ACPT Form 10-K 12/31/2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
/X/
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2006
OR
|
/
/
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
FOR
THE TRANSITION PERIOD FROM _______________ TO
_________________
|
Commission
file number 1-14369
AMERICAN
COMMUNITY PROPERTIES TRUST
(Exact
name of registrant as specified in its charter)
MARYLAND
(State
or other jurisdiction of incorporation or organization)
|
52-2058165
(I.R.S.
Employer Identification No.)
|
222
Smallwood Village Center
St.
Charles, Maryland 20602
(Address
of principal executive offices)(Zip Code)
(301)
843-8600
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
TITLE
OF EACH CLASS
Common
Shares, $.01 par value
|
NAME
OF EACH EXCHANGE ON WHICH REGISTERED
American
Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Exchange Act. Yes
/
/ No
/x/
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange
Act. Yes
/
/ No
/x/
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 report(s)), and (2) has been subject to such filing requirements
for the past 90 days. Yes
/x/ No
/
/
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. / /
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer / / Accelerated
filer / / Non-accelerated
filer /x/
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act). Yes /
/ No /x/
As
of
June 30, 2006 the aggregate market value of the common shares held by
non-affiliates of the registrant, based on the closing price reported on the
American Stock Exchange on that day of $20.00, was $49,544,540 As of March
1,
2007, there were 5,229,954 common shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement of American Community Properties Trust to be filed with
the Securities and Exchange Commission with respect to the 2007 Annual Meeting
of Shareholders, to be held on June 6, 2007, are incorporated by reference
into
Part III of this report.
AMERICAN
COMMUNITY PROPERTIES TRUST
2006
Form 10-K Annual Report
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Page
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PART
I
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4
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18
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22
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22
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22
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23
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24
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PART
II
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25
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27
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28
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50
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51
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90
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90
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90
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PART
III
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91
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91
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91
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91
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92
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PART
IV
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92
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95
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PART
I
References
to "we," "us," "our" or the "Company" refer to American Community Properties
Trust and our business and operations conducted through our
subsidiaries.
GENERAL
On
March
17, 1997, American Community Properties Trust ("ACPT" or the "Company"), a
wholly owned subsidiary of Interstate General Company L.P. ("IGC" or
"Predecessor"), was formed as a real estate investment trust under Article
8 of
the Maryland Corporation Associations Code (the "Maryland Trust Law"). ACPT
was
formed to succeed to most of IGC's real estate assets.
On
October 5, 1998, IGC transferred to ACPT the common shares of four subsidiaries
that collectively comprised the principal real estate operations and assets
of
IGC. In exchange, ACPT issued to IGC 5,207,954 common shares of ACPT, all of
which were distributed to the partners of IGC.
ACPT
is a
self-managed holding company that is primarily engaged in the investment of
rental properties, property management services, community development and
homebuilding. These operations are concentrated in the Washington, D.C.
metropolitan area and Puerto Rico and are carried out through American Rental
Properties Trust ("ARPT"), American Rental Management Company ("ARMC "),
American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group")
and their subsidiaries.
ACPT
is
taxed as a U.S. partnership and its taxable income flows through to its
shareholders. ACPT is subject to Puerto Rico taxes on IGP Group’s taxable
income, generating foreign tax credits that have been passed through to ACPT’s
shareholders. A new federal tax regulation has been proposed that will
eliminate the pass through of these foreign tax credits to ACPT’s shareholders.
This regulation is expected to become effective in 2007. ACPT’s federal taxable
income consists of certain passive income from IGP Group, a controlled foreign
corporation, additional distributions from IGP Group including Puerto Rico
taxes
paid on behalf of ACPT, and dividends from ACPT’s U.S. subsidiaries. Other
than Interstate Commercial Properties (“ICP”), which is taxed as a Puerto Rico
corporation, the taxable income from the remaining Puerto Rico operating
entities passes through to IGP Group or ALD. Of this taxable income, only
the portion of taxable income applicable to the profits, losses or gains on
the
residential land sold in Parque Escorial passes through to ALD. ALD, ARMC,
and ARPT are taxed as U.S. corporations. The taxable income from the U.S.
multifamily rental properties flows through to ARPT.
ARPT
ARPT
holds partnership interests in 21 multifamily rental properties ("U.S. Apartment
Properties") indirectly through American Housing Properties L.P. ("AHP"), a
Delaware limited partnership, in which ARPT has a 99% limited partner interest
and American Housing Management Company, a wholly owned subsidiary of ARPT,
has
a 1% general partner interest.
ARMC
ARMC
performs property management services in the United States for the U.S.
Apartment Properties and for other rental apartments not owned by
ACPT.
ALD
ALD
owns
and operates the assets of ACPT's United States community development
operations. These include the following:
1. |
a
100% interest in St. Charles Community LLC ("SCC LLC") which holds
approximately 4,000 acres of land in St. Charles, Maryland;
|
2. |
the
Class B interest in Interstate General Properties Limited Partnership
S.E., a Maryland limited partnership ("IGP"), that represents IGP's
rights
to income, gains and losses associated with land in Puerto Rico held
by
Land Development Associates, S.E. ("LDA"), a wholly owned subsidiary
of
IGP, and designated for development as saleable property;
and
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3. |
a
50% interest, through SCC LLC, in a land development joint venture,
St.
Charles Active Adult Community, LLC (“AAC”).
|
IGP
Group
IGP
Group
owns and operates the assets of ACPT's Puerto Rico division indirectly through
a
99% limited partnership interest and 1% general partner interest in IGP
excluding the Class B IGP interest transferred to ALD. IGP's assets and
operations include:
1. |
a
100% partnership interest in LDA, a Puerto Rico special partnership
which
holds 120 acres of land in the planned community of Parque Escorial
and
490 acres of land in Canovanas;
|
2. |
general
partner interests in 9 multifamily rental properties (“Puerto Rico
Apartment Properties”), and a limited partner interest in 1 of the 9
partnerships;
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3. |
a
100% ownership interest in Escorial Office Building I, Inc. (“EOBI”),
through LDA and IGP, a Puerto Rico corporation that holds the operations
of a three-story, 56,000 square foot office
building;
|
4. |
a
100% ownership interest in ICP, an entity that holds the partnership
interest in El Monte Properties S.E.
(“EMP”);
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5. |
a
limited partnership interest in ELI, S.E. ("ELI"), that holds a 45.26%
share in the future cash flow generated from a 30-year lease of an
office
building to the State Insurance Fund of the Government of Puerto
Rico; and
|
6. |
an
indirect 100% ownership interest, through LDA and IGP, in Torres
del
Escorial, Inc. ("Torres"), a Puerto Rico corporation organized to
build
160 condominium units.
|
ACPT
has
two reportable segments: U.S. operations and Puerto Rico operations. The
Company's chief decision-makers allocate resources and evaluate the Company's
performance based on these two segments. The U.S. segment is comprised of
different components grouped by product type or service, to include: investments
in rental properties, community development and property management services.
The Puerto Rico segment entails the following components: investment in rental
properties, community development, homebuilding and property management
services. Set forth below is a brief description of these businesses
within each of our segments.
U.S.
SEGMENT:
INVESTMENT
IN RENTAL PROPERTIES
Multifamily
Rental Properties
ACPT,
indirectly through ARPT and AHP, holds interests in 21 U.S. Apartment Properties
that own and operate apartment facilities in Maryland and Virginia. The U.S.
Apartment Properties include a total of 3,366 rental units. Each of the U.S.
Apartment Properties is financed by a non-recourse mortgage whereby the owners
are not jointly and severally liable for the debt. The U.S. Department of
Housing and Urban Development ("HUD") provides rent subsidies to the projects
for residents of 973 apartment units. In addition, 110 units are leased pursuant
to HUD's Low Income Housing Tax Credit ("LIHTC") program, and 139 other units
are leased under income guidelines set by the Maryland Community Development
Administration. The remaining 2,144 units are leased at market
rates.
The
Company continues to believe that its investments in suburban multifamily rental
properties will provide long-term value. First, we believe the continuing threat
of rising interest rates and increased home prices have priced some potential
first time homebuyers out of the home ownership market. Coupled with the
decrease of the average suburban multifamily capitalization rate to 6.44% as
compared to 6.74% in 2005(1),
we
believe the values of our multifamily rental properties have
increased.
New
Multifamily Rental Property Construction
In
the
fourth quarter of 2005, we broke ground on our newest addition to our
multifamily rental properties in St. Charles' Fairway Village, the Sheffield
Greens Apartments, and began leasing efforts in the first quarter of 2006.
The
252-unit apartment project consists of nine, 3-story buildings and offers 1
and
2 bedroom units ranging in size from 800 to 1,400 square feet. The first five
buildings became available for occupancy in the fourth quarter of 2006. As
of
December 31, 2006, 39% of the total units were leased. The Company completed
the
construction of the remaining buildings in January 2007.
(1)
Per
Integra Realty Resources “IRR” Viewpoint 2007, “Real Estate Value
Trends”
Multifamily
Rental Property Acquisitions
On
April
28, 2006, AHP completed its acquisition of two apartment properties in
Baltimore, Maryland containing a total of 250 units for a purchase price of
$14,300,000. These properties are held in two wholly owned limited liability
companies, Milford Station I, LLC and Milford Station II, LLC, and offer market
rate, garden style apartments.
We
are
actively seeking additions to our rental property portfolio. We are currently
pursuing various opportunities to purchase apartment properties in the Baltimore
and Washington, D.C. areas; however, we cannot give any assurance that we will
be able to make acquisitions on favorable terms or at all.
The
table
below sets forth the name of each entity owning U.S. Apartment Properties;
the
number of rental units in the property; the percentage of all units held by
U.S.
Apartment Properties; the project cost; the percentage of such units under
lease; and the expiration date and maximum benefit for any subsidy
contract:
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Expira-
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No.
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12/31/2006
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tion
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of
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of
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Project
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Occupancy
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of
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Maximum
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Apt.
