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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Commission File Number 1-31987

Affordable Residential Communities Inc.
(Exact name of registrant as specified in its charter)

(303) 291-0222
(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 o No ý

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

        The number of shares of the registrant's Common Stock outstanding at April 26, 2004 was 40,952,423 shares.

Table of Contents

AFFORDABLE RESIDENTIAL COMMUNITIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003
(dollars in thousands except per share data)
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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AFFORDABLE RESIDENTIAL COMMUNITIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 2004 AND 2003
(in thousands except per share data)
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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AFFORDABLE RESIDENTIAL COMMUNITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 and 2003
(dollars in thousands)
(unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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AFFORDABLE RESIDENTIAL COMMUNITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share and homesite data)

1.     Summary of Significant Accounting Policies

Business and Basis of Presentation

        Affordable Residential Communities Inc. (formerly known as ARC IV REIT, Inc.) is a Maryland corporation organized as a real estate investment trust for U.S. federal income tax purposes and is engaged in the acquisition, renovation, repositioning and operation of manufactured home communities, the rental of manufactured homes, the retail sale of manufactured homes and other related businesses. We were organized in July of 1998 and operate primarily through Affordable Residential Communities LP (the "Operating Partnership") and its subsidiaries of which we are the sole general partner and owned approximately 94% at March 31, 2004.

        On February 18, 2004, we completed our initial public offering ("IPO") of 22,250 shares of our common stock at $19.00 per share (excluding 2,259 shares sold by selling stockholders) and 5,000 shares of our preferred stock priced at $25.00 per share. The proceeds net of the underwriting discount to the company from our IPO of common stock and preferred stock were $517.5 million (before expenses). On March 17, 2004, we issued 792 shares of common stock pursuant to the underwriters' exercise of their over-allotment option generating net proceeds to the company of $14.0 million. In conjunction with the IPO, we also completed a financing transaction consisting of $500 million of new mortgage debt and the repayment of certain existing indebtedness. We also entered into a $125 million revolving credit facility and a $225 million four-year term consumer finance facility to finance the sale of homes to our residents. (See Note 6).

        With the proceeds from our IPO and the financing transaction, we acquired 87 manufactured home communities from Hometown America, L.L.C. ("Hometown"). We acquired an additional three communities on April 9, 2004 upon the completion of the mortgage debt loan assumption process. The 90 acquired communities are located in 24 states and total 26,406 homesites. The total purchase price for these communities and related assets is approximately $615.3 million including assumed indebtedness with a fair value of $92.4 million. (See Note 2).

        As of March 31, 2004, we owned 301 communities consisting of 66,548 homesites in 29 states (Alabama, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Missouri, Nebraska, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and Wyoming) with occupancy of 80.2%. Our five largest markets are Dallas-Fort Worth, Texas, with 11.1% of total homesites; Atlanta, Georgia, with 7.6% of total homesites; Salt Lake City, Utah, with 5.0% of total homesites; the Front Range of Colorado, with 5.0% of total homesites; and Jacksonville, Florida, with 3.8% of total homesites. We also conduct a retail home sales business.

        Our common stock is traded on the New York Stock Exchange under the symbol "ARC". Our Series A Cumulative Redeemable Preferred Stock is traded on the New York Stock Exchange under the symbol "ARCPRA". We have no public trading history prior to February 12, 2004.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America and in conformity with the rules and regulations of the Securities and Exchange Commission requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amount of revenues and expenses during the reporting period. Ultimate actual results may differ from previously estimated amounts.

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        In our opinion, the interim financial statements presented herein reflect all adjustments of a normal and recurring nature that are necessary to fairly present the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. These financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003.

        The accompanying consolidated financial statements include all of our accounts but include the results of operations of the manufactured home communities acquired from Hometown only for the periods subsequent to the completion of the transaction on February 18, 2004, and, for 11 of those communities, from the date subsequent to February 18, 2004 on which we closed the debt assumption. We have eliminated all significant intercompany balances and transactions.

        We have reclassified certain prior period amounts to conform to current year presentation.

