1340818--4/2/2007--Affordable_Residential_Communities

related topics

{operation, international, foreign}

{debt, indebtedness, cash}

{loss, insurance, financial}

{acquisition, growth, future}

{stock, price, operating}

{personnel, key, retain}

{tax, income, asset}

{stock, price, share}

{operation, natural, condition}

{cost, regulation, environmental}

{cost, operation, labor}

{system, service, information}

{investment, property, distribution}

{product, liability, claim}

{provision, law, control}

{condition, economic, financial}

{property, intellectual, protect}

{competitive, industry, competition}

{regulation, change, law}

{cost, contract, operation}

{gas, price, oil}

{control, financial, internal}

Risks Related to Our Properties and Operations Adverse economic or other conditions in the markets in which we do business, including our five largest markets of Dallas/Fort Worth, Texas; Atlanta, Georgia; Salt Lake City, Utah; the Front Range of Colorado; and Kansas City-Lawrence-Topeka, Kansas/Missouri, could negatively affect our occupancy and results of operations. The terms of our acquisition agreement with Hometown may cause us to incur additional costs and liabilities. The manufactured housing industry continues to face a challenging operating environment marked by a shortage of available financing for home purchases and a significant decrease in manufactured home shipments, which has put downward pressure on occupancy in manufactured home communities and may continue to do so. We have reported historical accounting losses on a consolidated basis since our inception, and we may continue to report accounting losses in the future. We may not be successful in identifying suitable acquisitions that meet our criteria or in completing such acquisitions and successfully integrating and operating acquired properties, which may impede our growth and negatively affect our results of operations. The availability of competing housing alternatives in our markets could negatively affect occupancy levels and rents in our communities, which could adversely affect our revenue and our results of operations. Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flow. Exposure to mold and contamination related claims that are problematic to insure against could adversely affect our results of operations. compliance costs and liabilities associated with operating our communities may affect our results of operations. Increases in taxes may reduce our income. Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents or dispose of our properties. Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses. We may incur significant costs complying with other regulations applicable to our business. Expansion of our existing communities entails certain risks which may negatively affect our operating results. Risks Related to the NLASCO Acquisition Our management has limited prior experience operating an insurance company like NLASCO and therefore may have difficulty in successfully and profitably operating NLASCO or complying with regulatory requirements applicable to insurance companies. We may fail to realize many of the anticipated potential benefits of the NLASCO acquisition. ARC s ability to use net operating loss carryovers to reduce future tax payments may be limited. The integration of NLASCO s information systems into our own may be more costly than we anticipate, may not be completed on time or the integrated systems may not function properly. We may need to incur significant costs to ensure that NLASCO is in compliance with SOX and even after making such expenditures, we may not be able to achieve compliance. If the acquisition s benefits do not meet the expectations of ARC s stockholders, the holders of the Notes or financial or industry analysts, the market price of ARC s common stock or the Notes may decline. We may experience difficulties in retaining NLASCO s current employees after the acquisition and during integration which could cause us to fail to realize the anticipated potential benefits of the acquisition. We may experience difficulties in retaining NLASCO s current agents after the acquisition which could cause us to fail to realize the anticipated potential benefits of the acquisition. Under the NLASCO Agreement, we are required to indemnify the Sellers against certain matters. Risks Related to NLASCO s Business and NLASCO s Industry The occurrence of severe catastrophic events may have a material adverse effect on NLASCO, particularly because NLASCO conducts business in a concentrated geographic area. NLASCO is exposed to claims related to severe weather and the occurrence of severe weather may result in an increase in claims frequency and exposure amount and could materially adversely affect its financial condition. Due to the inherent inability to accurately predict the severity and frequency of catastrophe losses, higher than expected catastrophe losses could materially adversely affect NLASCO s financial condition. If NLASCO cannot price its business accurately, its profitability and the profitability of its insurance companies could be materially adversely affected. If NLASCO s actual losses and loss adjustment expenses exceed its loss and expense estimates, its financial condition and results of operations could be materially adversely affected. If NLASCO cannot obtain adequate reinsurance protection for the risks it underwrites, NLASCO may be exposed to greater losses from these risks or may reduce the amount of business it underwrites, which may materially adversely affect its financial condition and results of operations. NLASCO could face unanticipated losses from war, terrorism and political unrest, and these or other unanticipated losses could have a material adverse effect on NLASCO s financial condition and results of operations. If NLASCO s reinsurers do not pay losses in a timely fashion, or at all, NLASCO may incur substantial losses that could materially adversely affect its financial condition and results of operations. NLASCO relies on independent insurance agents to distribute its products, and if the agents do not promote NLASCO s products successfully, NLASCO s results of operations and financial condition could be adversely affected. Because NLASCO relies on managing general agents, referred to as MGAs, to underwrite some of its products and to administer claims, such managing general agents could expose NLASCO to liability or allocate business away from NLASCO, which could cause NLASCO s financial condition and results of operations to be adversely affected. NLASCO s success depends in substantial part upon its key employees who have knowledge and experience in its target markets and lines of