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Port-
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Cost
(C)
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at
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Subsidy
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Subsidy
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Units
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folio
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(in
thousands)
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12/31/2006
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Contract
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(in
thousands)
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Consolidated
Partnerships
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Bannister
Associates Limited Partnership
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167
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5
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%
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$
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9,819
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92
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%
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N/A
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$
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-
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41
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1
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%
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2008
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508
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Coachman's,
LLC
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104
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3
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%
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7,321
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96
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%
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N/A
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-
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Crossland
Associates Limited Partnership
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96
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3
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%
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3,321
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95
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%
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N/A
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-
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Essex
Apartments Associates
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Limited
Partnership
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496
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15
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%
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20,592
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95
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%
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2007
|
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4,369
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Fox
Chase Apartments, LLC
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176
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5
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%
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8,560
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97
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%
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N/A
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(A
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)
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Headen
House Associates Limited Partnership
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136
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4
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%
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8,395
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99
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%
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2007
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1,598
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Huntington
Associates Limited Partnership
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204
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6
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%
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10,078
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99
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%
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2007
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2,352
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Lancaster
Apartment Limited Partnership
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104
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3
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%
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5,862
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88
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%
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N/A
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(A
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)
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Milford
Station I, LLC
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200
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6
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%
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13,050
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98
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%
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N/A
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-
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Milford
Station II, LLC
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50
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1
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%
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1,836
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94
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%
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N/A
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-
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New
Forest Apartments, LLC
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256
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8
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%
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14,907
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88
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%
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N/A
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(A
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)
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Nottingham
South, LLC
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85
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3
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%
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3,013
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93
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%
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N/A
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-
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Owings
Chase, LLC
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234
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7
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%
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15,535
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97
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%
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N/A
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-
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Palmer
Apartments Associates
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96
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3
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%
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8,961
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97
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%
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N/A
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-
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Limited
Partnership
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56
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2
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%
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2008
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688
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Prescott
Square, LLC
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73
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2
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%
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4,562
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95
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%
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N/A
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-
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Sheffield
Greens Apartments, LLC (D)
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252
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7
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%
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25,262
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39
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%
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N/A
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-
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Village
Lake Apartments, LLC
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122
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3
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%
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7,953
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95
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%
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N/A
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-
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Wakefield
Terrace Associates
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164
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5
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%
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11,138
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97
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%
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N/A
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-
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Limited
Partnership
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40
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1
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%
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2007
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395
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Wakefield
Third Age Associates Limited Partnership
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104
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3
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%
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5,549
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93
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%
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N/A
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-
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3,256
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96
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%
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185,714
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9,910
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Unconsolidated
Partnerships
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Brookside
Gardens Limited Partnership
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56
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2
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%
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2,700
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98
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%
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N/A
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(B
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)
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Lakeside
Apartments Limited Partnership
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54
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2
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%
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4,124
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98
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%
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N/A
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(B
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)
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110
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4
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%
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6,824
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|
|
|
|
|
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3,366
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|
100
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%
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$
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192,538
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$
|
9,910
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(A) |
Not
subsidized, however, certain units are subject to household income
restrictions set by the Maryland Community Development Administration
(“MCDA”).
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(B) |
Not
subsidized, but all units are set aside for low to moderate income
tenants
over certain age limitations under provisions set by the LIHTC
program.
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(C) |
Project
costs represent total capitalized costs for each respective property
as
per Schedule III "Real Estate and Accumulated Depreciation" in Item
8 of
this 10-K.
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(D) |
Apartment
property under construction. As of December 31, 2006 161 units of
the 252
unit property were available with 75 of those available unit occupied.
Construction was completed on January 31,
2007.
|
The
table
below sets forth the operating results, mortgage balances and our economic
interest in the U.S. Apartment Properties by location ($ amounts in thousands,
all other figures are actual):
U.S.
APARTMENT PROPERTIES
|
NO.
OF UNITS
|
OPERATING
REVENUE
|
OPERATING
EXPENSES
|
NON-RECOURSE
MORTGAGE OUTSTANDING
|
ECONOMIC
INTEREST UPON LIQUIDATION (a)
|
|
Consolidated
Partnerships
|
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Charles
County, Maryland
|
|
|
|
|
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Bannister
Associates LP
|
208
|
$
2,579
|
$
983
|
$
12,692
|
100.0%
|
|
Coachman's,
LLC
|
104
|
1,656
|
629
|
5,313
|
95.0%
|
|
Crossland
Associates LP
|
96
|
1,145
|
531
|
4,146
|
60.0%
|
|
Fox
Chase Apartments, LLC
|
176
|
2,202
|
824
|
12,987
|
99.9%
|
|
Headen
House Associates LP
|
136
|
1,569
|
599
|
6,994
|
75.5%
|
|
Huntington
Associates LP
|
204
|
2,324
|
1,293
|
9,326
|
50.0%
|
|
Lancaster
Apartments LP
|
104
|
1,492
|
611
|
8,622
|
100.0%
|
|
New
Forest Apartments, LLC
|
256
|
3,852
|
1,456
|
22,977
|
99.9%
|
|
Palmer
Apartments Associates LP
|
152
|
1,843
|
716
|
6,838
|
75.5%
|
|
Sheffield
Greens Apartments, LLC
|
252
|
200
|
291
|
22,351
|
100.0%
|
|
Village
Lake Apartments, LLC
|
122
|
1,505
|
633
|
6,402
|
95.0%
|
|
Wakefield
Terrace Associates LP
|
204
|
1,746
|
1,013
|
10,179
|
75.5%
|
|
Wakefield
Third Age Associates LP
|
104
|
1,260
|
517
|
7,405
|
75.5%
|
|
|
|
|
|
|
|
|
Baltimore
County, Maryland
|
|
|
|
|
|
|
Milford
Station I, LLC
|
200
|
1,114
|
671
|
10,491
|
100.0%
|
|
Milford
Station II, LLC
|
50
|
223
|
185
|
1,345
|
100.0%
|
|
Nottingham
South, LLC
|
85
|
605
|
405
|
2,560
|
100.0%
|
|
Owings
Chase, LLC
|
234
|
2,268
|
1,290
|
12,536
|
100.0%
|
|
Prescott
Square, LLC
|
73
|
744
|
421
|
3,636
|
100.0%
|
|
|
|
|
|
|
|
|
Henrico
County, Virginia
|
|
|
|
|
|
|
Essex
Apartments Associates LP
|
496
|
4,178
|
2,643
|
14,272
|
50.0%
|
(b)
|
Total
Consolidated
|
3,256
|
32,505
|
15,711
|
181,072
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Partnerships
|
|
|
|
|
|
|
Charles
County, Maryland
|
|
|
|
|
|
|
Brookside
Gardens LP
|
56
|
309
|
250
|
1,264
|
|
(c)
|
Lakeside
Apartments LP
|
54
|
481
|
239
|
1,983
|
|
(c)
|
Total
Unconsolidated
|
110
|
790
|
489
|
3,247
|
|
|
|
3,366
|
$
33,295
|
$
16,200
|
$
84,319
|
|
|
(a)
Surplus cash from operations and proceeds from sale or liquidation
are
allocated based on the economic interest except those identified
by
additional description.
|
(b)
The limited partners have a priority to their respective unrecovered
capital. Upon liquidation, the limited partners have a priority
distribution equal to their
unrecovered
capital. As of December 31, 2006, the unrecovered limited partner
capital
for Essex was $1,890,000. The Company’s receivable of $2,958,000 is the
second priority of proceeds from the sale or liquidation on the property.
Until the limited partners have recovered their capital contributions,
any
surplus cash is distributed first to the limited partners up to $100,000,
then a matching $100,000 to the general partner, with any remaining
split
between the general partner and the limited partners.
(c)
The allocation of profits and surplus cash, as per the respective
partnership agreement, is based on a complex waterfall calculation.
The
Company’s share of the economic ownership is
immaterial.
|
Government
Regulation
HUD
subsidies are provided principally under Section 8 of the National Housing
Act.
Under Section 8, the government pays to the applicable apartment partnership
the
difference between market rental rates (determined in accordance with government
procedures) and the rate the government deems residents can afford. In
compliance with the requirements of Section 8, ARMC screens residents for
eligibility under HUD guidelines. Subsidies are provided under contracts between
the federal government and the owners of the apartment properties.
Subsidy
contracts for ACPT's U.S. Apartment Properties are scheduled to expire between
2007 and 2008. ACPT currently intends to seek the renewal of expiring subsidy
contracts for its properties based on the most advantageous options available
at
the time of renewal. Please refer to the table shown above for the expiration
dates and amounts of subsidies for the respective properties. We initiate the
HUD contract renewal process annually. For contracts where we have elected
five-year terms, we are limited to increases based on an Operating Cost
Adjustment Factor (“OCAF”). At the end of the five-year term, or annually if a
five-year term is not elected, we will have six options for renewing Section
8
contracts depending upon whether we can meet the eligibility criteria.
Historically, we have met the criteria necessary to renew our Section 8
contracts.
Cash
flow
from projects whose mortgage loans are insured by the Federal Housing Authority
("FHA"), or financed through the housing agencies in Maryland or Virginia (the
"State Financing Agencies") are subject to guidelines and limits established
by
the apartment properties' regulatory agreements with HUD and the State Financing
Agencies.
Our
regulatory contracts with HUD and/or the mortgage lenders generally require
that
certain escrows be established as replacement reserves. The balance of the
replacement reserves are available to fund capital improvements as approved
by
HUD or the mortgage lender. As of December 31, 2006, a total of
$5.0
million
was designated as replacement reserves for the consolidated U.S. Apartment
Partnerships.
HUD
has
received congressional authority to convert expired contracts to resident-based
vouchers. This would allow residents to choose where they wish to live, which
may include the dwelling unit in which they currently reside. If these vouchers
result in our tenants moving from their existing apartments, this may negatively
impact the income stream of certain properties. However, we intend to continue
to maintain our properties in order to preserve their values and retain
residents to the greatest extent possible.
The
federal government has virtually eliminated subsidy programs for new
construction of low and moderate income housing by profit-motivated developers
such as ACPT. Any new multifamily rental properties developed by ACPT in the
U.S. are expected to offer market rate rents.
Competition
ACPT's
investment properties that receive rent subsidies are not subject to the same
market conditions as properties charging market rate rents. The Company's
subsidized properties' average annual occupancy is approximately 99%. ACPT's
apartments in St. Charles that have market rate rents are impacted by the supply
and demand for competing rental apartments in the area, as well as the local
housing market. Our occupancy rates for our market rate properties typically
range from 90% to 99%. When for-sale housing becomes more affordable due to
lower mortgage interest rates or softening home prices, this can adversely
impact the performance of rental apartments. Conversely, when mortgage interest
rates rise or home prices increase, the market for apartment rental units
typically benefits.
PROPERTY
MANAGEMENT
ACPT,
indirectly through ARMC, operates a property management business in the
Washington, D.C. metropolitan area, Baltimore, Maryland and in Richmond,
Virginia. ARMC earns fees from the management of 4,122 rental apartment units.