Rental and Other Property

        Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the various classes of rental property assets are primarily as follows:

        We carry rental property at cost, less accumulated depreciation. We capitalize significant renovations and improvements that substantially improve asset quality and/or extend the useful life of assets and depreciate them over their estimated remaining useful lives. We expense maintenance and repairs as incurred.

        We evaluate the recoverability of our investment in rental property whenever events or changes in circumstances indicate that full asset recoverability is questionable. Our assessment of the recoverability of rental property includes, but is not limited to, recent operating results and expected net operating cash flows from future operations. In the event that facts and circumstances indicate that the carrying amounts of rental property may be impaired, we perform an evaluation of recoverability in which we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a writedown is required. If this review indicates that the asset's carrying amount will not be fully recoverable, we would reduce the carrying value of the assets to their estimated fair value. For the three months ended March 31, 2004 and 2003, no impairment conditions existed at any of our rental or other properties.

Restricted Stock Grants

        We have included a charge of $10,070 in general and administrative expense for the three months ended March 31, 2004 representing the value of the 530 common shares we granted at February 18, 2004 under our 2003 equity incentive plan that vested at the date of grant. In addition, we granted 95 common shares that vest over five years. We initially recorded the unvested portion of the 95 shares as unearned compensation on the balance sheet and will amortize them ratably over the vesting period. We valued the shares at $19.00 per share, the price at which we sold shares in the IPO.

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        We consider the number of vested shares issued under our 2003 equity incentive plan as common stock outstanding and include them in the denominator of our calculation of basic earnings per share. We consider the total number of restricted shares granted under our 2003 equity incentive plan in the denominator of our calculation of diluted earnings per share if they would be dilutive. We return shares forfeited during the periods to the 2003 equity incentive plan as shares eligible for future grants and adjust any compensation expense previously recognized on such shares in the period the forfeiture occurs.

Interest Capitalization

        We capitalize our interest costs (using our average cost of borrowings) and internal costs (using actual time spent and related costs) on development of long-lived assets from the date we begin substantive activities through the date we place such assets into service in accordance with Statement of Financial Accounting Standards ("SFAS") 34, Capitalization of Interest and SFAS 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, respectively. The long-lived assets on which we capitalize interest include purchases of general construction activities in our communities, manufactured homes, and, in the case of the communities acquired in the Hometown acquisition, the cost of the vacant homesites we acquired on which we are making improvements and placing a manufactured home for rent or sale.

Accumulated Other Comprehensive Expense

        Amounts recorded in accumulated other comprehensive expense represent losses on cash flow hedges which will be marked to market over the life of the debt being hedged.

2.     IPO and Hometown Acquisition

        On February 18, 2004, we completed our IPO of 22,250 shares of our common stock at $19.00 per share (excluding 2,259 shares sold by selling stockholders) and 5,000 shares of our preferred stock priced at $25.00 per share. The proceeds net of underwriting discount to the company from our IPO of common stock and preferred stock was $517.5 million before expenses. On March 17, 2004, we issued 792 shares of common stock pursuant to the underwriters' exercise of their over-allotment option generating net proceeds to the company of $14.0 million. Concurrent with the IPO we also completed the refinancing of $240 million of our mortgage debt and raised an additional $260 million of new mortgage debt. The new mortgage debt is comprised of $215.3 million of 10 year fixed rate debt at an interest cost of 5.53%, $100.7 million of 5 year fixed rate debt at an interest cost of 5.05% and $184.0 million of floating rate debt. We also entered into a $125 million revolving credit facility and a $225 million four year term consumer finance facility to finance the sale of homes to our residents. Proceeds from the IPO and new debt were used to purchase the Hometown communities, repay our Rental Home Credit Facility and to redeem the Preferred Interest issued by one of our subsidiaries. (See Note 6).

        On February 18, 2004 and subsequent dates thereafter, we acquired 87 manufactured home communities from Hometown. In addition, we acquired an additional three communities upon the completion of the mortgage debt loan assumption process subsequent to March 31, 2004 (See Note 14). The 90 acquired communities are located in 24 states and include 26,406 homesites. The total purchase price for all the communities we acquired is approximately $615,270 including assumed indebtedness

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with a fair value of $92,434. We will finalize our purchase price allocation when all acquisition costs are finalized.

