Edgar Filing: AFFORDABLE RESIDENTIAL COMMUNITIES INC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

Current Report Pursuant to Section 13
of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event reported)—August 17, 2004 (August 17, 2004)

AFFORDABLE RESIDENTIAL COMMUNITIES INC.
(Exact name of registrant as specified in its charter)

Maryland
(State of Incorporation)

001-31987
(Commission File Number)

84-1477939
(IRS Employer Identification No.)

600 Grant Street, Suite 900, Denver, Colorado, 80203
(Address of principal executive offices and zip code)

(303) 383-7500
(Registrant's Telephone Number)

Item 12. Results of Operations and Financial Condition

On August 17, 2004, Affordable Residential Communities Inc. (the "Company") posted on the Company's website a supplemental presentation concerning the Company's results of operation for the second quarter of 2004. The supplemental presentation is attached hereto as Exhibit A to this Form 8-K and is furnished to, but not filed with, the Commission.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned hereunto duly authorized.

Date: August 17, 2004		AFFORDABLE RESIDENTIAL COMMUNITIES INC.
		By:	/s/ SCOTT D. JACKSON Scott D. Jackson Chairman and Chief Executive Officer

Exhibit A

Second Quarter 2004
Earnings Release and
Supplemental Operating and Financial Data

Affordable Residential Communities
600 Grant Street, Suite 900
Denver, CO 80203
Phone: (866) 847-8931
Fax: (303) 294-0121
www.aboutarc.com

Table of Contents

Portfolio Map		1
Press Release Text		2
Financial Data
	Financial Highlights	6
	First Quarter Adjustments	7
	Balance Sheet	8
	Debt Analysis	9
	Statement of Operations	10
	Comprehensive Income	11
	Segment Detail	12
Same Community Data		13
Same Community—Percentage Growth		14
Total Real Estate Segment		15
Capital Expenditure Summary		16
Manufactured Home Purchases		17
Top 20 Markets		18
Acquisitions & Dispositions		19
Hometown Acquisition Data		20
Home Sales Data		21
Owned Home Data		22
Investor Inquiries		23
Exhibit I—Non-GAAP Financial Measures
	Definitions of Non-GAAP Measures	I-1
	FFO, FAD & EBITDA Reconciliation	I-2
	Total Real Estate Net Segment Income Reconciliation	I-3
	Same Community Net Segment Income Reconciliation	I-4

Note: This earnings release and supplemental operating and financial data report contains certain non-GAAP financial measures that we believe are helpful in understanding our business as further described in Exhibit I. These financial measures that principally include Funds From Operations, Funds Available for Distribution, Earnings Before Interest, Taxes, Depreciation and Amortization, and Net Segment Income should not be considered an alternative to Loss Available to Common Stockholders or any other GAAP measurement of performance or as an alternative to cash flows from operating, investing or financing activities. Furthermore, these non-GAAP financial measures are not intended to be a measure of cash flow or liquidity.

Portfolio Map

Press Release Text

Affordable Residential Communities Inc. Reports Second Quarter 2004 Results

DENVER, August 16, 2004 (BUSINESS WIRE)—Affordable Residential Communities Inc. (NYSE: ARC) today announced results for the quarter ended June 30, 2004.

Results

For the quarter ended June 30, 2004, funds from operations available to common stockholders (FFO)⁽¹⁾ was $9.3 million or $0.23 per share. For the quarter ended June 30, 2004, net loss available to common stockholders was $7.1 million or $0.17 per share as compared to a net loss of $8.5 million or $0.50 per share for the three months ended June 30, 2003. Our results in the quarter ended June 30, 2004 reflect for the entire quarter the effects of our IPO, the acquisition of certain assets from Hometown America LLC and the repayment of certain indebtedness, all of which were completed in February. On a same community basis, revenue in our real estate segment was up 2.0% to $36.8 million from $36.1 million for the second quarter ended June 30, 2004 as compared to the second quarter ended June 30, 2003. Same community expenses increased 9.8% to $15.1 million from $13.8 million for the three months ended June 30, 2004 as compared to the three months ended June 30, 2003. As a result, same communities real estate net segment income⁽²⁾ decreased 2.8% to $21.6 million from $22.3 million for the three months ended June 30, 2004 as compared to the three months ended June 30, 2003.

For the six months ended June 30, 2004, funds from operations available to common stockholders (FFO)⁽¹⁾ was $(12.4) million or $(0.35) per share. For the six months ended June 30, 2004, net loss available to common stockholders was $42.1 million or $1.21 per share as compared to a net loss of $16.9 million or $1.00 per share for the six months ended June 30, 2003. Our results in the six months ended June 30, 2004 reflect the inclusion of one-time charges of $27.9 million or $0.74 per share related to our IPO, acquisition of certain assets from Hometown America LLC and the repayment of certain indebtedness, all of which were completed in February. On a same community basis, revenue in our real estate segment was up 2.8% to $73.7 million from $71.7 million for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003. Same community expenses increased 6.1% to $29.2 million from $27.6 million for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003. As a result, same communities real estate net segment income⁽²⁾ increased 0.1% to $44.4 million from $44.1 million for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003.

See the attachment to this press release for reconciliation of FFO and real estate net segment income to net loss ($7.1 million for the three months ended June 30, 2004), and FFO per share to net loss per share ($0.17 per share for the three months ended June 30, 2004), the most directly comparable GAAP measures, and to Notes 1 and 2 for a definition of FFO and real estate net segment income.

Total portfolio occupancy averaged 79.8% for the three months ended June 30, 2004. Average occupancy for same communities decreased from 86.9% for the three months ended June 30, 2003 to 82.5% for the three months ended June 30, 2004 due mainly to the lack of available chattel lending and lenders moving repossessed homes out of the communities.

Transaction Accounting

Our results in the first half of 2004 were impacted by a series of one-time charges related to our recent activities totaling $27.9 million or $0.74 per share. The primary components of the charges include: (i) restricted stock grant of $10.1 million, (ii) write-off of loan origination costs and exit fees

associated with the repayment of indebtedness of $13.4 million and (iii) IPO related costs of $4.4 million. These costs will not impact future reporting periods.

Acquisitions

Effective June 30, 2004, we closed on a 36-community portfolio, the D.A.M. acquisition. This portfolio consists of approximately 3,600 homesites that are approximately 91% occupied with an average rent of $254 per month. We paid $65.5 million, including closing costs representing an in-place capitalization rate of approximately 8.5%. We assumed existing debt with a fair value of $29.7 million, bearing an effective interest rate of 5.54%. The remainder of the consideration consisted of cash of $8.0 million that we paid in July and preferred operating partnership units, valued at $25.1 million, having a liquidation preference of $25 per unit and earning a cash distribution of 6.25% payable quarterly. The communities are located primarily in Pennsylvania and fit well with our existing footprint.