ACPT holds an ownership interest in 3,366 units managed by ARMC. Management
fees
for these 3,366 units are based on a percentage of rents ranging from 4% to
6.5%. The management contracts for these properties have terms of one or two
years and are automatically renewed upon expiration but, may be terminated
on 30
days notice by either party. ARMC is entitled to receive an aggregate incentive
management fee of $40,000 annually from two of the properties that it manages,
as well as the potential to receive an incentive management fee of $100,000
from
another property that it manages. The payment of these fees is subject to the
availability of surplus cash. Management and other fees earned from properties
included within the consolidated financial statements are eliminated in
consolidation. Management fees for other managed apartment properties owned
by
third parties and affiliates of J. Michael Wilson, Chairman and CEO of ACPT,
range from 3% to 4.5% of rents. Effective February 28, 2007, the Company’s
management agreement with one of these managed apartment properties, G.L.
Limited Partnership, was terminated upon the sale of the apartment property
to a
third party.
COMMUNITY
DEVELOPMENT
ACPT,
indirectly through ALD, owns approximately 3,950 undeveloped acres in the
planned community of St. Charles, which is comprised of a total of approximately
9,100 acres (approximately 14 square miles) located in Charles County, Maryland,
23 miles southeast of Washington, D.C. The land in St. Charles is being
developed by ACPT and its subsidiaries for a variety of residential uses,
including single-family homes, townhomes, condominiums and apartments, as well
as commercial and industrial uses.
St.
Charles is comprised of five separate villages: Smallwood Village (completed),
Westlake Village (substantially completed), Fairway Village (currently under
development), Piney Reach and Wooded Glen, both undeveloped. Each of the
developed villages consists of individually planned neighborhoods, and includes
schools, churches, recreation centers, sports facilities, and a shopping center.
Other amenities include parks, lakes, hiking trails and bicycle paths. St.
Charles also has an 18-hole public golf course in its Fairway Village community.
Each community is planned for a mix of residential housing, including detached
single-family homes, townhomes, multiplex units and rental apartments. Typical
lot sizes for detached homes range from 6,000 to 8,000 square feet.
The
development of St. Charles as a planned unit development ("PUD") began in 1972
when Charles County approved a comprehensive PUD agreement for St. Charles.
This
master plan allows for the construction of 24,730 housing units and
approximately 1,390 acres of commercial and industrial development. As of
December 31, 2006, there were more than 11,000 completed housing units in St.
Charles, including Carrington neighborhood, which began prior to 1972 and are
not included in the PUD. In addition, there are schools, recreation facilities,
commercial, office and retail space in excess of 4.4 million square feet in
St.
Charles. ACPT, through outside planners, engineers, architects and contractors,
obtains necessary approvals for land development, plans individual neighborhoods
in accordance with regulatory requirements, constructs roads, utilities and
community facilities. ACPT develops lots for sale for detached single-family
homes, townhomes, apartment complexes, and commercial and industrial
development.
Fairway
Village, named for the existing 18-hole public golf course it surrounds, is
under development. The master plan provides for 3,346 dwelling units on 1,612
acres, including a business park and a 68-acre village center. Opened in 1999,
development of Fairway Village continues to progress as evidenced by the 135
lots settled in 2006 and the 210 completed lots in backlog as of December 31,
2006. All settlements made in 2006 were the result of the March 2004 agreement
with Lennar Corporation (“Lennar”) discussed below. Since inception of Fairway
Village, builders have settled 550 fully developed single-family lots in the
first thirteen parcels. In addition to lots in backlog, infrastructure
construction will begin on the next 68 single family lots with completion
expected by the end of the year. Engineering of an additional 152 townhouse
lots
are in review by the County, and construction is expected to commence in the
summer of 2007. Additional parcels are in the engineering phase.
The
last
two villages, Wooded Glen and Piney Reach, comprise approximately 3,000 acres,
and are planned for development near the completion of Fairway Village. The
County Commissioners must approve the total number and mix of residential units
before development can begin. There can be no assurances that the total 24,730
units in St. Charles' master plan can be attained within the remaining acreage
currently owned.
The
company continues to look for opportunities to purchase land for future
development. However, there can be no assurance that the company will be able
to
locate additional land suitable for future development.
As
of
December 31, 2006, 53.9 acres of developed commercial land and 210 residential
lots were available for delivery.
The
following table is a summary of the land inventory available in St. Charles
as
of December 31, 2006:
|
|
Lot
Type
|
Estimated
Number
of
Lots
|
Approximate
Acreage
|
Entitlements
|
Estimated
Expected
Date
of Sale
|
Estimated
Aggregate
Sales Price
|
SMALLWOOD
VILLAGE
|
|
|
|
|
|
|
|
Commercial,
Retail, Office:
|
|
|
|
|
|
|
|
Henry
Ford Circle
|
Commercial
|
12
|
13.16
|
A
|
2007
- 2009
|
$1.8
- $2.0 million
|
|
Industrial:
|
|
|
|
|
|
|
|
Industrial
Park North Tract 7A
|
Light
Industrial
|
1
|
2.82
|
A
|
2010
|
TBD
|
|
Industrial
Park North Tract 21, Parcel F
|
Light
Industrial
|
1
|
4.18
|
A
|
2011
|
TBD
|
|
Industrial
Park North Tract 23, Parcel A
|
Light
Industrial
|
1
|
1.95
|
A
|
2012
|
TBD
|
WESTLAKE
VILLAGE
|
|
|
|
|
|
|
|
Commercial,
Retail, Office:
|
|
|
|
|
|
|
|
Town
Center Parcel A3
|
Restaurant,
Office, Retail
|
7
|
13.84
|
A
|
2007
- 2010
|
$
7,000,000
|
|
Town
Center Parcel G3
|
Office,
Retail
|
1
|
1.13
|
A
|
2007
|
$
490,000
|
|
Town
Center Parcel G4
|
Office,
Retail
|
1
|
0.98
|
A
|
2007
|
$
430,000
|
|
Town
Center Parcel G7
|
Office,
Retail
|
1
|
0.91
|
A
|
2007
|
$
475,000
|
|
Parcel
M
|
Office,
Retail
|
1
|
2.61
|
A
|
2008
|
$
300,000
|
|
Hampshire
Commercial Parcel Q
|
Commercial
|
1
|
13.31
|
C
|
2008
- 2010
|
$
2,100,000
|
FAIRWAY
VILLAGE
|
|
|
|
|
|
|
|
Residential
Lots:
|
|
|
|
|
|
|
|
Sheffield
Parcel F
|
SF
Detached
|
4
|
0.55
|
A
|
2007
|
*
|
|
Sheffield
Parcel I
|
SF
Attached
|
52
|
22.25
|
A
|
2007
- 2008
|
*
|
|
Sheffield
Parcel G/M1
|
SF
Detached
|
151
|
39.75
|
A
|
2007
- 2008
|
*
|
|
Sheffield
Parcel J
|
SF
Attached
|
152
|
34.30
|
B
|
2008
- 2010
|
*
|
|
Gleneagles
Parcel A
|
Multi-Family
|
120
|
12.40
|
B
|
To
Be Held
|
N/A
|
|
Gleneagles
Parcel B
|
Multi-Family
|
184
|
13.00
|
B
|
To
Be Held
|
N/A
|
|
Gleneagles
Parcel D
|
SF
Detached
|
68
|
28.40
|
B
|
2008
|
* |
|
Gleneagles
Parcel E
|
SF
Detached
|
117
|
53.70
|
B
|
2008
- 2009
|
*
|
|
Gleneagles
Parcel C
|
SF
Attached
|
168
|
21.20
|
B
|
2010
- 2011
|
*
|
|
Gleneagles
Parcel F
|
SF
Detached
|
84
|
31.00
|
B
|
2009
- 2010
|
*
|
|
Gleneagles
South Neighborhood
|
SF
Attached
|
194
|
25.00
|
C
|
2011
- 2013
|
*
|
|
Gleneagles
South Neighborhood
|
SF
Detached
|
642
|
224.40
|
C
|
2010
- 2013
|
*
|
|
Gleneagles
South Neighborhood
|
Multi-Family
|
165
|
14.00
|
C
|
To
Be Held
|
N/A
|
|
Commercial,
Retail, Office:
|
|
|
|
|
|
|
|
Middle
Business Park Parcel D
|
Office,
Commercial
|
14
|
42.15
|
B
|
2008
- 2011
|
TBD |
|
Fairway
Village Center
|
Retail,
Commercial
|
1
|
93.90
|
B
|
2008
- 2012
|
TBD
|
|
Middle
Business Park Parcel B
|
Office,
Commercial
|
4
|
32.85
|
B
|
2013
- 2015
|
TBD
|
|
Middle
Business Park Parcel C
|
Office,
Commercial
|
3
|
16.16
|
B
|
2011
- 2013
|
TBD
|
VILLAGE
OF WOODED GLEN
|
|
|
|
|
|
|
|
Residential
Parcels
|
TBD
|
7,155
|
1810.4
|
D
|
2013
- 2036
|
TBD
|
|
Wooded
Glen Village Center
|
Retail,
Commercial
|
1
|
30.00
|
C
|
2020
|
TBD
|
VILLAGE
OF PINEY REACH
|
|
|
|
|
|
|
|
Residential
Parcels
|
TBD
|
2,921
|
666.60
|
D
|
2030
- 2040
|
TBD
|
|
Piney
Reach Village Center
|
Retail,
Commercial
|
1
|
37.30
|
C
|
2030
|
TBD
|
|
Piney
Reach Industrial Park
|
Industrial
|
Undetermined
|
672.60
|
C
|
TBD
|
TBD
|
|
|
|
|
|
|
|
|
(A)
Sites are fully developed and ready for sale
|
|
|
|
|
|
|
(B)
Completed master plan approval including all entitlements and received
preliminary site plan approval for development
|
|
|
|
(C)
Completed master plan approval including all entitlements
|
|
|
|
|
|
(D)
Completed master plan approval including all entitlements excluding
school
allocations
TBD
means to be determined.
|
|
|
|
|
*
Price determined as 30% of the "Base Selling Price" of the new home
constructed and sold on the lot per the terms of the sales agreement
with
Lennar Corporation.
|
Customer
Dependence
In
March
2004, the Company executed an agreement with Lennar’s homebuilding subsidiary to
sell approximately 1,950 residential lots, consisting of approximately 1,359
single-family lots and 591 town home lots in Fairway Village. The agreement
requires the homebuilder to provide $20,000,000 of letters of credit to secure
the purchase of the lots. The letters of credit will be used as collateral
for
major infrastructure loans from the Charles County Commissioners of up to
$20,000,000 and will be reduced as the Company repays the principal of these
loans. For each lot sold in Fairway Village, the Company will deposit $10,300
in
an escrow account to fund the principal payments due to the Charles County
Commissioners. Under the agreement, the Company is responsible for making
developed lots available to Lennar on a monthly basis, and subject to
availability, the builder is required to purchase at a minimum 200 residential
lots developed by the Company per year. The price of the lots will be calculated
based on 30% of the base sales price of homes sold by the builder. The current
selling price of new townhomes in this area is approximately $300,000 while
new
single-family homes are selling in the $400,000 to $500,000 range. Based on
200
lot sales per year, it is estimated that settlements will take place through
2015; however, the recent slowing of the new homes sales market in the United
States, and more specifically in the Washington D.C. suburban areas, could
adversely impact Lennar’s willingness or ability to take down 200 lots per
year. In the event that Lennar does not take down the required 200 lots
per year, Lennar would lose their exclusivity within Fairway Village as we
would
be allowed to sell these lots to other homebuilders.