(a)

Includes $499,689 paid during the quarter ended March 31, 2004.

        Our preliminary purchase price allocation is:

        We amortize the lease intangibles on a straight-line basis over the lease term (one year) and the customer relationships on a straight-line basis over the average life of a customer (five years). Accumulated amortization related to the Hometown intangibles acquired was $464 at March 31, 2004. Future amortization of the Hometown lease intangibles and customer relationship intangible assets is as follows:

        We assumed management of the Hometown communities prior to our completion of the Hometown acquisition pursuant to a management agreement. We hired all Hometown employees actively employed at the Hometown communities on January 1, 2004, with Hometown reimbursing us for the costs associated with such employment until we completed the acquisition.

        We have prepared the following unaudited pro forma income statement information as if the Hometown acquisition had occurred on January 1, 2003. The pro forma data is not necessarily

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indicative of the results that actually would have occurred if we had consummated the Hometown acquisition on January 1, 2003.

3.     Common Stock, Preferred Stock and Minority Interest Related Transactions

        We issued a total of 16,973 common shares and 2,726 OP Units in several transactions between September 1998 and December 31, 2003. On August 9, 2000, we issued warrants to certain shareholders authorizing the purchase of up to 704 shares of common stock at $20.77 per share that expire on July 23, 2010. To date, no warrants have been exercised.

        On January 23, 2004 our stockholders approved a reverse stock split by which all our stockholders received 0.519 shares of common stock for every share of common stock they owned. As a result, we have restated all historical share, warrant and per share data to give effect to this reverse stock split.

        On February 18, 2004, we completed our IPO of 22,250 shares of our common stock (excluding 2,259 shares sold by selling stockholders). In connection with our IPO, 315 OP Units were converted into common stock. On March 17, 2004, we issued 792 shares of common stock pursuant to the underwriters' exercise of their over-allotment option. At March 31, 2004, we had 40,952 shares of common stock outstanding.

        On March 10, 2004, we declared a quarterly dividend of $0.1493 per share of common stock prorated from February 18, 2004 to March 31, 2004. We paid the total common stock dividend of $6,464 on April 15, 2004 to shareholders of record on March 31, 2004. In addition, on March 10, 2004 we declared a dividend of $0.4182 on each share of our Series A Cumulative Redeemable Preferred Stock prorated from February 18, 2004 to April 30, 2004. We paid the preferred stock dividend of $2.091 on April 30, 2004 to shareholders of record on April 15, 2004. As of March 31, 2004, we had accrued $1,232 of the preferred stock dividend, representing the portion of dividend earned by preferred shareholders through that date.

        At March 31, 2004, minority interest consisted of 2,412 units of limited partnership interest of Affordable Residential Communities LP, our Operating Partnership, ("OP Units") that were issued to various limited partners. Each OP Unit issued is paired with 1.9268 shares of our special voting stock (each a "Paired Equity Unit") which allows each OP Unit to vote on matters as if it were a common

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share of our stock. Each OP Unit is redeemable for cash or at our election, one share of our common stock.

        As a result of our IPO and the conversion of 315 OP Units into common stock, we have recorded an equity transfer adjustment among stockholders' equity (additional paid-in capital) and minority interest in our Consolidated Balance Sheet to account for the change in the respective ownership in the underlying equity of the Operating Partnership.

        The following summarizes activity of the minority interest in the Operating Partnership:

4.     Rental and Other Property, Net

        The following summarizes rental and other property:

        Land improvements and buildings comprise primarily infrastructure, roads and common area amenities.

        We have capitalized interest of $544 in the cost of land improvements and buildings for the three months ended March 31, 2004.

5.     Acquisitions

        During the three months ended March 31, 2004 and 2003, in addition to the Hometown acquisition, we acquired two and one manufactured home communities, respectively, from unaffiliated third parties for approximately $7,400 in cash in 2004, and $2,266 in cash and $2,184 in assumed debt in 2003. We have accounted for the acquisitions utilizing the purchase method of accounting and, accordingly, we have allocated the purchase price to the assets acquired and liabilities assumed based on estimated fair values at the date of acquisition. We allocated the majority of the purchase price to the rental property and intangible assets, including customer relationships and in-place leases.