In addition, we have completed the purchase of three of four communities we placed under separate contracts in the second quarter located in Salt Lake City, UT for a total purchase price of $12.6 million. These communities have a total of 525 homesites. We closed on two of these communities in June comprising 243 homesites and a third in July comprising 145 homesites.

Planned Sales of Communities

On May 14, 2004, we entered into an agreement to sell three communities, Sea Pines, Camden Point and Butler Creek, to an unaffiliated third party for a total sales price of $5.9 million subject to the buyer's completion of due diligence. There can be no assurance that this transaction will be completed.

In July we entered into a real estate auction agreement to sell twelve communities comprising approximately 2,900 homesites located primarily in geographic locations where we do not have market concentrations. The auction is presently scheduled for September, resulting in closings of the sale transactions during the fourth quarter of 2004. There can be no assurance that these sales will be completed.

Integration of the Hometown Communities and Ongoing Business Strategy

We remain satisfied with the progress we are making in integrating the Hometown portfolio we acquired in connection with our first quarter IPO. We have replaced a majority of the former Hometown community managers and we are making progress as planned in training the new Hometown personnel in ARC systems and procedures, preparing homesites for new home deliveries, addressing deferred maintenance issues and improving amenities in order to meet ARC's quality standards.

Our ARC and Hometown communities continue to be challenged by high move-outs of homes repossessed by finance companies, the continued absence of outside chattel financing for our potential new residents, some regulatory delays in obtaining required home selling licenses and a higher level of home renter moveouts primarily in the newly acquired Hometown communities based on our requirement that residents adhere to our community standards. However, we are encouraged by the continued high demand for our product and by the steady reduction in the rate of new repossessions and subsequent move-outs by finance companies. In addition, we continue to experience high levels of home renter move-ins and we are encouraged by the level of response we have received at the seven Fiesta sales events we have conducted so far.

In the course of the second quarter and in response to existing market conditions, we have made a number of refinements to our occupancy initiatives. These are designed to drive our occupancy and

migrate from a plan that drives occupancy based on leasing (our first step to credit intermediation) to a plan that retains our good customers, lengthens their duration by migrating them to homeownership with lease-purchase and freshens our manufactured home property assets with sales of used homes to new homeowners. Our revised plan also contemplates selling communities that do not fit our current footprint, do not have good long-term growth prospects or that have high enough sales proceeds as to enhance shareholder return through redeployment of proceeds. Lastly, our revised plan calls for enhancing our financial liquidity and flexibility by replacing our unused $125 million revolving credit facility with three separate lines of credit, (i) an $85 million revolving credit mortgage facility, (ii) a $50 million home inventory purchasing line of credit and (iii) a revolving home lease receivables line of credit of between $85 million and $100 million. Presently, we have canceled the revolving credit facility and obtained commitments for the mortgage facility and the home inventory purchasing line of credit with the expectation that we will close these lines of credit by the end of August although there is no assurance that we will do so. We are in discussions with a number of potential lenders for the revolving home lease receivables line of credit although we have received no commitments from them nor can there be any assurance that we will receive them.

A conference call to discuss results for the three and six months ended June 30, 2004 will be held Monday, August 16, 2004 at 12:00 noon Eastern Time. This call is being webcast by CCBN and can be accessed at ARC's website at www.aboutarc.com.

The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents at www.streetevents.com.

Affordable Residential Communities Inc., as of June 30, 2004, owns and operates approximately 71,000 homesites located in 342 communities in 31 states. ARC is a fully integrated, self-administered, self-managed equity real estate investment trust (REIT) focused on the acquisition, renovation, repositioning and operation of primarily all-age manufactured home communities with headquarters in Denver, CO.

(1): As defined by NAREIT, FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs) and after adjustments for unconsolidated partnerships and joint ventures. We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002), which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (loss) (computed in

accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

(2): Real estate net segment income provides a measure of rental operating results that does not include property management, depreciation, amortization, interest expense and non-property specific expenses such as general and administrative expenses. We present real estate net segment income because we consider it an important supplemental measure of the operating performance of our communities and believe it is frequently used by lenders, securities analysts, investors and other interested parties in the evaluation of REITs, many of which present real estate net segment income when reporting their results. Real estate net segment income is defined as income from rental and other property and manufactured homes less expenses for property operations and real estate taxes. Real estate net segment income does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, including the repayment of principal on debt and payment of dividends on common and preferred stock. Real estate net segment income should not be considered a substitute for net income (calculated in accordance with GAAP) nor a measure of results of operations or cash flows (calculated in accordance with GAAP) as a measure of liquidity.

The forward-looking statements contained in this news release are subject to certain risks and uncertainties including, but not limited to, general risks affecting the real estate industry; the Company's ability to maintain or increase rental rates and occupancy with respect to properties currently owned; the Company's assumptions on rental home and home sales and financing activity; completion of pending acquisitions and sales, if any, and timing with respect thereto; the Company's growth and expansion into new markets or to integrate acquisitions successfully; and the effect of interest rates as well as other risks indicated from time to time in the Company's filings with the Securities and Exchange Commission. The Company expressly disclaims any intention or obligation to provide public updates, revisions or amendments to any forward-looking statements that become untrue because of subsequent events.

Financial Highlights

				Three Months Ended
				06/30/04			03/31/04			Change
				($ in thousands, except per share data)
*Operating Data*
	Total revenue			$	59,237		$	45,470		30.3	%
	Same community real estate net segment income(c)			$	21,645		$	22,801		(5.1	)%
		Avg. monthly real estate revenue per occupied homesite			373			370		0.8	%
		Avg. monthly homeowner rental income per homeowner occupied homesite			286			285		0.3	%
		Weighted average occupied homesites			32,857			33,228		(1.1	)%
	EBITDA(c)			$	25,895		$	6,583		293.4	%
	Adjusted EBITDA(a)(c)				25,895			21,070		22.9	%
	Funds from operations available to common stockholders and OP unitholders(c)			$	9,854		$	(23,609	)	(141.7	)%
		FFO per share—diluted			0.23			(0.74	)	(130.8	)%
		FFO payout ratio			137.5	%		NA		NA
	Recurring capital expenditures			$	1,100		$	520		111.6	%
	Scheduled principal amortization of indebtedness				2,200			1,936		13.6	%
	Funds available for distribution ("FAD")(c)			$	6,554		$	(26,065	)	(125.1	)%
		FAD per share—diluted			0.15			(0.82	)	(118.5	)%
		FAD payout ratio			206.8	%		NA		NA
	Net income (loss) to common stockholders			$	(7,126	)	$	(34,969	)	(79.6	)%
		Earnings (loss) per share—basic			(0.17	)		(1.20	)	(85.5	)%
		Earnings (loss) per share—diluted			(0.17	)		(1.20	)	(85.5	)%
		Distributions per common share (through June 30, 2004)		$	0.3125			0.1493	(b)	NA
		Distributions per preferred share (through July 30, 2004)			0.5156			0.4182	(b)	NA
		Interest expensed		$	12,981		$	14,684		(11.6	)%
		Interest capitalized			1,235			544		NA

