HIGHLIGHTS

2005 continued the downturn of gross revenues for the rental pool that was experienced in 2004. However results-to-date for 2006 look very promising; probably new gross- and net- revenue records.

The year 2005 was notable in a number of ways:

1. Participation in the Rental Pool Dropped (to 9 units)

2. Net Rental Receipts Were Down for Rental Pool as a Whole (by 21%), but Level for Individual Owners

3. Financial Summary – 2005 vs. 2004, 2003, 2002, and 2001

4. Abuse of Phone Service Under Control

5. Student Marketing Plan and Advertising Campaign

6. Student Sales Representative Plan

7. New Rental Coordinators Sought

More complete explanations of these rental highlights are listed below, along with the outlook for the full year 2006 based on results to date.

1) Participation in Rental Pool Dropped (to 9 from 11 units):

The rental pool had nine units in the pool during 2005, a decrease of two from the participation level of 2004, and the same number as were in the pool in 2002.

2) Net Rental Receipts Down for Pool (by 21%), but Level for Individual Owners:

Net distributable income, which is the bottom line after all pool expenses have been paid out of gross revenues, continued to decline during 2005 after a decrease also encountered during 2004. For the full-year 2005, net distributable income for the entire pool fell to $35,378 from $44,533 last year, a decrease of 20.6%. This decrease was primarily due to an 18.2% decrease in the number of units participating in the pool.

Our typical unit, a Hawthorne model, saw net distributable income to these owners fall very slightly to $4,799 for 2005 from $4,835 in 2004. For the year 2005 the decrease to a Hawthorne owner is less than 1% compared to the previous year.

3) Financial Summary – 2005 vs. 2004, 2003, 2002, and 2001:

COMPARISON OF FULL-YEAR RESULTS FOR IVY RESIDENTIAL OWNERS’ RENTAL POOL

(Calendar 2005 vs. Calendars 2004, 2003, 2002 and 2001)

The rental pool experienced a 19% decrease in total gross rental revenues from calendar 2004 to 2005, on a decrease in units of 18% (from 11 to 9). Expenses exhibited a decrease of 17%, resulting in a drop in net revenues of 21%.

Net revenues in 2005 decreased slightly to 62% of gross revenues from 63% the previous year.

2001

2002

2003

2004

2005

# Units in Pool

9

9

10

11

9

Gross Revenues (J-D)

$50,030.66

$57,361.39

$72,937.07

$71,208.01

$57,464.61

Expenses (J-D)

$18,449.81

$22,616.73

$26,249.83

$26,674.61

$22,086.05

Net Revenues (J-D)

$31,600.86

$34,744.65

$46,687.24

$44,533.40

$35,378.56

Gross Rev. Ann. Growth, %

14.7%

27.2%

-2.4%

-19.3%

Expenses Annual Growth, %

22.6%

16.1%

1.6%

-17.2%

Net Rev. Annual Growth, %

9.9%

34.4%

-4.6%

-20.6%

Net Rev. %

63.2%

60.6%

64.0%

62.5%

61.6%

Expense %

36.9%

39.4%

36.0%

37.5%

38.4%

4) Abuse of Phone Service Under Control:

During the final month of 2004, and continuing for several months into 2005, a number of owners discovered unauthorized charges on their phone bills, totaling approximately $2,500. Abuses of several types were noted: including long distance calls placed through information operators, charges due to the placing of large numbers of calls, and the placing of long distance calls through call-back phone features and other techniques that bypassed the various types of controls that owners had specified through the phone company. An investigation attributed the abuse to renters of the units. To halt the abuse temporarily, the owners and manager physically disconnected the most-affected phone lines.

On a more permanent basis, a majority of owners voted to discontinue reimbursement of affected owners after a reasonable amount of time, forcing owners to take more drastic controls. A number of owners then cancelled all phone service to their units. It is believed now that all owners that have retained phone service utilize options such as CALL BLOCKING and CALL CONTROL. These measures have apparently proven effective since no further abuse of phones has been reported since that period.

5) Student Marketing Plan and Advertising Campaign:

A marketing plan for our rental units was developed during the fall semester of 2005. The Marketing Department at Notre Dame made this service available to us at no cost as part of their teaching assignments for students. Their advertising class, led by the owner of an ad agency in South Bend, agreed to partner with us using our business as a hands-on class project and training assignment. A group of the students in his class served as our advertising agency during the semester. Their assignment was to develop a marketing plan with an accompanying advertising campaign. In early December 2005, at the conclusion of their effort we were asked to be present at a class presentation in front of other students in the class. Our Rental Manager and Rental Pool Coordinator attended. In turn we completed an evaluation of the students that was used in their grading.

The marketing and advertising plans developed were circulated to rental pool participants. The plans included a new name (“The Ivy”), new logo, a number of advertising tools, and a reorientation of marketing toward the extended-stay market. In order to attract this market, a wireless internet capability was recommended. Acceptance of these recommendations would require approval by the owners.

6) Student Sales Representative Plan:

A second student-service was recommended by the class as a follow-on program to the advertising and marketing plans presented. The Marketing Department’s sales class also partners with local businesses to provide a free service as part of their class activities. If we request this service, and it is accepted, students would contact local businesses that regularly have extended-stay employees in from other offices or other visitors, such as salesmen. The students would serve as sales representatives for us working strictly on a sales commission basis. They would not be employees on our payroll.

Further consideration of this program would require the wireless internet capability and owner approvals mentioned above prior to partnering.

7) New Rental Coordinators Sought:

The rental pool is now in need of rental coordinators following the resignation of the current coordinators who have held the position since organizing the rental pool six years ago. Responsibilities include selection, hiring, and supervision of the rental managers, and the setting of rental policies through leadership of the Rental Committee. Possible implementation of the student programs will require significant attention also.

Early Outlook for 2006:

The year 2006 appears to-date to be a turnaround year for the rental pool with the phone-abuse problems behind us, and with significantly improved finances. Net revenue in the first eight months has increased dramatically (38%) as shown below:

On a comparable unit basis (Hawthorne Unit), net revenues have increased even faster (by 41%) during this period, compared to the same eight-month period last year, as shown below:

Student plans for advertising, marketing, and possibly sales will require a rental committee in order to proceed and potentially implement.

Respectfully Submitted

Sue and Ed McGee, Unit#D-1

Outgoing Rental Coordinators