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        The table below summarizes our manufactured home community acquisitions for the period January 2003 through March 2004:

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        During the three months ended March 31, 2004 and 2003, we also acquired 1,172 and 175 manufactured homes from unaffiliated third parties for $18,001 and $2,011, respectively, including related setup costs.

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6.     Notes Payable

        The following table sets forth certain information regarding our debt:

        The fair value of debt outstanding as of March 31, 2004 was approximately $974,900.

Senior Fixed Rate Mortgage Due 2012

        We entered into the Senior Fixed Rate Mortgage on May 2, 2002. It is an obligation of certain of our special purpose real property subsidiaries and is collateralized by 105 manufactured home communities. The Senior Fixed Rate Mortgage bears interest at a fixed rate of 7.35% per annum, amortizes over 30 years and matures on May 1, 2012. Pursuant to the terms of the Senior Fixed Rate Mortgage, we have established reserves relating to the mortgaged properties for real estate taxes, insurance, capital spending (included in loan reserves) and property operating expenditures (included in cash and cash equivalents). The Senior Fixed Rate Mortgage contains customary defeasance-based prepayment penalties for repayments made prior to maturity.

Senior Fixed Rate Mortgage Due 2014

        We entered into the Senior Fixed Rate Mortgage due 2014 on February 18, 2004, in connection with the completion of our IPO, the financing transaction and the Hometown acquisition. The lenders adjusted the mortgage facility amount prior to completing their secondary market transactions. The mortgage facility is an obligation of certain real property subsidiaries of our operating partnership and is collateralized by 46 manufactured home communities owned by these subsidiaries. The Senior Fixed Rate Mortgage due 2014 bears interest at a fixed rate of 5.53%, will amortize based on a 30-year schedule and will mature on March 1, 2014. Pursuant to the terms of the new senior fixed rate mortgage due 2014, we have established reserves relating to the mortgaged properties for real estate taxes, insurance, capital spending and property operating expenditures. The Senior Fixed Rate

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Mortgage due 2014 contains customary defeasance-based prepayment penalties for repayments made prior to maturity.

Senior Fixed Rate Mortgage Due 2009

        We entered into the Senior Fixed Rate Mortgage due 2009 of $100,676 on February 18, 2004, in connection with the completion of our IPO, the financing transaction and the Hometown acquisition. The lenders adjusted the mortgage facility amount prior to completing their secondary market transactions. The mortgage facility is an obligation of certain real property subsidiaries of our operating partnership and is collateralized by 29 manufactured home communities owned by these subsidiaries. The Senior Fixed Rate Mortgage due 2009 bears interest at a fixed rate of 5.05%, will be amortized based on a 30-year amortization schedule and will mature on March 1, 2009. Pursuant to the terms of the Senior Fixed Rate Mortgage due 2009, we have established reserves relating to the mortgaged properties for real estate taxes, insurance, capital spending and property operating expenditures. The Senior Fixed Rate Mortgage due 2009 contains customary defeasance-based prepayment penalties for repayments made prior to maturity.

Senior Variable Rate Mortgage Due 2006

        We entered into the Senior Variable Rate Mortgage due 2006 of $184,011 on February 18, 2004, in connection with the completion of our IPO, the financing transaction and the Hometown acquisition. This mortgage facility is an obligation of certain real property subsidiaries of our operating partnership and is collateralized by 44 manufactured home communities owned by these subsidiaries. The Senior Variable Rate Mortgage bears interest at a variable rate based upon a spread of 3.00% over the one-month LIBOR rate (4.09% at March 31, 2004) and will mature in February 2006. At our option and subject to certain conditions, we may extend the Senior Variable Rate Mortgage for three additional 12-month periods. In connection with the second and third extensions, we would be required to pay extension fees of 0.25% and 0.375%, respectively, of the principal balance outstanding. We purchased interest rate caps to limit our interest costs in the event of increases in one-month LIBOR above 5.00%, and will also purchase such caps for any extensions. We will incur an exit fee equal to 0.50% of the loan amount payable upon any repayment of the principal amount of the loan. The exit fee will be subject to reduction by an amount equal to 0.50% of the principal amount of any first mortgage loans provided by the lenders to refinance the Senior Variable Rate Mortgage due 2006. Pursuant to the terms of the Senior Variable Rate Mortgage, we have established reserves relating to the mortgaged properties for real estate taxes, insurance, capital spending and property operating expenditures. We may repay the Senior Variable Rate Mortgage subject to payment of a LIBOR based yield maintenance prepayment penalty of the product of 0.25%, the number of payment dates remaining to maturity and the amount being repaid for prepayments made in months one through twelve and a prepayment fee of 1% for prepayments made in months 13 to 24.