			Total interest incurred	$	14,216		$	15,228
		EBITDA/interest			1.82	x		0.43	x
		EBITDA/interest + preferred stock dividend			1.54	x		0.40	x
*Share Detail*
	Average number of common shares outstanding				40,857			29,233		39.8	%
	Average number of OP units outstanding				2,412			2,560		(5.8	)%

		Diluted shares outstanding			43,269			31,793		36.1	%

		06/30/04			03/31/04			Change
*Balance Sheet Data*
	Total assets	$	1,834,169		$	1,770,503		3.6	%
	Total debt		972,699			933,942		4.1	%
	Market equity value, end of period		719,842			802,234		(10.3	)%
	Debt/total assets		53.0	%		52.8	%	0.5	%
	Debt/total market capitalization		57.5	%		53.8	%	6.8	%
*Other Data*
	Total properties (at period end)		342			301
	Total homesites (at period end)		71,058			66,548
	Occupied homesites (at period end)		56,587			53,353
	Occupancy percentage—total portfolio		79.6	%		80.2	%

(a): Adjusted EBITDA reflects the add-back of $27.9 million in one-time costs related to the IPO and the early termination of certain indebtedness.
(b): Reflects partial period.
(c): See Exhibit I for definition and reconciliation to nearest GAAP measure.

First Quarter Adjustments

			3/31/04
			($ in thousands; except per share data)
FFO available to common stockholders & OP unitholders(a)			$	(23,609	)
	Plus:
		Restricted stock grants		10,070
		IPO related costs		4,417
		Early termination of debt		13,427

	Adjusted FFO(a)		$	4,305
	Plus:
		Preferred dividend		1,232
		Depreciation on F, F & E		369
		Amortization of loan origination fees		868
		Net interest expense		14,296

	Adjusted EBITDA(a)		$	21,070

Adjusted FFO(a)			$	4,305
	FFO per share—diluted			0.14
	FFO payout ratio			150.4	%
Recurring capital expenditures			$	520
Scheduled principal amortization of indebtedness				1,936
Adjusted FAD(a)			$	1,849
	FAD per share—diluted			0.06
	FAD payout ratio			350.1	%
Adjusted EBITDA/interest				1.38	x
Adjusted EBITDA/interest + preferred dividend				1.28	x
Distributions payable on common shares and OP units 1st Quarter			$	6,474

(a): See Exhibit I for definition and reconciliation to nearest GAAP measure.

Balance Sheet

				Period Ending
				06/30/04			03/31/04			12/31/03
				($ in thousands)
*Assets*
	Rental property
		Land		$	224,504		$	211,432		$	125,977
		Land improvements and buildings			1,309,646			1,230,974			738,807
		Manufactured homes and improvements			192,197			163,430			136,589
		Furniture, equipment and vehicles			9,374			9,200			8,896

			Rental property, gross		1,735,721			1,615,036			1,010,269
		Accumulated depreciation			(131,790	)		(116,441	)		(103,221	)

			Rental property, net		1,603,931			1,498,595			907,048
		Cash and cash equivalents			47,742			87,986			26,631
		Restricted cash			935			1,435			13,669
		Tenant, notes and other receivables, net			16,117			14,190			8,392
		Inventory			2,528			3,085			3,878
		Loan origination costs, net			14,964			15,108			11,921
		Loan reserves			28,564			29,643			32,414
		Goodwill			86,126			86,126			86,126
		Lease intangibles and customer relationships, net			23,920			24,668			11,626
		Prepaid expenses and other assets			9,342			9,667			24,128

			Total assets	$	1,834,169		$	1,770,503		$	1,125,833

*Liabilities and Stockholders' Equity*
	Notes payable and preferred interest			$	972,699		$	933,942		$	789,574
	Accounts payable and accrued expenses				42,739			32,492			20,174
	Tenant deposits and other liabilities				20,003			12,024			8,101

		Total liabilities			1,035,441			978,458			817,849
	Minority interest				61,896			37,175			42,639
	Stockholders' equity
		Preferred stock			119,108			119,108			—
		Common stock			410			410			170
		Paid-in capital			791,916			791,916			378,018
		Unearned compensation			(923	)		(1,760	)		—
		Accumulated other comprehensive income (expense)			1,284			(518	)		—
		Retained deficit			(174,963	)		(154,286	)		(112,843	)

			Total stockholders' equity		736,832			754,870			265,345

			Total liabilities and stockholders' equity	$	1,834,169		$	1,770,503		$	1,125,833

Debt Analysis

			Debt Amount		% of Total Debt		Interest Rate		Maturity Date
			($ in thousands)
*Fixed Rate Debt*
	Senior fixed rate mortgage due 2012		$	305,361	31.4	%	7.350	%	2012
	Senior fixed rate mortgage due 2014			214,673	22.1	%	5.530	%	2014
	Senior fixed rate mortgage due 2009			100,343	10.3	%	5.050	%	2009
	Various individual fixed rate mortgages			165,102	17.0	%	7.310	%	2004 - 2031
	Existing other loans			1,087	0.1	%	8.670	%	2005

		Total fixed rate debt		786,566	80.9	%	6.553	%
*Variable Rate Debt(a)*
	Senior variable rate mortgage			184,011	18.9	%	4.240	%	2006
	Consumer finance credit facility			0	0.0	%	0.000	%	2008
	Floorplan lines of credit			2,061	0.2	%	7.750	%	2004
	Revolving credit facility			0	0.0	%	0.000	%	2006
	Other loans			61	0.0	%	4.000	%	2004

		Total variable rate debt		186,133	19.1	%	4.279	%
		Total debt	$	972,699	100.0	%	6.118	%

*% Fixed / Variable*
	Fixed		$	786,566	80.9	%	6.553	%
	Variable			186,133	19.1	%	4.279	%

		Total debt	$	972,699	100.0	%	6.118	%

			2004		2005		2006		2007		2008		Thereafter
*Maturity Schedule(b)*
	Senior fixed rate mortgages		$	3,444	$	7,436	$	7,917	$	8,431	$	8,917	$	584,233
	Various individual fixed rate mortgages			11,740		3,495		14,607		2,398		52,745		72,853
	Senior variable rate mortgage			0		0		184,011		0		0		0
	Consumer finance line of credit			0		0		0		0		0		0
	Floorplan lines of credit			2,061		0		0		0		0		0
	Revolving line of credit			0		0		0		0		0		0
	Other debt			101		1,047		0		0		0		0

		Total debt maturities	$	17,346	$	11,978	$	206,535	$	10,829	$	61,662	$	657,086

(a): In February 2004, we entered into a two-year $100 million swap and purchased interest rate caps covering our senior variable rate mortgage.
(b): Does not include debt premium.

