Affordable Residential Communities: Lose Farallon, Enjoy Subprime Ride - Barron's

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Trashed at the Trailer Park by Tom Sullivan

Summary: Affordable Residential Communities' (NYSE:ARC) April announcement that Farallon Capital will buy its manufactured home business for $540m-$545 million, or $9.35-$9.40/share plus debt, while ARC retains Nlasco, its mobile-home insurance business worth $2-$2.50/share, sent shares down to yearly lows of $11.45 recently. True, ARC's widening Q1'07 losses of $6.39m, or $0.17/share vs. Q1'06's $4.48m or $0.32/share losses follow five years of losses (S&P projects a $0.66/share loss for 2007.) But bulls say as subprime loans put homeowners into traditional homes, the subprime crisis' stricter lending fallout is putting them back in trailers. Manufactured housing expert George Allen says 1) trailers are nicer and larger than ever, while trailer parks have more amenities like swimming pools. 2) Few new trailer parks are being built and it's hard to get accepted to existing ones. 3) Moneymakers: Parks are cheap to maintain and operate, especially larger ones. 4) ARC owns, operates and upgrades 57,264 trailer parks in 23 states-- 22 million+ Americans live in trailers. ARC revenues spiked 38% in Q1 to $83m as rents and occupancy rose alongside cash flow (from $28.6m-$30.4m). Bulls say ARC deserves 50% more than Farallon, which owns 25% of shares, is offering. Barron's Bottom Line: Investors shouldn't take the offer. Shares could reach $15.

ARC 1-yr. chart:

ARC Investment

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