Residential
land sales to Lennar within our U.S. segment were $18,204,000 for the year
ended
December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
of
our total year-to-date consolidated revenue. No other customers accounted for
more than 10% of our consolidated revenue for the year ended December 31, 2006.
Loss
of
all or a substantial portion of our land sales, as well as the joint venture’s
land sales, to Lennar would have a significant adverse effect on our financial
results until such lost sales could be replaced. If such an event were to occur,
there would be no assurance that the lost volume would be replaced timely and
on
comparable terms.
In
September 2004, the Company entered into a joint venture agreement with Lennar
for the development of a 352-unit, active adult community located in St.
Charles, Maryland; and transferred land to the joint venture in exchange for
a
50% ownership interest and $4,277,000 in cash. Lennar and the Company each
have
an equal interest in the cash, earnings and decision making concerning the
joint
venture. The joint venture's operating agreement calls for the development
of
352 lots. Delivery of these lots began in the fourth quarter of 2005. The
Company manages the project's development for a market rate fee pursuant to
a
management agreement.
Government
Approvals
The
St.
Charles master plan has been incorporated into Charles County's comprehensive
zoning plan. In addition, the Charles County government (the “County”) has
agreed to provide sufficient water and sewer connections for the balance of
the
housing units to be developed in St. Charles. Specific development plans for
each village in St. Charles are subject to approval of the County Planning
Commission. Such approvals have previously been received for the villages of
Smallwood, Westlake and Fairway. Approvals have not yet been sought on the
final
two villages.
In
2001,
the Charles County Commissioners enacted the Adequate Public Facilities Policy.
This policy limits the number of residential building permits issued to the
amount of school allocations calculated in a given period.
Under
a
settlement agreement reached between ACPT and the County in 2001, the County
provided guaranteed school allocations to St. Charles for 894 new dwelling
units. The County subsequently granted allocations for an additional 200
dwelling units in 2005, 300 dwelling units in 2006 and in December 2006, the
County granted us an additional 300 units for 2007. To date, we have recorded
773 dwelling units with the County leaving us with a balance of 921 school
allocations available for new dwelling units. Under the settlement agreement,
the County agreed to utilize a base line assumption of 200 school allocations
per year, however, there are no guarantees that additional allocations will
be
granted in future years. Under the settlement agreement, the County will also
provide sewer connection for the next 2,000 units in Fairway Village at fees
that will be $1,608 less per unit than the fee charged to builders outside
of
St. Charles. As of December 31, 2006, approximately 1,500 of the 2,000 units
remained. Our agreement reached with the County also provides for the
possibility of the Company's being allowed to annex additional contiguous land
to St. Charles.
Pursuant
to the settlement agreement the Company agreed to accelerate the construction
of
two major roadway links to the County’s road system. Also, as part of the
agreement, the County agreed to issue general obligation public improvement
bonds to finance $20,000,000 of this construction guaranteed by letters of
credit provided by Lennar. As of December 31, 2006, the Charles County
Commissioners have issued three separate
Consolidated
Public Improvement Bonds (the “Bonds”) totaling $20,000,000 on behalf of the
Company. The Bonds bear an interest rate between 4% and 8% and call for
semi-annual interest payments and annual principal payments and mature in
fifteen years. The Bond Repayment agreements with the County stipulate the
borrowing and repayment provisions for the funds advanced. Total cost of the
construction project is estimated at approximately $30,000,000.
The
complete terms of the settlement are contained in an Amended Order in Docket
90
before the County Commissioners of Charles County, a Consent Judgment in the
Circuit Court, an Indenture, and a Settlement Agreement.
In
August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is planned to house a minor
league baseball stadium and entertainment complex. Under the terms of the MOU,
the Company donated 42 acres of land in St. Charles to the County on December
31, 2005. The Company also agreed to expedite off-site utilities, storm-water
management and road construction improvements that will serve the entertainment
complex and future portions of St. Charles so that the improvements will be
completed concurrently with the entertainment complex. The County will be
responsible for infrastructure improvements on the site of the complex. In
return, the County will issue the general obligation bonds to finance the
infrastructure improvements. In March 2006, $4,000,000 of bonds were issued
for
this project and in March 2007, an additional $3,000,000 in bonds will be
issued. As per the stipulations provided for in the Bond Repayment agreement
with the County, the funds for this project will be repaid by ACPT over a
15-year period. In addition, the County agreed to increase the base line
assumption from 200 to 300 school allocations per year commencing with the
issuance of these bonds and continuing until such bonds are repaid in full.
Competition
Competition
among residential communities in Charles County is intense. Currently, there
are
approximately 30 subdivisions competing for new homebuyers within a five-mile
radius of St. Charles. The largest competing housing developments are Charles
Crossing, a 451-unit project being developed by a local developer; Charles
Retreat, approximately 400 active adult units being developed by Slenker Land
Corporation; Avalon, a 264-unit project being developed by Centex Homes; and
Autumn Hills, a 390-unit project being developed by Elm Street Development.
Smaller projects are being developed by more than 20 other developers. The
marketplace attracts major national and regional homebuilders. In this very
price sensitive market, ACPT continues to position St. Charles to provide
affordable building lots and homes while offering more amenities than the
competition. A limited number of school allocation permits in Charles County
has
slowed the growth of new residential construction. We believe the guaranteed
school allocations discussed above provide the Company with a competitive
edge.
Environmental
Impact
Management
believes that the St. Charles master plan can be completed without material
adverse environmental impact and in compliance with governmental regulations.
In
preparation for immediate and future development, Phase I Environmental Site
Assessments have been prepared for substantially all of the undeveloped parcels.
Historically, the land has been used for farming, sand and gravel mining and
forestry and no significant environmental concerns were found. Jurisdictional
determinations for wetlands have been approved by the Army Corps of Engineers
for the Sheffield Neighborhood as well as parts of the Gleneagles Neighborhood
in Fairway Village, the current phase of residential development. Management
has
developed an Environmental Policy Manual and has established an Environmental
Review Committee and an Environmental Coordination Officer to anticipate
environmental impacts and avoid regulatory violations. However, development
can
be delayed while local, state and federal agencies are reviewing plans for
environmentally sensitive areas.
The
ongoing process of land development requires the installation, inspection and
maintenance of erosion control measures to prevent the discharge of silt-laden
runoff from areas under construction. The capital expenditures for these
environmental control facilities varies with the topography, proximity to
environmental features, soil characteristics, total area denuded and duration
of
construction.
In
2006,
we spent nearly $80,000 for these costs. As land development continues, an
annual cost of approximately $100,000 can be expected.
ECONOMIC
AND DEMOGRAPHIC INFORMATION
Based
on
figures prepared by the Charles County Department of Planning and Growth
Management ("DPGM"), the population of Charles County grew to 124,145 in 2000,
up from 101,000 in 1990, and is projected to increase at a rate of 2% per year,
reaching a total of 182,000 by 2020. Charles County was the ninth fastest
growing
county
in
the state between the 1990 and 2000 census with an average annual growth rate
during that period of 1.77%. The median household effective buying income in
Charles County was $53,787 in 2005. Building permit activity for new structures
increased to 2,785 permits issued in Charles County in 2006 compared to 2,678
permits issued in 2005, an increase of 4%.
PUERTO
RICO SEGMENT:
INVESTMENT
IN RENTAL PROPERTIES
Multifamily
Rental Properties
ACPT,
indirectly through IGP, holds interests in 9 Puerto Rico partnerships, which
collectively own and operate a total of 12 multifamily rental facilities in
Puerto Rico (“Puerto Rico Apartment Properties”). The Puerto Rico Apartment
Properties own a total of 2,653 rental units, all of which receive rent
subsidies from HUD and are financed by non-recourse mortgages.
The
table
below sets forth the name of each property; the number of rental units in the
property; the percentage of all units held by Puerto Rico Apartment Properties;
the project cost; the percentage of such units under lease; and the expiration
date and maximum benefit for any subsidy contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No.
of Apt.
|
|
%
of Port-
|
|
12/31/2006
Project
Cost (B)
|
|
Occupancy
At
|
|
Expiration
of
Subsidy
|
|
Maximum
Subsidy
|
|
Consolidated
Partnerships
|
|
Units
|
|
folio
|
|
(in
thousands)
|
|
12/31/06
|
|
Contract
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Anton
|
|
|
184
|
|
|
7
|
%
|
$
|
5,497
|
|
|
98
|
%
|
|
2010
|
|
$
|
1,288
|
|
Monserrate
Associates
|
|
|
304
|
|
|
11
|
%
|
|
12,729
|
|
|
99
|
%
|
|
2009
|
|
|
2,523
|
|
Alturas
del Senorial
|
|
|
124
|
|
|
5
|
%
|
|
5,045
|
|
|
100
|
%
|
|
2009
|
|
|
1,020
|
|
Jardines
de Caparra
|
|
|
198
|
|
|
7
|
%
|
|
7,987
|
|
|
100
|
%
|
|
2010
|
|
|
1,555
|
|
Colinas
de San Juan
|
|
|
300
|
|
|
11
|
%
|
|
12,618
|
|
|
100
|
%
|
|
2011
|
|
|
2,014
|
|
Bayamon
Garden
|
|
|
280
|
|
|
11
|
%
|
|
14,178
|
|
|
99
|
%
|
|
2011
|
|
|
1,983
|
|
Vistas
del Turabo
|
|
|
96
|
|
|
4
|
%
|
|
3,546
|
|
|
100
|
%
|
|
2021
|
|
|
651
|
|
Monserrate
Tower II (A)
|
|
|
304
|
|
|
11
|
%
|
|
13,339
|
|
|
100
|
%
|
|
2020
|
|
|
2,431
|
|
Santa
Juana (A)
|
|
|
198
|
|
|
7
|
%
|
|
8,001
|
|
|
100
|
%
|
|
2020
|
|
|
1,628
|
|
Torre
De Las Cumbres (A)
|
|
|
155
|
|
|
6
|
%
|
|
7,065
|
|
|
100
|
%
|
|
2020
|
|
|
1,285
|
|
De
Diego (A)
|
|
|
198
|
|
|
8
|
%
|
|
7,939
|
|
|
100
|
%
|
|
2020
|
|
|
1,588
|
|
Valle
del Sol
|
|
|
312
|
|
|
12
|
%
|
|
15,844
|
|
|
100
|
%
|
|
2008
|
|
|
2,422
|
|
|
|
|
2,653
|
|
|
100
|
%
|
$
|
113,788
|
|
|
|
|
|
|
|
$
|
20,388
|
|
(A) |
This
property is owned by Carolina Associates L.P., a Maryland limited
partnership in which IGP holds a 50%
interest.