Statement of Operations

					Three Months Ended 06/30/04			Three Months Ended 03/31/04
					($ in thousands; except per share data)
*Revenue*
	Communities				$	56,780		$	44,573
	Retail Sales					2,081			754
	Consumer finance and insurance					88			134
	Corporate and other					288			9

		Total revenue				59,237			45,470
*Operating Expenses*
	Communities					23,813			17,024
	Retail Sales					2,443			934
	Consumer finance and insurance					794			170
	Corporate and other					388			84
	Property management					1,600			1,454
	General and administrative(a)					4,304			14,804
	IPO related costs(a)					0			4,417

		Total expenses				33,342			38,887

			EBITDA(b)			25,895			6,583
	Early termination of debt(a)					0			13,427
	Depreciation & amortization					18,337			15,660
	Net interest expense					12,527			14,296

Income (loss) before minority interest						(4,969	)		(36,800	)
	Minority interest					421			3,063

Income (loss) before preferred stock dividend						(4,548	)		(33,737	)
	Preferred stock dividend					(2,578	)		(1,232	)

Income (loss) available to common stockholders					$	(7,126	)	$	(34,969	)

*FFO Calculation(b)*
	Income (loss) before minority interest(a)				$	(4,969	)	$	(36,800	)
		Plus:		Depreciation and amortization		18,337			15,660
		Less:		Amortization of loan origination fees		(855	)		(868	)
				Depreciation on F, F & E		(81	)		(369	)
				Preferred stock dividends		(2,578	)		(1,232	)

		FFO available to common stockholders & OP unitholders(b)			$	9,854		$	(23,609	)

		Less:		Recurring capital expenditures	$	(1,100	)	$	(520	)
				Scheduled principal amortization of indebtedness		(2,200	)		(1,936	)

	Funds available for distribution ("FAD")(b)				$	6,554		$	(26,065	)

	FFO per share/unit				$	0.23		$	(0.74	)
	FAD per share/unit				$	0.15		$	(0.82	)
	Distribution per share/unit				$	0.31		$	0.15
	Weighted average common shares and OP units					43,269			31,793

(a): Includes certain one-time costs related to the IPO and the repayment of certain indebtedness.
(b): See Exhibit I for definition and reconciliation to nearest GAAP measure.

Comprehensive Income

		Three Months Ended 06/30/04			Three Months Ended 03/31/04
		($ in thousands)
Net income (loss)		$	(7,126	)	$	(34,969	)
Unrealized income (loss) on interest rate swap			1,802			(518	)

	Comprehensive income (loss)	$	(5,324	)	$	(35,487	)

Segment Detail

			Three Months Ended
			6/30/2004			03/31/04(a)			12/31/03
			($ in thousands)
*Revenue*
	Total real estate revenue		$	56,780		$	44,573		$	36,589
	Retail homes sales revenue			2,081			754			1,757
	Finance and insurance revenue			88			134			675
	Corporate and other			288			9			998

		Segment revenue		59,237			45,470			40,019
*Expenses*
	Property operations expense			19,460			13,541			13,290
	Real estate taxes			4,353			3,483			2,826
	Retail homes sales expense			2,443			934			2,142
	Insurance and finance expense			794			170			542
	Corporate and other			388			84			798

		Segment expenses		27,438			18,212			19,598
*Net Segment Income*
	Real estate income			32,967			27,549			20,473
	Retail homes sales income			(362	)		(180	)		(385	)
	Insurance and finance income			(706	)		(36	)		133
	Corporate and other			(100	)		(75	)		200

		Net segment income	$	31,799		$	27,258		$	20,421

*Other Data*
	EBITDA(b)		$	25,895		$	6,583		$	16,194
	FFO available to common stockholders and OP unitholders(b)		$	9,854		$	(23,609	)	$	1,572
	Net income (loss)		$	(7,126	)	$	(34,969	)	$	(8,401	)
	One-time charges		$	0		$	27,914		$	0

(a): Results include one-time charges of $27.9 million related to the IPO and the repayment of certain indebtedness.
(b): See Exhibit I for definition and reconciliation to nearest GAAP measure.

Same Community Data

				2004						2003
				2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
				($ in thousands)
*For the full quarter noted:*
	Average total homesites				39,804			39,804			39,804			39,804			39,788			39,729
	Average total rental homes				6,793			6,356			5,861			5,473			5,065			4,844
	Average occupied homesites—homeowners				27,546			28,189			28,870			29,629			30,333			30,854
	Average occupied homesites—home renters				5,311			5,039			4,784			4,574			4,226			3,828

		Average occupied homesites—total			32,857			33,228			33,654			34,203			34,559			34,682
	Average occupancy—rental homes				78.2	%		79.3	%		81.6	%		83.6	%		83.4	%		79.0	%
	Average occupancy—total				82.5	%		83.5	%		84.5	%		85.9	%		86.9	%		87.3	%
*For the full quarter noted:*
	Real estate revenue
		Homeowner rental income		$	23,621		$	24,088		$	24,036		$	24,346		$	24,396		$	25,314
		Home renter rental income			9,411			8,890			8,561			8,293			8,251			6,781
		Other			145			129			123			46			10			54

			Rental income		33,177			33,107			32,720			32,685			32,657			32,149
		Utility and other income			3,599			3,792			3,535			3,657			3,399			3,501

			Total real estate revenue		36,776			36,899			36,255			36,342			36,056			35,650

	Real estate expenses
		Property operations expenses			12,153			11,117			13,099			12,079			11,253			11,138
		Real estate taxes			2,978			2,981			2,781			2,547			2,525			2,638

			Total real estate expenses		15,131			14,098			15,880			14,626			13,778			13,776

			Real estate net segment income(a)	$	21,645		$	22,801		$	20,375		$	21,716		$	22,278		$	21,874

	Average monthly real estate revenue per total occupied homesite(b)			$	373		$	370		$	359		$	354		$	348		$	343

	Average monthly homeowner rental income per homeowner occupied homesite(c)			$	286		$	285		$	278		$	274		$	268		$	273

	Average monthly real estate revenue per total homesite(d)			$	308		$	309		$	304		$	304		$	302		$	299

	Average monthly home renter income per occupied rental home(e)			$	591		$	588		$	597		$	604		$	651		$	590

*At end of quarter:*
	Total communities owned				209			209			209			209			209			209
	Total homesites				39,804			39,804			39,804			39,804			39,804			39,741
	Occupied homesites				32,580			33,156			33,300			33,967			34,427			34,693
	Total rental homes owned				6,925			6,763			5,875			5,830			5,203			4,903
	Occupied rental homes				5,335			5,318			4,803			4,725			4,411			3,998

(a): See Exhibit I for definition and reconciliation to nearest GAAP measure.
(b): Average monthly real estate revenue per occupied homesite is defined as total real estate revenue divided by average total occupied homesites divided by the number of months in the period.
(c): Average monthly homeowner rental income per homeowner occupied homesite is defined as homeowner rental income divided by average homeowner occupied homesites divided by the number of months in the period.
(d): Average monthly real estate revenue per total homesite is defined as total real estate revenue divided by average total homesites divided by the number of months in the period.
(e): Average monthly home renter income per occupied rental home is defined as total home renter rental income divided by average occupied rental homes divided by the number of months in the period.