business. NLASCO s future growth depends on its ability to hire additional underwriting and marketing personnel. A decline in NLIC s and/or ASIC s financial strength ratings by A.M. Best could cause either of their sales or earnings, or both, to decrease. Our financial condition could have an adverse impact on NLIC s and ASIC s financial strength ratings. A decline in NLASCO s ratings coupled with a change of control could result in a default under one of its debt agreements. The failure of any of the loss limitation methods NLASCO employs could have a material adverse effect on its financial condition and results of operations. The effects of emerging claim and coverage issues on NLASCO s business are uncertain. Because NLASCO s main source of premiums written is in Texas, unfavorable changes in the economic and/or regulatory environment in that state may have a material adverse effect on its financial condition and results of operations. If NLASCO is unsuccessful in competing against other competitors in the insurance industry, its financial condition and results of operations could be adversely affected. NLASCO s investment performance may suffer as a result of adverse capital market developments or other factors, which may affect its financial results and ability to conduct business. NLASCO s investment results may be adversely affected by interest rate changes. The debt agreements of NLASCO and its controlled affiliates contain financial covenants and impose restrictions on its business. The regulatory system under which NLIC and ASIC operate, and potential changes to that system, could have a material adverse effect on their respective business activities. If the states in which NLIC and ASIC write insurance drastically increase the assessments that insurance companies are required to pay, their and NLASCO s financial condition and results of operations will suffer. NLASCO may be subject to high retaliatory taxes in several states as a result of its multistate operations, which could have a material adverse impact on its financial condition and results of operations. NLASCO s ability to meet ongoing cash requirements and pay dividends may be limited by its holding company structure and regulatory constraints. Current legal and regulatory activities, investigations, litigation proceedings or other activities relating to the insurance industry, including investigations into contingent commission arrangements and insurance quotes regarding NLIC and ASIC, could affect NLASCO s business, financial condition and results of operations. NLIC and ASIC are subject to periodic financial and market conduct examinations by state insurance departments. If these examinations identify significant findings or recommend significant changes to its operations, either insurance company could lose its licenses and/or its financial condition and results of operations could be affected. NLASCO relies on its information technology and telecommunications systems, and the failure or disruption of these systems could disrupt its operations and adversely affect its results of operations. Failures in NLASCO s electronic underwriting system could adversely affect its financial condition and results of operations. Failure to develop an adequate knowledge transfer or a succession plan for NLASCO s information technology personnel could adversely affect its financial condition and results of operations. Claims by third parties that NLASCO infringes their proprietary technology could adversely affect NLASCO s financial condition and results of operations. Acquisitions could result in operating difficulties, dilution and other harmful consequences. Applicable insurance laws may make it difficult to effect a change of control of NLASCO. Risks Related to Our Debt Financings We are subject to the risks normally associated with debt financing, including the risk that payments of principal and interest on borrowings may leave us with insufficient cash to operate our communities or pay distributions. We could become more highly leveraged because our organizational documents contain no limitation on the amount of debt we may incur. Increases in interest rates may increase our interest expense, which would adversely affect our cash flow, our ability to service our indebtedness and our ability to make distributions, any of which could adversely affect the trading price of ARC s common stock or the Notes. Failure to hedge effectively against interest rate changes may adversely affect our results of operations. Our growth depends on external sources of capital which are outside of our control. Risks Related to Organizational and Corporate Structure Our business could be harmed if key personnel terminate their employment with us. We may change our investment and financing strategies and enter into new lines of business without stockholder consent, which may result in riskier investments than our current investments. ARC s decision not to operate as a REIT could result in higher tax expenses. Conflicts of interest could arise as a result of ARC s relationship with us or our Partners. We may suffer adverse consequences if we expand or enter into new non-real estate business ventures. Our rights and the rights of ARC s stockholders to take action against ARC s directors and our officers are limited. ARC s ability to use net operating loss carryovers to reduce future tax payments may be limited. Risks Related to Ownership of the Senior Exchangeable Notes (the Notes ) The Notes are effectively subordinated to the Partnership s existing and future secured indebtedness. The Notes are effectively subordinated to liabilities of the Partnership s subsidiaries. There are no restrictive covenants in the indenture relating to the Partnership s ability to incur future indebtedness or complete other financing transactions. An adverse rating of the Notes may cause their trading price to fall. The failure of our results to meet the estimates of market analysis could adversely affect the trading price of the Notes and ARC s common stock. Risks Related to the Securities Markets and Ownership of ARC s Common Stock Additional issuances of equity securities and exchange of the Notes for ARC s common stock will dilute the ownership interest of ARC s existing stockholders, including former Note holders who had previously exchanged their Notes for shares of ARC common stock. ARC s common stock price may experience substantial volatility, which may affect your ability, following any exchange, to sell ARC s common stock at an advantageous price and could impact the market price, if any, of the Notes.

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1340818--4/2/2007--Affordable_Residential_Communities_LP