Senior Variable Rate Mortgage Due 2005

        We entered into the Senior Variable Rate Mortgage on May 2, 2002. It was an obligation of one of our subsidiaries and was collateralized by 71 manufactured home communities. The floating rate debt bore interest at a variable rate calculated as the one-month LIBOR rate plus 2.85% (3.94% as of March 31, 2004), amortizes over 30 years and would have matured on May 2, 2005.

        On February 18, 2004, concurrent with our IPO, we repaid the Senior Variable Rate Mortgage in full and incurred $1,906 in debt extinguishment costs, included in early termination of debt.

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BFND Credit Facility

        One of our subsidiaries, ARC4BFND, L.L.C., entered into a $150 million credit facility on November 14, 2000, (the "BFND Credit Facility"). Proceeds from the BFND Credit Facility were available for community acquisitions and anticipated capital expenditures with advances up to 70% of the purchase price and related costs.

        On February 18, 2004, concurrent with our IPO, we repaid the BFND Credit Facility in full and incurred $786 in debt extinguishment costs, included in early termination of debt.

Senior Revolving Credit Facility

        We entered into the senior revolving credit facility on February 18, 2004, that has a total commitment of $125 million, and an initial term of three years. No amounts are outstanding at March 31, 2004. The facility is an obligation of our Operating Partnership, is secured by 40 communities owned by a real property subsidiary of our Operating Partnership, our rental homes, and certain other assets, and borrowings under the facility are limited by specified borrowing base requirements related to the value of the assets securing the facility. The interest rate on borrowings under the facility is variable and will be determined at the time the advance is made, at a spread of between 1.375% and 2.50% over the then-current base rate of Citibank, N.A. or a spread of between 2.375% and 3.50% over then-current LIBOR, with the actual spread being determined within the specified range based upon the borrower's then-current leverage ratio. The facility contains customary affirmative and negative covenants, including covenants imposing limitations on the ability of the borrower and the company to make distributions to OP unit holders and stockholders if certain cash flow, leverage and debt service coverage requirements are not met.

Retail Home Sales and Consumer Finance Debt Facility

        We entered into the retail home sales and consumer finance debt facility on February 18, 2004, that has a total commitment of $225 million and a term of four years. This facility is an obligation of a subsidiary of our Operating Partnership and will be secured by manufactured housing conditional sales contracts. Advances under the facility are limited by specified borrowing base requirements related to the value of the collateral securing the facility. The facility bears interest at a variable rate based upon a spread of 3.00% over the one-month LIBOR rate (4.09% at March 31, 2004). This facility will include customary affirmative and negative covenants, including minimum GAAP tangible net worth and maximum leverage covenants. Upon the initial drawing under this facility, we will pay a commitment fee of 1.00% on the committed amount and additional annual commitment fees payable on each anniversary of the closing. Advances under the facility will be subject to a number of conditions, including certain underwriting and credit screening guidelines and the conditions that the home must be located in one of our communities, the loan term may not exceed 12 years for a single-section home or 15 years for a multi-section home and the loan amount shall not exceed 90% of the value of the home securing the conditional sales contract.

        The availability of advances under the retail home sales and consumer finance debt facility is subject to certain conditions that are beyond our control. Conditions that could result in our inability to draw on these facilities include a downgrade in the credit rating of the lender and the absence of certain markets for financing debt obligations secured by securities or mortgage loans. Funding under this facility may also be denied if the lender determines that the value of the assets serving as collateral would be insufficient to maintain the required 75% loan-to-value ratio upon giving effect to a request for funding. The lender can also at any time require that we prepay amounts funded or provide additional collateral if in its judgment this is necessary to maintain the 75% loan-to-value ratio.