Same Community—Percentage Growth

				Three Months Ended 06/30/04 vs. 06/30/03		Three Months Ended 03/31/04 vs. 03/31/03
*Real Estate Revenue*
	Homeowner rental income			(3.2	)%	(4.8	)%
	Home renter rental income			14.1	%	31.1	%
	Other			1350.0	%	138.9	%

		Rental income		1.6	%	3.0	%
	Utility and other income			5.9	%	8.3	%

		Total real estate revenue		2.0	%	3.5	%

*Real Estate Expenses*
	Property operations expenses			8.0	%	(0.2	)%
	Real estate taxes			17.9	%	13.0	%

		Total real estate expenses		9.8	%	2.3	%

			Net real estate segment income	(2.8	)%	4.2	%

Total Real Estate Segment

					2004						2003
					2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
					($ in thousands)
*For the full quarter noted:*
	Average total homesites					68,023			52,837			40,435			40,300			40,115			39,824
	Average total rental homes					8,293			7,063			5,938			5,535			5,075			4,825
	Average occupied homesites—homeowners					48,176			37,599			29,191			29,872			30,618			31,021
	Average occupied homesites—home renters					6,074			5,424			4,853			4,614			4,231			3,754

		Average occupied homesites—total				54,250			43,023			34,044			34,486			34,849			34,775
	Average occupancy—rental homes					73.2	%		76.8	%		81.7	%		83.4	%		83.4	%		77.8	%
	Average occupancy—total					79.8	%		81.4	%		84.2	%		85.6	%		86.9	%		87.3	%
*For the full quarter noted:*
	Real estate revenue
		Homeowner rental income			$	40,268		$	31,130		$	23,764		$	24,550		$	24,573		$	25,325
		Home renter rental income				10,620			9,239			9,241			8,431			8,322			6,792
		Other				359			200			98			44			10			54

			Rental income			51,247			40,569			33,103			33,025			32,905			32,171
		Utility and other income				5,533			4,004			3,486			3,689			3,424			3,508

			Total real estate revenue			56,780			44,573			36,589			36,714			36,329			35,679

	Real estate expenses
		Property operations expenses			$	19,460		$	13,541		$	13,274		$	12,219		$	11,339		$	11,146
		Real estate taxes				4,353			3,483			2,842			2,588			2,527			2,640

			Total real estate expenses			23,813			17,024			16,116			14,807			13,866			13,786

				Real estate net segment income(a)	$	32,967		$	27,549		$	20,473		$	21,907		$	22,463		$	21,893

	Average monthly real estate revenue per total occupied homesite(b)				$	349		$	345		$	358		$	355		$	347		$	342

	Average monthly homeowner rental income per homeowner occupied homesite(c)				$	279		$	276		$	271		$	274		$	268		$	272

	Average monthly real estate revenue per total homesite(d)				$	278		$	281		$	302		$	304		$	302		$	299

	Average monthly home renter income per occupied rental home(e)				$	583		$	568		$	635		$	609		$	656		$	603

*At end of quarter:*
	Total communities owned					342			301			212			212			211			211
	Total homesites					71,058			66,548			40,435			40,435			40,255			39,943
	Occupied homesites					56,587			53,353			33,670			34,282			34,818			34,881
	Total rental homes owned					8,522			8,127			6,061			6,003			5,213			4,912
	Occupied rental homes					6,139			6,103			4,908			4,843			4,416			4,006

(a): See Exhibit I for definition and reconciliation to nearest GAAP measure.
(b): Average monthly real estate revenue per occupied homesite is defined as total real estate revenue divided by average total occupied homesites divided by the number of months in the period.
(c): Average monthly homeowner rental income per homeowner occupied homesite is defined as homeowner rental income divided by average homeowner occupied homesites divided by the number of months in the period.
(d): Average monthly real estate revenue per total homesite is defined as total real estate revenue divided by average total homesites divided by the number of months in the period.
(e): Average monthly home renter income per occupied rental home is defined as total home renter rental income divided by average occupied rental homes divided by the number of months in the period.

Capital Expenditure Summary

		Three Months Ended
		06/30/04		03/31/04		06/30/03
		($ in thousands)
Recurring capital expenditures(a)		$	1,100	$	520	$	740
	Recurring capital expenditures per average site per annum		65		39		74
Homesite upgrades(b)			1,482		1,042		904
Expansion, development, renovation and improvements(c)			4,730		1,955		915
Utility recapture(d)			—		—		—

	Total capital improvements	$	7,312	$	3,517	$	2,559

(a): Includes capital expenditures necessary to maintain asset quality, including purchasing and replacing assets used to operate the community. These capital expenditures include repairs of roads, driveways, and pools, renovation of clubhouses and replacement or installation of street lights, playground equipment, signage, maintenance facilities, manager housing and property vehicles. These capital expenditures do not include water meters, sheds, homes or community acquisitions. Our minimum capitalizable amount of a project is $500.
(b): Includes capital expenditures that improve homesites for placement of a new home typically when an existing older home moves out and the site is prepared for a new home. Many of these activities are governed by manufacturers' installation requirements and State building codes and include grading, electrical, concrete, landscaping, drainage and water/sewer lines. We estimate that the new home will be in the community for an average of at least 20 years although we depreciate these costs over 10 years.
(c): These are the costs to develop, expand, renovate and improve communities following acquisition. They include costs for engineering, driveways, paving, utilities, and amenities. They also include capitalized interest and capitalized internal costs of $694 in the first quarter of 2004 and $1,336 in the second quarter of 2004.
(d): Revenue producing includes costs related to revenue generating activities, consisting primarily of sub-metering of water and sewer service.

Manufactured Home Purchases

		Three Months Ended
		06/30/04		03/31/04
		($ in thousands)
Manufactured home purchases(a)(b)		$	26,855	$	18,001

	Number of manufactured homes purchased(b)		502		1,172

(a): Includes expenditures for manufactured homes and home setup expenditures in the period.
(b): Excludes manufactured homes purchased in the Hometown acquisition.