|
(B) |
Project
costs represent total capitalized costs for each respective property
as
per Schedule III "Real Estate and Accumulated Depreciation" in Item
8 of
this 10-K.
|
The
table
below sets forth the operating results, mortgage balances and our economic
interest in the Puerto Rico Apartment Properties by location ($ amounts in
thousands, all other figures are actual)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-
|
|
ECONOMIC
|
|
|
|
|
|
NO.
|
|
|
|
|
|
RECOURSE
|
|
INTEREST
|
|
|
|
|
|
OF
|
|
OPERATING
|
|
OPERATING
|
|
MORTGAGE
|
|
UPON
|
|
|
|
P.R.
APARTMENT PROPERTIES
|
|
UNITS
|
|
REVENUE
|
|
EXPENSES
|
|
OUSTANDING
|
|
LIQUIDATION
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolina,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
Associates
|
|
|
304
|
|
$
|
2,596
|
|
$
|
1,304
|
|
$
|
7,386
|
|
|
52.50
|
%
|
|
Monserrate
Tower II (b)
|
|
|
304
|
|
|
2,487
|
|
|
1,239
|
|
|
10,120
|
|
|
50.00
|
%
|
|
San
Anton
|
|
|
184
|
|
|
1,440
|
|
|
822
|
|
|
4,218
|
|
|
49.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Juan, Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alturas
Del Senorial
|
|
|
124
|
|
|
1,066
|
|
|
517
|
|
|
3,551
|
|
|
50.00
|
%
|
|
Colinas
San Juan
|
|
|
300
|
|
|
2,053
|
|
|
814
|
|
|
9,610
|
|
|
50.00
|
%
|
|
De
Diego (b)
|
|
|
198
|
|
|
1,653
|
|
|
804
|
|
|
5,600
|
|
|
50.00
|
%
|
|
Torre
de Las Cumbres (b)
|
|
|
155
|
|
|
1,328
|
|
|
673
|
|
|
5,200
|
|
|
50.00
|
%
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caguas,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa
Juana (b)
|
|
|
198
|
|
|
1,718
|
|
|
823
|
|
|
7,220
|
|
|
50.00
|
%
|
|
Vistas
Del Turabo
|
|
|
96
|
|
|
653
|
|
|
354
|
|
|
1,111
|
|
|
50.00
|
%
|
(c)
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon
Garden
|
|
|
280
|
|
|
2,064
|
|
|
832
|
|
|
9,419
|
|
|
50.00
|
%
|
(c)
(d)
|
Jardines
De Caparra
|
|
|
198
|
|
|
1,666
|
|
|
792
|
|
|
6,417
|
|
|
50.00
|
%
|
(d)
|
Valle
Del Sol
|
|
|
312
|
|
|
2,444
|
|
|
888
|
|
|
10,718
|
|
|
50.00
|
%
|
(c)
|
Total
Consolidated
|
|
|
2,653
|
|
$
|
21,168
|
|
$
|
9,862
|
|
$
|
80,570
|
|
|
|
|
|
|
(a) |
Surplus
cash from operations and proceeds from sale or liquidation are allocated
based on the economic interest except those identified by additional
description
|
(b) |
Owned
by Carolina Associates
|
(c) |
Upon
liquidation, the limited partners have a priority distribution equal
to
their uncovered capital. As of December 31, 2005, the unrecovered
limited
partner capital in Bayamon Garden, Valle Del Sol and Vistas Del Turabo
were $1,184,000, $1,301,000, and $618,000
respectively.
|
(d) |
In
addition to normal operating receivables between the Company and
the
Puerto Rico Apartment Properties, the Company as a receivable for
incentive management fees of $59,000 and $12,000 for Bayamon Gardens
and
Jardines de Caparra, respectively. The Company also has a receivable
for
working capital loans of $125,000 and $26,000 for Torre de Las Cumbres
and
Vistas del Turabo, respectively. These receivables would receive
priority
upon liquidation of the interests of these
partnerships.
|
Commercial
Rental Properties
In
September 2005, the Company commenced the operations of its first commercial
rental property in the community of Parque Escorial, known as Escorial Building
One, in which it holds a 100% ownership interest. Escorial Building One is
a
three-story building with approximately 56,000 square feet of office space
for
lease. The Company moved its Puerto Rico corporate office to the new facility
in
the third quarter of 2005 and, as of December 31, 2006, leases approximately
20%
of the building. As
of
December 31, 2006, 42% of the office space was leased with an additional 15%
of
office space generating rent income under an option agreement. The option
agreement requires the tenant to make lease payments until the tenant completes
certain permitting, at which point a final lease will be executed as the tenant
will occupy the facility. However, until a lease is executed, the tenant can
terminate
the
option. The Company continues to focus on leasing the balance of available
space
in Escorial Office Building One.
In
December 1998, LDA transferred title of a seven-acre site in Parque Escorial's
office park to ELI on which a 150,000 square foot building was constructed.
ELI
is a special partnership in which LDA holds a 45.26% interest in future cash
flow generated by the building lease. The building is leased to the State
Insurance Fund of Puerto Rico, a government agency, for 30 years, at the end
of
which the lessee can acquire it for $1. For income tax and book purposes, the
lease is considered a finance lease; therefore, the lease payments are treated
as mortgage payments. A significant portion of the lease payments consist of
interest due from a government agency which, when received by ELI, is tax-free.
The tax-free status stays intact when ELI distributes its income to
LDA.
Government
Regulation
HUD
subsidies are provided principally under Section 8 of the National Housing
Act.
Under Section 8, the government pays to the applicable apartment partnership
the
difference between market rental rates (determined in accordance with government
procedures) and the rate the government deems residents can afford. In
compliance with the requirements of Section 8, IGP screens residents for
eligibility under HUD guidelines. Subsidies are provided under contracts between
the federal government and the owners of the Puerto Rico Apartment
Properties.
Subsidy
contracts for the Puerto Rico apartment properties are scheduled to expire
between 2008 and 2021. HUD has in the past approved new subsidy contracts set
at
five-year terms, renewable annually. Please refer to the tables shown above
for
the expiration dates and amounts of subsidies for the respective properties.
We
initiate the HUD contract renewal process annually. For contracts where we
have
elected five-year terms, we are limited to increases based on the OCAF factor.
At the end of the five-year term, or annually if a five-year term is not
elected, we will have six options for renewing Section 8 contracts depending
upon whether we can meet the eligibility criteria. Historically, we have met
the
criteria necessary to renew our Section 8 contracts.
Cash
flow
from projects whose mortgage loans are insured by the FHA or financed through
the housing agency in Puerto Rico (the "Puerto Rico Financing Agency,") is
subject to guidelines and limits established by the apartment properties'
regulatory agreements with HUD and the Puerto Rico Financing Agency. Two of
the
regulatory agreements also require that if cash from operations exceeds the
allowable cash distributions, the surplus must be deposited into restricted
escrow accounts held by the mortgagee and controlled by HUD or the Puerto Rico
Financing Agency. Funds in these restricted escrow accounts may be used for
maintenance and capital improvements with the approval of HUD and/or the Puerto
Rico Finance Agency.
Our
regulatory contracts with HUD and/or the mortgage lenders generally require
that
certain escrows be established as replacement reserves and debt service
reserves. The balance of the replacement reserves are available to fund
capital improvements as approved by HUD or the mortgage lender. The
balance of the debt service reserves is restricted for the purposes of making
mortgage payments in limited circumstances. As of December 31, 2006, a
total of $3.2
million
was designated as replacement reserves and $3.3 million as debt service reserves
for the consolidated PR Apartment Partnerships.
HUD
has
received congressional authority to convert expired contracts to resident-based
vouchers. This would allow residents to choose where they wish to live, which
may include the dwelling unit in which they currently reside. If these vouchers
result in our tenants moving from their existing apartments, this may negatively
impact the income stream of certain properties. However, we intend to continue
to maintain our properties in order to preserve their values and retain
residents to the extent possible.
The
federal government has virtually eliminated subsidy programs for new
construction of low and moderate income housing by profit-motivated developers
such as ACPT. As a result, no new construction of multifamily rental properties
is expected in Puerto Rico.
Competition
The
Puerto Rico apartment properties all receive rent subsidies and are therefore
not subject to the same market conditions as properties charging market rate
rents. Average annual occupancy for the Puerto Rico apartment properties is
approximately 99%.
PROPERTY
MANAGEMENT
IGP
earns
fees from the management of 2,653 rental apartment units in the Puerto Rico
Apartment Properties that are based on a percentage of rents ranging from 2.85%
to 9.25%. The management contracts for these properties have terms of three
years and are customarily renewed upon expiration. IGP is also entitled to
receive up to an aggregate of $192,000 annually in certain incentive management
fees with respect to six properties owned by the Puerto Rico apartment
partnerships. The payment of these fees is subject to availability of surplus
cash.
Management and other fees earned from properties included within the
consolidated financial statements are eliminated in consolidation.
In
addition, IGP currently manages 918 rental apartments owned by a non-profit
entity, which acquired the units from IGP in 1996 under the provisions of the
Low Income Housing Preservation and Resident Home Ownership Act (also known
as
"LIHPRHA"). The management agreements for these properties expire March 15,
2010.
