

Note 6 – Notes Receivable (continued)

payments of principal and interest. During the quarters ended March 31, 2013 and March 31, 2012, approximately $1.9 million and $1.8 million, respectively, were repaid and an additional $1.3 million and $0.9 million, respectively, were lent to customers. We periodically review the performance of these loans and do not expect to make significant adjustments to income recognition assumptions due to the small remaining value of the loans.