Top 20 Markets

									Rental Income Per Occupied Homesite Per Month(c)(d)
					Occupancy
Market(a)		Number of Total Homesites(b)	Percentage of Total Homesites		Occupancy
Market(a)		Number of Total Homesites(b)	Percentage of Total Homesites		06/30/04		03/31/04		06/30/04		03/31/04(d)
Dallas—Ft. Worth, TX		7,369	10.4	%	76.0	%	78.0	%	$	351	$	347
Atlanta, GA		5,074	7.1	%	83.1	%	83.5	%		325		323
Salt Lake City, UT		3,553	5.0	%	91.0	%	93.1	%		347		349
Front Range of CO		3,301	4.6	%	89.2	%	91.6	%		423		419
Jacksonville, FL		2,525	3.6	%	81.2	%	81.3	%		328		329
Kansas City—Lawrence—Topeka, MO—KS		2,436	3.4	%	88.9	%	89.3	%		277		274
Wichita, KS		2,315	3.3	%	65.5	%	69.7	%		283		282
St. Louis, MO—IL		2,159	3.0	%	82.1	%	87.6	%		286		326
Orlando, FL		1,996	2.8	%	87.1	%	81.3	%		328		288
Oklahoma City, OK		1,911	2.7	%	78.5	%	81.4	%		301		276
Greensboro—Winston Salem, NC		1,416	2.0	%	69.2	%	72.0	%		259		257
Davenport—Moline—Rock Island, IA—IL		1,410	2.0	%	84.7	%	84.5	%		262		258
Montgomery, AL		1,288	1.8	%	53.3	%	55.8	%		188		188
Charleston—North Charleston, SC		1,233	1.7	%	76.5	%	78.4	%		232		239
Elkhart—Goshen, IN		1,225	1.7	%	79.4	%	79.7	%		313		305
Inland Empire, CA		1,223	1.7	%	89.4	%	90.6	%		406		412
Nashville, TN		1,134	1.6	%	71.1	%	70.8	%		267		262
Southeast Florida		1,124	1.6	%	95.7	%	94.4	%		476		473
Raleigh—Durham—Chapel Hill, NC		1,095	1.5	%	81.4	%	85.1	%		324		321
Syracuse, NY		1,091	1.5	%	62.0	%	61.9	%		347		354

	Subtotal—Top 20 Markets	44,878	63.2	%	80.3	%	81.7	%		328		326
All Other Markets		26,180	36.8	%	78.3	%	77.1	%		295		298

	Total/Weighted Average	71,058	100.0	%	79.6	%	80.2	%	$	316	$	317

(a): Markets are defined by our management.
(b): Results of and for the quarter ended June 30, 2004 reflect acquisitions made during the quarter.
(c): Rental Income is defined as homeowner rental income, home renter rental income and other rental income reduced by move-in bonuses and rent concessions.
(d): For communities acquired during the quarter, weighted average all-in rent (homesite rent and home rent) was used as a proxy for "Rental Income Per Occupied Homesite Per Month".

Acquisitions & Dispositions

Acquisitions

Acquisition Date	Market	Number of Communities	Number of Homesites	Allocated Purchase Price		Debt Assumed		Cash		Fair Market Value of OP Units/shares
	($ in thousands)
02/18/04	Various(a)	90	26,406	$	615,270	$	92,434	$	522,836	$	0
02/26/04	Nashville, TN	2	401		7,400		0		7,400		0
06/18/04	Salt Lake City	2	243		5,456		0		5,456		0
06/30/04	Various(b)	36	3,573		61,500		28,358		0		33,142

Dispositions

Disposition Date		Market		Number of Communities		Number of Homesites		Gross Sales Price		Gain/(Loss) on Sale
None

(a): Reflects the initial purchase price allocation of the Hometown acquisition including the three Hometown communities closed on April 9, 2004.
(b): Reflects the initial purchase price allocation of the D.A.M. Portfolio purchase. Partnership Preferred Units valued at $25 par value times the number of units issued (300,000 Series B units, 705,688 Series C units and 320,000 Series D units). The Series D units were redeemed for cash on July 6, 2004. The remain units can be redeemed for cash at Par after the 5th anniversery of the the issuance date.

Hometown Acquisition Data

			06/30/04			03/31/04
# of Communities(a)				90			87
# of Homesites(a)				26,406			25,712
Total occupied homesites				19,921			19,555
	Occupancy %			75.4	%		76.1	%
	Homeowner occupied homesites			19,198			18,849
	Renter occupied homes			723			706

		Total occupied homesites		19,921			19,555
	Vacant homesites			6,485			6,157

		Total homesites		26,406			25,712

*% of Total Homesites*
	Homeowner occupied homesites			72.7	%		73.3	%
	Renter occupied homes			2.7	%		2.7	%
	Vacant homesites			24.6	%		23.9	%

		Total homesites		100.0	%		100.0	%

*% of Occupied Homesites*
	Homeowner occupied homesites			96.4	%		96.4	%
	Renter occupied homes			3.6	%		3.6	%

		Occupied homesites		100.0	%		100.0	%

Number of owned homes				1,466			1,487
	Renter occupied homes			723			706
	Non-revenue producing homes			743			781
Number of repossessed homes				416			478
	as a % of total homesites			1.6	%		1.9	%
	as a % of homeowner occupied homesites			2.2	%		2.5	%
*Financial Data*
	Bad debt as a % of total real estate revenue			1.1	%		NM
	Revenue contribution		$	19,558		$	7,645
	Expense contribution			8,298			2,722

		Net real estate segment income contribution	$	11,260		$	4,923

(a): First quarter does not reflect three communities acquired upon the completion of the loan assumption process on April 9, 2004.

Home Sales Data

			Three Months Ended 06/30/04		Three Months Ended 03/31/04
*Unit Data*
	New homes sold			13		15
	Used homes sold			115		12

		Total homes sales		128		27

*Other Data*
	Average all-in home sales price—new homes		$	26,622	$	28,700
	Average all-in home sales price—used homes			13,170		12,624
	Average all-in home sales price—total		$	14,536	$	21,555

Owned Home Data

			As of and for the three months ended
			6/30/2004			03/31/04			12/31/03
Renter occupied homes				6,139			6,103		4,908
Non-revenue producing homes				2,383			2,024		1,153

	Total home inventory			8,522			8,127		6,061

*Home Inventory Change Detail*
	Home inventory (BoP)			8,127			6,061		6,003
		Net Home purchases / (Sales)		395			2,066		58
	Home inventory (EoP)			8,522			8,127		6,061
	Renter occupied homes (BoP)			6,103			4,908		4,843
		Leasing activity, net (a)		36			1,195		65
	Renter occupied homes (EoP)			6,139			6,103		4,908
	Non-revenue producing (BoP)			2,024			1,153		1,160
		Home purchases/(sales + leased)		359			871		(7	)
	Non-revenue producing (EoP)			2,383			2,024		1,153
*Home Inventory Composition*
	New home inventory			22.3	%		21.5	%
	Used home inventory			77.7	%		78.5	%

		Total home inventory		100.0	%		100.0	%

		Average age—ARC homes		2.8	years		2.9	years
		Average age—HTA homes		5.6	years		6.5	years
		Average age—All homes		3.3	years		3.6	years
*Home Inventory Financial Data*
	Gross asset value including setup costs ($000's)		$	192,197		$	163,430
		Gross asset value per home		22,553			20,110
	Current asset value including setup costs ($000's)		$	168,793		$	143,789
		Current asset value per home		19,807			17,693
*Total Non-Revenue Producing Inventory*
	Available for rent or for sale			2,221			1,317
	In-transit/in-process			162			707

		Total non-revenue producing inventory		2,383			2,024
	Homes on order			600			377

(a): Period ended 3/31/04 includes occupied homes acquired in the Hometown acquisition.