COMMUNITY
DEVELOPMENT
The
Puerto Rico segment’s community development assets consist of more than 600
acres of developed and undeveloped land in the master planned communities of
Parque Escorial in Carolina, Puerto Rico and Parque El Comandante in Canovanas,
Puerto Rico. The land in Parque Escorial is being developed by the Company
and
its subsidiaries for a variety of residential uses, including condominiums
as
well as commercial and industrial uses.
The
master plan for Parque Escorial was approved in 1994. It includes the
construction of 2,700 dwelling units of various types on 282 acres and the
development of 145 acres for commercial, office and light industrial uses.
The
commercial site is anchored by a Wal-Mart and Sam's Club, each consisting of
125,000 square feet. In April 2005, the Company sold 7.2 commercial acres of
land to a third party developer who rezoned the land from commercial to
residential use and is currently constructing condominium units on this parcel.
The rezoning has no impact on the number of units allowed under the Parque
Escorial master plan. LDA has developed and sold 255 acres in this community,
and continues to own 120 acres of developed and undeveloped land. Parque
Escorial is located approximately six miles from the central business district
in San Juan, Puerto Rico.
Site
improvements for the first three residential phases, comprising 2,252 units,
are
substantially completed and either sold to third party homebuilders or used
by
the Company’s homebuilding operations for the construction of condominiums by
the Company. The next residential phase, at the Hill Top in Parque Escorial,
comprising approximately of 212 units, is in the permit stage of infrastructure
development leaving the last phase of 236 units for development in the future.
There were no commercial land sales in backlog as of December 31,
2006.
ACPT
indirectly holds a 100% interest in LDA, which in 1989 acquired the 427-acre
site of the former El Comandante Race Track in Carolina, PR. LDA also owns
approximately 490 acres adjacent to the new El Comandante Race Track in
Canovanas, PR. At present, LDA is in the process of obtaining zoning approvals
to convert the property into a master plan mixed-use community, Parque El
Comandante, as we did in Parque Escorial.
The
following table is a summary of the land inventory available in Puerto Rico
as
of December 31, 2006:
|
|
Lot
Type
|
Estimated
Number
of Units/Parcels
|
Approximate
Acreage
|
Entitlements
|
Expected
Date
of Sale
|
Estimated
Asking
Sales
Price
|
PARQUE
ESCORIAL
|
|
|
|
|
|
|
|
Office
Park:
|
|
|
|
|
|
|
|
Lot
IV-3b
|
Office
|
1
|
2.70
|
A
|
To
be held
|
N/A
|
|
Residential:
|
|
|
|
|
|
|
|
Hilltop
Phase I - 212 residential units
|
Residential
|
212
|
58.50
|
B
|
2009-2011
|
N/A
|
|
Hilltop
Phase II - 236 residential units
|
Residential
|
236
|
58.50
|
B
|
2011-2013
|
N/A
|
|
|
|
|
|
|
|
|
PARQUE
EL COMANDANTE
|
|
|
|
|
|
|
|
Mixed-use
Lots:
|
|
|
|
|
|
|
|
Phase
I - Quarry Site
|
Mixed-use
commercial
|
TBD
|
50.79
|
C
|
2007
- 2008
|
$20
million
|
|
Phase
II - Route 66 North
|
Mixed-use
|
TBD
|
165.83
|
C
|
2012
- 2013
|
TBD
|
|
Residential
Lots:
|
|
|
|
|
|
|
|
Phase
I - Quarry Site
|
Residential
|
TBD
|
26.11
|
C
|
2007
- 2008
|
TBD
|
|
Phase
III - Route 66 South
|
Residential
|
TBD
|
203.76
|
C
|
2017
- 2018
|
TBD
|
|
Phase
IV - Out-Parcel
|
Residential
|
TBD
|
38.85
|
C
|
2007
- 2008
|
$3.0
- 4.0 million
|
|
|
|
|
|
|
|
|
(A)
Sites are fully developed and ready for sale
|
|
|
|
|
|
(B)
Completed master plan approval including all entitlements and received
preliminary site plan approval for development
|
|
|
(C)
Proposed master plan
|
|
|
|
|
|
|
Government
Approvals
Parque
Escorial's master plan has been approved but specific site plans are subject
to
the planning board review and approval. Recently, the Company obtained approval
from the natural resources department of Puerto Rico for the infrastructure
development of 212 Hill Top residential units. Currently the Company is seeking
final government approval from the Municipality of Carolina.
Parque
El
Comandante is in the planning stage and will require significant government
approvals throughout the development process. The master plan approval process
is generally an 18 to 24 month process and the Company is approximately halfway
through this process. However, there can be no assurance that approvals for
such
development will be obtained, or if obtained, that the Company will be able
to
successfully develop such land.
Competition
The
Company believes that the scarcity of developable land in the San Juan
metropolitan area creates a favorable market for condominium unit sales at
Parque Escorial. Competition for condominium unit sales is expected primarily
from condominium projects in areas that the Company believes to be similar
or
less desirable than Parque Escorial. Nearby projects provide for larger units,
which are more costly than our units. There are no projects in Parque Escorial
offering units that are the same size, quality and in the same price range
as
our units. In addition, no other community developers are currently developing
projects similar to Parque Escorial in the area.
Environmental
Impact
Management
of ACPT believes that the Parque Escorial master plan can be completed without
material adverse environmental impact and in compliance with government
regulations. All of the necessary agencies have endorsed Parque Escorial's
environmental impact statement. Wal-Mart has provided mitigation for 12 acres
of
wetlands impacted by its development of the shopping center site and other
land.
An erosion and sedimentation control plan must be obtained prior to
construction. This plan specifies the measures to be taken to prevent the
discharge of silt-laden runoff from areas under construction. In 2006, we did
not incur any of these costs. Once we begin development of the next phase,
we
expect to incur an estimated $10,000 per year during the development period.
We
are in the planning stage of Parque El Comandante and will not have estimates
for such costs until we are further in the design stage.
The
Puerto Rico Department of Natural and Environment Resources (DNER) have enacted
Regulation #25 whereas it requires the replacement of trees removed during
land
development of the proposed Escorial Hilltop Project on a two to one basis.
In
February 2006, IGP's Agronomist submitted to DNER a tree mitigation plan. On
December 13, 2006, IGP received from DNER's the approval and permit, under
certain conditions, to proceed with the tree mitigation plan. As part of this
mitigation plan, the Company will be segregating and donating 44 acres of land
to the Municipality of Carolina to get the final condition to begin the land
development at the Hilltop. These parcels of land will be a conservation area
for an urban forest.
HOMEBUILDING
During
the first quarter of 2004, IGP formed a wholly owned subsidiary, Torres del
Escorial, a Puerto Rico corporation, to construct and sell a 160-unit
residential project within the Parque Escorial master plan community. The
project consists of four towers with 40 units in each tower. As of December
31,
2006, the construction of the four-tower condominium complex was completed
and
110 units were delivered. The rest of the project remains for sale in 2007.
There were 15 units under contract as of December 31, 2006. These sales are
backed by a $6,000 deposit and sales contract. In 2006, the Puerto Rico real
estate market suffered its worst year in the last three decades; however, we
continued to sell units in Torres del Escorial at favorable prices, but at
a
slower than anticipated pace.
Competition
The
Company believes that the scarcity of developable land in the San Juan
metropolitan area creates a favorable market for condominium unit sales at
Parque Escorial. Competition for condominium unit sales in our area is expected
from condominium projects that the Company believes to be less desirable than
Parque Escorial. Nearby projects provide for larger units, which are more costly
than our units. There are no projects in Parque Escorial offering units that
are
the same size, quality and in the same price range as our
units.
ECONOMIC
AND DEMOGRAPHIC INFORMATION
Puerto
Rico has a population of approximately 3.9 million, and the Puerto Rico Planning
Board projects the population will continue to grow. Construction in the
residential sector has shifted from single-family homes to multi-family
dwellings such as walk-up condominiums. As of the date of filing this report,
we
were informed that the 2006 Economic Report to the Governor was not available.
As presented in the 2005 Economic Report to the Governor, for the fiscal year
ended June 30, 2005, per capita personal income was $12,502 with an average
family income of $41,258. The economy of Puerto Rico registered growth in
constant dollars of 2% in 2005.
GENERAL
Employees
ACPT
had
274 full-time employees as of December 31, 2006, 126 in the United States and
148 in Puerto Rico. Employees performing non-supervisory services through the
Company's property management operations receive salaries funded by the
properties.
Available
Information
ACPT
files annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). These
filings are available to the public over the Internet at the SEC's web site
at
http://www.sec.gov. You may also read and copy any document the Company files
at
the SEC's public reference room located at 100 F Street, NE, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room.
Our
principal Internet address is www.acptrust.com. We make available, free of
charge, on or through www.acptrust.com our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. Copies of
the
Company's Annual Report can be requested at no cost by writing to the following
address or telephoning us at the following telephone number:
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, MD 20602
Attention:
Director of Investor Relations
(301)
843-8600
You
should carefully consider the risks described below. These risks are not the
only ones that we may face. Additional risks and uncertainties that we are
unaware of, or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occurs, our business,
financial condition or results of operations could be materially and adversely
affected.
National,
regional and local economic and business conditions:
Risk
of reduced demand for residential lots, commercial parcels and multifamily
housing
The
real
estate industry is sensitive to changes in economic conditions such as the
level
of employment, consumer confidence, availability of financing and interest
rate
levels as well as other market conditions such as oversupply or reduction in
demand for commercial, industrial or multifamily rental properties. In addition,
regulatory changes could possibly alter, among other things, the tax
deductibility of interest paid on home loans. Adverse changes in any of these
conditions generally, or in the market regions where we operate, could decrease
demand for our residential lots, commercial parcels and homes, which could
adversely affect our revenues and earnings.
Risk
that the real estate market would be unable to recover timely from an economic
downturn in the general economy
· The
real
estate business is a cyclical business. Recently, the combination of high home
prices and interest rate increases have slowed the current real estate market.
This has led some people to assert that real estate prices may be inflated
and
may decline if demand continues to weaken. A decline in the prices for real
estate could adversely affect our home and land sales revenues and margins.
In
addition, adverse changes to key economic indicators such as unemployment rates
and inflation could further reduce the willingness or ability of individuals
to
purchase new homes which could adversely affect our operations.