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Preferred Interest

        The Preferred Interest was an obligation of ARC Real Estate Holdings, LLC ("ARC RE"), an indirect subsidiary of our Operating Partnership formed for the purpose of issuing the Preferred Interest and owning, indirectly, our real estate subsidiaries and certain other assets. We entered into the Preferred Interest on May 2, 2002. The Preferred Interest had a preferred distribution rate of 12.5% per annum. On October 17, 2003, we modified our Preferred Interest to increase our borrowing limit by $25,000 with a preferred distribution rate of 14.0% to apply to all outstanding balances beginning on the date of the first draw of the additional loan amount.

        On February 18, 2004, concurrent with our IPO, we repaid the Preferred Interest obligation in full and incurred $3,400 in extinguishment costs, included in early termination of debt.

Rental Home Credit Facility

        On December 31, 2002, ARC Housing, L.L.C., a subsidiary of ARC RE, entered into a $27,000 credit facility collateralized by rental homes (the "Rental Home Credit Facility"). Proceeds from the Rental Unit Credit Facility were available for acquisitions of rental homes and related capital expenditures. The Rental Unit Credit Facility matured on February 1, 2010, bore interest at one-month LIBOR plus 4.7% (approximately 5.82% at December 31, 2003), required level monthly principal and interest payments of $421 beginning February 1, 2003, and was secured by 3,339 rental homes. The principal amount of the note amortized over seven years at a stated interest rate of 8.0%. We fully funded the Rental Home Credit Facility on January 3, 2003.

        On February 18, 2004, concurrent with our IPO, we repaid the Rental Home Credit Facility in full and incurred $235 in debt extinguishment costs, included in early termination of debt.

Floorplan Lines of Credit

        Through our retail home sales subsidiary, we have two lines of credit that provide borrowings secured by manufactured homes in inventory. Repayment is due upon sale of the related manufactured home. They bear interest that ranges from the prime rate plus 1.90% to the prime rate plus 3.75% (5.90% to 7.75% at March 31, 2004). Curtailment payments are required for unsold homes beginning on the 121+ day to 571+ day range depending on the type of home being financed. The required payment is generally 3% of the home's original invoice and is paid monthly. Either party may terminate the floorplan lines of credit upon 30 days written notice. All of our existing new inventory is collateral for the floor plan line of credit.

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7.     Loss per share

        The following reflects the calculation of loss per share on a basic and diluted basis:

        We have excluded warrants and unvested restricted shares from diluted loss per share as they would be antidilutive.

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8.     Property Operations Expense

        During the three months ended March 31, 2004 and 2003, we incurred property operations expenses as follows:

9.     Retail Home Sales, Finance, Insurance and Other Operations Expenses

        During the three months ended March 31, 2004 and 2003, we incurred retail home sales, finance, insurance and other operations expenses as follows:

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10.   General and Administrative Expenses

        During the three months ended March 31, 2004 and 2003, we incurred general and administrative expenses as follows:

(a)

Includes $10,070 incurred in conjunction with the IPO in which we granted 530 shares of restricted stock that vested immediately. (See Note 1).

11.   Discontinued Operations

        In September 2003, we sold our Sunrise Mesa Community located in Apache Junction, Arizona for $15,000 and recorded a gain of $3,333 after giving effect to net assets sold of $11,546 and closing costs of $121. In connection with the sale, we repaid $10,259 of our senior variable rate mortgage indebtedness due 2005 related to this community. We have included in discontinued operations $461 of revenue for the three months ended March 31, 2003 previously included in revenue for the real estate segment.

12.   Commitments and Contingencies

        In the normal course of business, from time to time we are involved in legal actions relating to the ownership and operations of our properties. In our opinion, the liabilities, if any, that may ultimately result from such legal actions will not have a material adverse effect on our financial position or our results of operations or liquidity.

13.   Segment Information

        We operate in three business segments—real estate, retail home sales and finance, and insurance. A summary of our business segments is shown below.

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