Investor Inquiries

Common stock symbol:		ARC
Preferred stock symbol:		ARC Pr A
Exchange Traded:		NYSE

		Q2 2004		Q1 2004(a)
*Common Stock Dividend Information*
	Declaration date		06/17/04		03/10/04
	Record date		06/30/04		03/31/04
	Payment date		07/15/04		04/15/04
	Distributions per share	$	0.3125	$	0.1493
*Preferred Stock Dividend Information*
	Declaration date		06/17/04		03/10/04
	Record date		07/15/04		04/15/04
	Payment date		07/30/04		04/30/04
	Distributions per share	$	0.5156	$	0.4182

(a): Distributions reflect partial period.

Inquiries:

Affordable Residential Communities welcomes any questions or comments from our investors, prospective investors, analysts, investment managers or media professionals. Please direct all inquiries to one of the following contact points:

At our website:		www.aboutarc.com
By phone:		(866) 847-8931
By fax:		(303) 294-0121
By e-mail:		investor.relations@aboutarc.com
By mail:		Affordable Residential Communities Inc. Investor Relations Department 600 Grant Street Suite 900 Denver, CO 80203

Definitions of Non-GAAP Measures

Investors in and analysts following the real estate industry use funds from operations ("FFO"), net segment income, earnings before interest, taxes, depreciation and amortization ("EBITDA") and funds available for distribution ("FAD") as supplemental performance measures. While the we believe that net income (as defined by GAAP) is the most appropriate measure, we also believe that FFO, net segment income, EBITDA and FAD are widely used by and relevance to investors, analysts and lenders and are appropriate supplemental measures. FFO reflects the assumption that real estate values rise or fall with market conditions and principally adjusts for the effects of GAAP depreciation and amortization of real estate assets. Net segment income provides a measure of rental operations and excludes deductions for depreciation and amortization and non-property specific expenses such as general and administrative expenses. EBITDA provides a measure to evaluate our ability to incur and service debt and to fund dividends and other cash needs. FAD provides a measure to evaluate our ability to fund dividends. In addition, FFO, net segment income, EBITDA and FAD are commonly used in various ratios, pricing multiples/yields and returns and valuation calculations used to measure financial position, performance and value.

FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from sales of property, plus rental property depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures." Industry analysts consider FFO to be an appropriate supplemental measure of the operating performance of an equity REIT primarily because the computation of FFO excludes historical cost depreciation as an expense and thereby facilitates the comparison of REITs which have different cost bases in their assets. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time, whereas real estate values have instead historically risen or fallen based upon market conditions. FFO does not represent cash flow from operations as defined by GAAP and is a supplemental measure of performance that does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. In addition, FFO is not intended as a measure of a REIT's ability to meet debt principal repayments and other cash requirements, nor as a measure of working capital. Please see the Reconciliation of Net Income to Funds from Operations set forth above.

Net segment income is defined as income from real estate operations and other segments of the Company, less expenses for property operations, real estate taxes, cost of manufactured homes sold, and retail home sales, finance, insurance and other operations.

EBITDA is defined as net loss available to common stockholders adjusted to exclude preferred stock dividend expense, income from discontinued operations net of minority interest, minority interest, interest income, interest expense, depreciation and amortization and early termination of debt expenses. It is a measure of net segment income less property management, general and administrative expenses and IPO related costs.

FAD is defined as FFO less non-revenue producing, recurring capital expenditures and scheduled principal amortization of indebtedness.

FFO, net segment income, EBITDA and FAD do not represent cash generated from operating activities in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs, including the repayment of principal on indebtedness and payment of dividends and distributions. FFO, net segment income, EBITDA and FAD should not be considered as substitutes for net income (calculated in accordance with GAAP), as a measure of results of operations or cash flows (calculated in accordance with GAAP) as a measure of liquidity. FFO, net segment income, EBITDA and FAD as calculated by the Company may not be comparable to similarly titled, but differently calculated, measures of other REITs or to the definition of FFO published by NAREIT.

I-1

FFO, FAD and EBITDA Reconciliations

			Three Months Ended
			06/30/04			03/31/04			06/30/03
			($ in thousands, except per share data)
*Funds from operations ("FFO") and adjusted funds from operations*
Net income (loss) before preferred stock dividend and minority interest			$	(4,969	)	$	(36,800	)	$	(9,996	)
	Plus:	Depreciation and amortization		18,337			15,660			12,930
		Income (loss) from discontinued operations		—			—			93
		Depreciation from discontinued operations		—			—			111
	Less:	Amortization of loan origination fees		(855	)		(868	)		(955	)
		Depreciation expense on furniture, equipment and vehicles		(81	)		(369	)		(1,077	)
		Preferred stock dividend		(2,578	)		(1,232	)		—

FFO available to common stockholders and OP unitholders				9,854			(23,609	)		1,106
	Plus:	Restricted stock grants		—			10,070			—
		IPO related costs		—			4,417			—
		Early termination of debt		—			13,427			—

Adjusted FFO			$	9,854		$	4,305		$	1,106

*Funds available for distribution ("FAD") and adjusted FAD*
FFO available to common stockholders & OP unitholders			$	9,854		$	(23,609	)	$	1,106
	Less:	Recurring capital expenditures		(1,100	)		(520	)		(740	)
		Scheduled principal amortization of indebtedness		(2,200	)		(1,936	)		(3,273	)

FAD				6,554			(26,065	)		(2,907	)
	Plus:	Restricted stock grants		—			10,070			—
		IPO related costs		—			4,417			—
		Early termination of debt		—			13,427			—

Adjusted FAD			$	6,554		$	1,849		$	(2,907	)

*EBITDA and adjusted EBITDA*
Net loss available to common stockholders			$	(7,126	)	$	(34,969	)	$	(8,527	)
	Plus:	Preferred stock dividend		2,578			1,232			—
		Income from discontinued operations, net of minority interest		—			—			(80	)
		Minority interest		(421	)		(3,063	)		(1,389	)
		Interest income		(454	)		(388	)		(404	)
		Interest expense		12,981			14,684			14,630
		Depreciation and amortization		18,337			15,660			12,930
		Early termination of debt		—			13,427			—