Lack
of availability and creditworthiness of tenants
· We
are
exposed to customer risk. Our performance depends on our ability to collect
rent
from our customers. General economic conditions and an increase in unemployment
rates could cause the financial condition of a large number of our tenants
to
deteriorate. While no tenant in our wholly owned portfolio accounted for a
significant amount of the annualized rental revenue of these respective
properties at December 31, 2006, our financial position may be adversely
affected by financial difficulties experienced by our tenants, including
bankruptcies, insolvencies or general downturns in business.
The
risk of loss of available financing for both our customers and
us
· Our
business and earnings are also substantially dependent on the ability of our
customers to finance the purchase of our land or homes. Limitations on the
availability of financing or increases in the cost of such financing could
adversely affect our operations. Our business and earnings is also substantially
dependent on our ability to obtain financing for our development activities
as
well as refinancing our properties' mortgages. Increases in interest rates,
concerns about the market or the economy, or consolidation or dissolution of
financial institutions could increase our cost of borrowing, reduce our ability
to obtain the funds required for our future operations, and limit our ability
to
refinance existing debt when it matures. Changes in competition, availability
of
financing, customer trends and market conditions may impact our ability to
obtain loans to finance the development of our future communities.
Adverse
changes in the real estate markets, including, among other
things:
Competition
with other companies
· We
operate in a very competitive environment, which is characterized by competition
from a number of other land developers. Actions or changes in plans by
competitors may negatively affect us.
Reduction
in demand for new construction homes
· The
price
received for residential lots in St. Charles and home sales in Puerto Rico
are
impacted by changes in the demand for new construction homes. Softening of
the
demand for new homes in these areas will likely result in reductions in selling
prices which would negatively impact our revenues and gross margins.
Risks
of real estate acquisition and development (including our ability to obtain
governmental approvals for development projects and to complete our current
development projects on time and within budget)
· Our
plans
for the future development of our residential communities can be affected by
a
number of factors including time delays in obtaining necessary government
permits and approvals and legal challenges to our planned
communities.
· The
agreements we execute to acquire properties generally are subject to customary
conditions to closing, including completion of due diligence investigations
which may be unacceptable; acquired properties may fail to perform as we
expected in analyzing our investments; our estimates of the costs or
repositioning or redeveloping acquired properties may be inaccurate; the
development opportunity may be abandoned after expending significant resources.
In connection with our development occupancy rates and rents at the newly
completed property may not meet the expected levels and could be insufficient
to
make the property profitable.
· The
development of our residential communities may be affected by circumstances
beyond our control, including weather conditions, work stoppages, labor
disputes, unforeseen engineering, environmental or geological problems and
unanticipated shortages of or increases in the cost of materials and labor.
Any
of these circumstances could give rise to delays in the completion of, or
increase the cost of, developing one or more of our residential
communities.
· The
bulk
of our operations are concentrated in Maryland and Puerto Rico, making us
particularly vulnerable to changes in local economic conditions. In addition,
if
weather conditions, or a natural disaster such as a hurricane or tornado, were
to impact those regions, our results of operations could be adversely impacted.
Although insurance could mitigate some amount of losses from a catastrophe
in
those regions, it might not fully compensate us for our opportunity costs or
our
projected results of future operations in those regions, the market acceptance
of which might be different after a catastrophe.
Risk
of adverse changes in our relationship with significant customers, specifically
Lennar Corporation:
Residential
land sales to Lennar within our U.S. segment were $18,204,000 for the year
ended
December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
of
our total year-to-date consolidated revenue. No other customers accounted for
more than 10% of our consolidated revenue for the year ended December 31, 2006.
Loss of all or a substantial portion of our land sales, as well as the joint
venture's land sales, to Lennar would have a significant adverse effect on
our
financial results until such lost sales could be replaced. We cannot assure
you
that any lost sales could be replaced on comparable terms, or at
all.
Our
residential land sales agreement with Lennar requires the homebuilder to
purchase 200 residential lots per year, provided that they are developed and
available for delivery as defined by the development agreement. Based on 200
lot
sales per year, it is estimated that lot settlements will take place through
2015; however, the recent slowing of the new homes sales market in the United
States, and more specifically in the Washington D.C. suburban areas, could
adversely impact Lennar’s willingness or ability to take down 200 lots per
year. In the event that Lennar does not take down the required 200 lots
per year, Lennar would lose their exclusivity within Fairway Village as we
would
be allowed to sell these lots to other homebuilders.
Risk
that we would be unable to renew HUD subsidy contracts and the absence of
federal funds on a timely basis to service these contracts
As
of
December 31, 2006, we owned an equity interest in and managed for third parties
and affiliates multifamily rental properties that benefit from governmental
programs intended to provide housing to people with low or moderate incomes.
These programs, which are usually administered by HUD or state housing finance
agencies, typically provide mortgage insurance, favorable financing terms or
rental assistance payments to the property owners. Historically, there have
been
delays in the receipt of subsidy payments which generally occur upon contract
renewal and HUD’s annual budget renewal process. For those partnerships in which
we serve as General Partner, we may be required to fund operating
cash
deficits when these delays occur. General Partner advances or loans to the
partnerships may then become subject to the repayment provisions required by
the
respective partnership agreements which may impede the timing of
repayment.
Furthermore, as a condition of the receipt of assistance under these programs,
the properties must comply with various requirements, which typically limit
rents to pre-approved amounts. If permitted rents on a property are insufficient
to cover costs, our cash flow from these properties will be negatively impacted,
and our management fees may be reduced or eliminated.
Risk
that we would be unable to obtain insurance at a reasonable
cost
We
may
experience economic harm if any damage to our properties is not covered by
insurance. We carry insurance coverage on our properties of the type and in
amounts that we believe is in line with coverage customarily obtained by owners
of similar properties. We believe all of our properties are adequately insured.
However, we cannot guarantee that the limits of our current policies will be
sufficient in the event of a catastrophe to our properties. We may suffer losses
that are not covered under our comprehensive liability, fire, extended coverage
and rental loss insurance policies. If an uninsured loss or a loss in excess
of
insured limits should occur, we could lose capital invested in a property,
as
well as any future revenue from the property. We would nevertheless remain
obligated on any mortgage indebtedness or other obligations related to the
property.
Risk
of significant environmental and safety requirements could reduce our
profitability
Our
properties may contain or develop harmful mold, which could lead to liability
for adverse health effects and costs of remediating the problem. When excessive
moisture accumulates in buildings or on building materials, mold growth may
occur, particularly if the moisture problem remains undiscovered or is not
addressed over a period of time. Some molds may produce airborne toxins or
irritants. Concern about indoor exposure to mold has been increasing as exposure
to mold may cause a variety of adverse health effects and symptoms, including
allergic or other reactions. As a result, the presence of significant mold
at
any of our properties could require us to undertake a costly remediation program
to contain or remove the mold from the affected property. In a similar manner,
the existence of a significant amount of lead based paint at our properties
could result in costly remediation efforts. In addition, the presence of
significant mold or lead based paint could expose us to liability from our
tenants, employees of our tenants and others if property damage or health
concerns arise. In addition, we are required to operate our properties in
compliance with fire and safety regulations, building codes and other land
use
regulations, as they may be adopted by governmental agencies and bodies and
become applicable to our properties. We may be required to make substantial
capital expenditures to comply with those requirements and these expenditures
could have a material adverse effect on our operating results and financial
condition, as well as our ability to make distributions to
shareholders.
Risk
of loss of senior management and key employees
We
could
be hurt by the loss of key management personnel. Our future success depends,
to
a significant degree, on the efforts of our senior management. Our operations
could be adversely affected if key members of senior management cease to be
active in our company.
If
the company were to be taxed as a corporation rather than a partnership, this
would have adverse tax consequences for the company with respect to the income
earned from our Puerto Rico operations.
The
Internal Revenue Code provides that publicly traded partnerships like ACPT
will,
as a general rule, be taxed as corporations for U.S. federal income tax
purposes, subject to certain exceptions. We have relied in the past, and expect
to continue to rely on an exception to this general rule for publicly traded
partnerships that earn 90% or more of their gross income for every taxable
year
from specified types of “qualifying income,” including dividends. If we fail to
meet this “qualifying income” exception or otherwise determine to be treated as
a corporation for federal income tax purposes, the income we earn from our
Puerto Rico operations would be subject to increased taxes.
We
do not
believe that there would be an increase in the U.S. income taxes that would
be
imposed on our U.S. operations if ACPT were not to qualify as a partnership
for
U.S. income tax purposes. However, our classification as a partnership does
permit us to reduce the overall taxes that the Company pays on the operations
of
our Puerto Rico subsidiary (because, in ACPT’s current partnership tax
structure, ACPT is taxed in Puerto Rico, but not in the United States, on those
operations). If we were not to qualify as a partnership for U.S. tax purposes,
the net result would be an incremental
increase in ACPT’s total tax expense on income for operations in Puerto Rico,
although it is not practicable to quantify that potential impact.
The
tax liabilities of our shareholders may exceed the amount of the cash
distributions we make to them.
A
shareholder generally will be subject to U.S. federal income tax on his or
her
allocable share of our taxable income, whether or not we distribute that income
to you. We intend to make elections and take other actions so that, to the
extent possible, our taxable income will be allocated to individual shareholders
in accordance with the cash received by them. In addition, we are generally
required by our Declaration of Trust to make minimum aggregate distributions,
in
cash or property, each year to our shareholders equal to 45% of our net taxable
income, reduced by the amount of Puerto Rico taxes we pay.
If
our
income consists largely of cash distributions from our subsidiaries, as
expected, it is likely that we will have sufficient cash to distribute to
shareholders. There can be no assurance, however, that our income allocations
to
the individual shareholders will be respected or that we will be able to make
distributions in any given year that provide each individual shareholder with
sufficient cash to meet his or her federal and state income tax liabilities
with
respect to his or her share of our income.
A
portion of the proceeds from the sale of our shares may be taxed as ordinary
income.
A
shareholder will generally recognize gain or loss on the sales of our shares
equal to the difference between the amount realized and the shareholder’s tax
basis in the shares sold. Except as noted below, the gain or loss recognized
by
a shareholder, other than a “dealer” in our shares, on the sale or exchange of
shares held for more than one year will generally be taxable as capital gain
or
loss. Capital gain recognized by an individual on the sale of shares held more
than 12 months will generally be taxed at a maximum rate of 15%.