EBITDA				25,895			6,583			17,160
	Plus:	Restricted stock grants		—			10,070			—
		IPO related costs		—			4,417			—

Adjusted EBITDA			$	25,895		$	21,070		$	17,160

I-2

Total Real Estate Net Segment Income Reconciliation

			2004						2003
			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
			($ in thousands)
Net segment income:
	Real estate		$	32,967		$	27,549		$	20,473		$	21,907		$	22,463		$	21,893
	Retail homes sales and finance			(362	)		(180	)		(381	)		(712	)		(340	)		(319	)
	Insurance			(706	)		(36	)		33			10			(4	)		94
	Corporate and other			(100	)		(75	)		174			57			103			81

				31,799			27,258			20,299			21,262			22,222			21,749
Other expenses:
	Property management			1,600			1,454			1,673			1,286			1,382			1,186
	General and administrative			4,304			14,804			5,113			3,672			3,680			4,369
	Initial public offering ("IPO") related costs			—			4,417			—			—			—			—
	Early terminiation of debt			—			13,427			—			—			—			—
	Depreciation and amortization			18,337			15,660			11,256			12,045			12,930			12,556
	Retail home sales asset impairment and other expense			—			—			—			1,385			—			—
	Interest expense			12,981			14,684			15,027			14,481			14,630			13,880

		Total other expenses		37,222			64,446			33,069			32,869			32,622			31,991

	Interest income			454			388			342			344			404			347

		Loss before allocation to mirority interest		(4,969	)		(36,800	)		(12,428	)		(11,263	)		(9,996	)		(9,895	)
	Minority interest			421			3,063			1,702			1,559			1,389			1,368

		Net loss from continuing operations		(4,548	)		(33,737	)		(10,726	)		(9,704	)		(8,607	)		(8,527	)
	Income from discontinued operations			—			—			—			46			93			146
	Gain on sale of discontinued operations			—			—			—			3,333			—			—
	Minority interest in discontinued operations			—			—			—			(468	)		(13	)		(20	)

		Net loss		(4,548	)		(33,737	)		(10,726	)		(6,793	)		(8,527	)		(8,401	)
	Preferred stock dividend			(2,578	)		(1,232	)		—			—			—			—

		Net loss available to common stockholders	$	(7,126	)	$	(34,969	)	$	(10,726	)	$	(6,793	)	$	(8,527	)	$	(8,401	)

I-3

Same Community Net Segment Income Reconciliation

			2004						2003
			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
			($ in thousands)
Net segment income:
	Real estate(a)		$	21,645		$	22,801		$	20,375		$	21,716		$	22,278		$	21,874
	Retail home sales and finance(b)			—			—			—			—			—			—
	Insurance			(36	)		(36	)		33			10			(4	)		94
	Corporate and other			(100	)		(75	)		174			57			103			81

				21,509			22,690			20,582			21,783			22,377			22,049
Other expenses:
	Property management			1,000			1,354(c	)		1,673			1,286			1,382			1,186
	General and administrative			4,275			4,689(d	)		5,120			3,671			3,680			4,369
	Initial public offering ("IPO") related costs			—			—			—			—			—			—
	Early termination of debt			—			—			—			—			—			—
	Depreciation and amortization(e)			12,480			12,916			11,114			12,079			12,606			12,543
	Retail home sales asset impairment and other expense			—			—			—			—			—			—
	Interest expense(f)			10,170			12,977			14,889			14,257			14,394			13,866

		Total other expenses		27,925			31,936			32,796			31,293			32,062			31,964

	Interest income(g)			357			300			309			344			404			347

		Loss before allocation to minority interest		(6,059	)		(8,946	)		(11,905	)		(9,166	)		(9,281	)		(9,568	)
	Minority interest(h)			338			720			1,630			1,269			1,290			1,323

		Net loss from continuing operations		(5,721	)		(8,226	)		(10,275	)		(7,897	)		(7,991	)		(8,245	)
	Income from discontinued operations			—			—			—			—			—			—
	Gain on sale of discontinued operations			—			—			—			—			—			—
	Minority interest in discontinued operations			—			—			—			—			—			—

		Net loss		(5,721	)		(8,226	)		(10,275	)		(7,897	)		(7,991	)		(8,245	)
	Preferred stock dividend			—			—			—			—			—			—

		Net loss available to common stockholders	$	(5,721	)	$	(8,226	)	$	(10,275	)	$	(7,897	)	$	(7,991	)	$	(8,245	)

(a): Same communities real estate net segment income excludes results of communities acquired in the Hometown and other acquisitions after January 1, 2003 and the community sold before June 30, 2004.
(b): Excludes segment results as a result of the restructuring in September 2003 in which we closed all stand-alone retail stores existing on January 1, 2003 at which time we had no significant in-community sales operations.
(c): Excludes additional property management expenses incurred in connection with the Hometown acquisition.
(d): Excludes restricted stock expenses of $10,115 recognized in connection with the IPO and vested in the three months ended June 30, 2004 and March 31, 2004.

I-4

(e): Excludes the following costs recognized in the Hometown and other acquisitions:

Depreciation of rental and other property and manufactured homes acquired	$	4,536	$	2,272	$	110	$	89	$	33	$	11
Amortization of lease intangibles and customer relationships acquired		1,321		472		14		4		4		2

	$	5,857	$	2,744	$	124	$	93	$	37	$	13

(f): Excludes the pro rata portion of interest expense on mortgage loans secured by properties acquired in the Hometown and other acquisitions as follows:

		$	2,811		$	1,707		$	75		$	87		$	72		$	14

(g): Excludes interest earned on additional cash received in connection with the IPO, the financing transaction and the Hometown acquisition
(h): Minority interest computed at the same rate as reflected in reported results.

I-5

QuickLinks

Item 12. Results of Operations and Financial Condition

Signatures
Second Quarter 2004 Earnings Release and Supplemental Operating and Financial Data
Table of Contents
Portfolio Map
Press Release Text
Financial Highlights
First Quarter Adjustments
Balance Sheet
Debt Analysis
Statement of Operations
Comprehensive Income
Segment Detail
Same Community Data
Same Community—Percentage Growth
Total Real Estate Segment
Capital Expenditure Summary
Manufactured Home Purchases
Top 20 Markets
Acquisitions & Dispositions
Hometown Acquisition Data
Home Sales Data
Owned Home Data
Investor Inquiries
Definitions of Non-GAAP Measures
FFO, FAD and EBITDA Reconciliations
Total Real Estate Net Segment Income Reconciliation
Same Community Net Segment Income Reconciliation