A
portion
of this gain or loss, however, may be taxable as ordinary income under Section
751 of the Code to the extent attributable to so-called “unrealized
receivables,” which term, for this purpose, includes stock in our Puerto Rico
subsidiary to the extent that gain from our sale of that stock would be taxable
to our shareholders as a dividend under Section 1248 of the Code. The amount
of
ordinary income attributable to “unrealized receivables” related to stock in our
Puerto Rico subsidiary will be determined based on the amount of earnings and
profits accumulated by our Puerto Rico subsidiary. We will provide to each
selling shareholder, at the time we send the K-1 materials, a table showing
the
earnings and profits accumulated by our Puerto Rico subsidiary by year and
the
average number of our shares outstanding during the year, so that the
shareholder may make a determination of the amount of earnings and profits
allocable to him or her and the amount of ordinary income to be recognized
on
the sale. Although there is no definitive authority on the question, we believe
that it is reasonable to base the allocation on the earnings and profits
accumulated during the period that the shareholder held the shares that are
sold
and the percentage of our average number of shares outstanding that those shares
represented.
The
amount of unrealized receivables may exceed the net taxable capital gain that
a
shareholder would otherwise realize on the sale of our shares, and may be
recognized even if the shareholder would realize a net
taxable
capital loss on the sale. Thus, a shareholder may recognize both ordinary income
and capital loss upon a sale of our shares. Accordingly, a shareholder
considering the sale of our shares is urged to consult a tax advisor concerning
the portion of the proceeds that may be treated as ordinary income. In addition,
the shareholder is required to report to us any sale of his or her shares,
unless the broker effecting the transaction files a Form 1009-B with respect
to
the sale transaction.
Investors
should be aware that tax rules relating to the tax basis and holding period
of
interests in a partnership differ from those rules affecting corporate stock
generally, and these special rules may impact your purchases and sales of our
shares in separate transactions.
The
IRS
has ruled that an investor who acquires interests in an entity taxed as a
partnership, like ACPT, in separate transactions must combine those interests
and maintain a single adjusted tax basis for those interests. Upon a sale or
other disposition of less than all of the shares held by a shareholder, a
portion of the shareholder’s tax basis in all of his or her shares must be
allocated to the shares sold using an “equitable apportionment” method, which
generally means that the tax basis allocated to the shares sold bears the same
relation to the shareholder’s tax basis in all of the shares held as the value
of the shares sold bears to the value of all of the Shares held by the
shareholder immediately prior to the sale. Furthermore, Treasury Regulations
under Section 1223 of the Code generally provide that if a shareholder has
acquired shares at different times, the holding period of the transferred shares
shall be divided between long-term and short-term capital gain or loss in the
same proportions as the long-term and short-term capital gain or loss that
the
shareholder would realize if the all of the shareholder’s shares were
transferred in a fully taxable transaction immediately before the actual
transfer. The Regulations provide, however, a special rule that allows a selling
shareholder who can identify shares transferred with an ascertainable holding
period to elect to use the actual holding period of the shares transferred.
Thus,
according to the ruling discussed above, a shareholder will be unable to select
high or low basis shares to sell as would be the case with shares of entities
treated as corporations for federal income tax purposes, but, according to
the
regulations, may designate specific shares for purposes of determining the
holding period of the shares transferred. A shareholder electing to use the
actual holding period of shares transferred must consistently use that
identification method for all subsequent sales or exchanges of shares. A
shareholder considering the purchase of additional shares or a sale of shares
purchased in separate transactions is urged to consult his tax advisor as to
the
possible consequences of the ruling and the application of these Treasury
Regulations.
|
UNRESOLVED
STAFF COMMENTS
|
None
ACPT
owns
real property located in the United States and Puerto Rico. As of December
31,
2006, the Company held investments in multifamily and commercial real estate
properties, apartment properties under construction, community development
land
holdings, and homebuilding units. Refer to the tables in Item 1 for additional
information required under this Item 2.
Below is a description of all material litigation that ACPT or any of its
subsidiaries are a party to.
Comité
Loiza Valley en Acción, Inc. vs. Cantera Hipódromo, Inc., Carlos Ortiz Brunet,
his wife Frances Vidal; Land Development Associates, S.E.; Integrand Assurance
Company; American International Insurance Company; Et als,
No.
FPE97-0759(406), Superior Court of Carolina, Puerto Rico. On November 24, 1997,
Comité Loiza Valley en Acción, Inc., resident owners of Urbanización Loiza
Valley in Canovanas, Puerto Rico, a neighborhood consisting of 56 houses near
the property owned by LDA, filed a claim in the Superior Court of Carolina,
Puerto Rico against Cantera Hipodromo, Inc. (the “lessee” who operates a quarry
on the land owned by LDA), the owners of the lessee, the lessee’s Insurance
Companies and LDA. The Plaintiffs allege that as a result of certain explosions
occurring in the quarry, their houses have suffered different types of damages
and they have also suffered physical injuries and mental anguish. The damages
claimed exceed $11,000,000. The physical damage to the property is estimated
at
less than $1,000,000. The lease agreement contains an indemnification clause
in
favor of LDA. The lessee has public liability insurance coverage of $1,000,000
through Integrand Assurance Company and an umbrella insurance coverage of
$2,000,000 through American International Insurance Company. Integrand’s legal
counsel has provided the legal defense for all parties to date but in September
2003 declared
that
the
allegations in the complaint regarding public nuisance do not fall under their
policy. In November 2003, the lessee’s legal counsel filed a motion in
opposition to such allegation. On January 28, 2005, the appellate court in
Puerto Rico confirmed that the trial court and Integrand is forced to provide
coverage and pay attorneys’ fees to LDA and to Cantera Hipodromo. On February
11, 2005, Integrand filed a reconsideration motion in the appellate court and
on
February 28, 2005 the same court dismissed the motion presented by Integrand.
On
March 17, 2005, Integrand filed a request of certiorari in the Supreme Court
of
Puerto Rico and on March 23, 2005, an opposition to the expedition of the
certiorari was filed. On June 6, 2005, the Supreme Court denied said request.
Hence, LDA is an added insured on the damage claims in the complaint. In the
status hearing held on August 10, 2005, the court scheduled the beginning of
the
trial for November 2006 however, the trial has been delayed until May 2007.
Jalexis,
Inc. vs. LDA, Interstate, IGP, Constructora Santiago Corp; Et als,
Civil
no
FDP060534 (404).
In
late
November 2006, several subsidiaries of the Company (LDA, IGP and IGP Group)
were
named in a lawsuit filed by Jalexis, Inc. (“Jalexis”). The lawsuit claims
damages for more than $15 million allegedly suffered due to faulty subsoil
conditions in a piece of land within the master plan of Parque Escorial (“Lot
I-13W”). Settlement of Lot I-13W occurred on April 29, 2005 under an option
agreement dated April 19, 2004. Jalexis purchased Lot I-13W from LDA for
approximately $7.5 million, which represented 12% of our total consolidated
revenues for 2005. In the settlement agreement, LDA did not make any
representations or warranties with regard to the soil and subsoil conditions
and
stipulated Lot I-13W was sold to Jalexis “as is” and “where is”. The Company
believes that it has a strong defense in this case; however, our insurance
carrier denies any obligation to assume responsibility for the defense. The
Company believes that this lawsuit should be covered by our insurance policy
and
therefore, we are readdressing this issue to the insurance company.
Due
to
the inherent uncertainties of the judicial process, we are unable to either
predict the outcome of or estimate a range of potential loss associated with
this matter. While we intend to vigorously defend this matter and believe we
have meritorious defenses available to us, there can be no assurance that we
would prevail. If this matter is not resolved in our favor, we are insured
for
potential losses. Any amounts that exceed our insurance coverage could have
a
material adverse effect on our financial condition and results of
operations.
The
Company and/or its subsidiaries have been named as defendants, along with other
companies, in tenant-related lawsuits. The Company carries liability insurance
against these types of claims that management believes meets industry
standards. To date, payments made to the plaintiffs of the settled cases
were covered by our insurance policy. The Company believes it has strong
defenses to these ordinary course claims, and intends to continue to defend
itself vigorously in these matters.
In
the
normal course of business, ACPT is involved in various pending or unasserted
claims. In the opinion of management, these are not expected to have a material
impact on the financial condition or future operations of ACPT.
There
are
no other proceedings required to be disclosed pursuant to Item 103 of Regulation
S-K.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted to a vote of the shareholders during the fourth quarter
of the fiscal year ended December 31, 2006.
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
The
executive officers of the Company as of December 31, 2006 are as
follows:
Name
|
Age
|
Position
|
|
|
|
J.
Michael Wilson
|
41
|
Chairman
and Chief Executive Officer
|
Edwin
L. Kelly
|
65
|
President
and Chief Operating Officer
|
Carlos
R. Rodriguez
|
61
|
Executive
Vice President
|
Cynthia
L. Hedrick
|
54
|
Chief
Financial Officer, Executive Vice President, Secretary and
Treasurer
|
Paul
A. Resnik
|
59
|
Senior
Vice President and Assistant Secretary
|
Eduardo
Cruz Ocasio
|
60
|
Senior
Vice President and Assistant Secretary
|
Matthew
M. Martin
|
31
|
Vice
President and Chief Accounting Officer
|
Jorge
Garcia Massuet
|
68
|
Vice
President
|
Harry
Chalstrom
|
46
|
Vice
President
|
Mark
L. MacFarland
|
37
|
Vice
President
|
Rafael
Velez
|
50
|
Vice
President
|
Messrs.
Wilson and Kelly are also members of our Board of Trustees. Brief biographies
of
Messrs. Wilson and Kelly are incorporated by reference to the Company’s Proxy
Statement to be filed with the Commission for its Annual Shareholder’s Meeting
to be held in June 2007. Biographical information for our other executive
officers is as follows:
Carlos
R.
Rodriguez was appointed Executive Vice President of the Company in January
2002
after serving as Senior Vice President since June 1999. Prior to that date,
he
served in various capacities with the predecessor company and its
affiliates.
Cynthia
L. Hedrick was appointed Executive Vice President in January 2006 after serving
as Senior Vice President since June 2002. She continues to serve the Company
as
the Chief Financial Officer and Secretary/Treasurer, a position that she has
held since June 2002. Ms. Hedrick served as Vice President of the Company from
November 1998 to June 2002 and prior to that date she served as Vice President
of the predecessor company.
Paul
A.
Resnik was appointed Senior Vice President of the Company in July 1998. He
served as Senior Vice President of the predecessor company from
1993-1998.
Eduardo
Cruz Ocasio was appointed Senior Vice President of the Company in June 2002
after serving as Vice President and Assistant Secretary of the Company since
July 1998. Prior to that date, he served in various capacities with the
predecessor company.
Matthew
M. Martin was appointed Vice President and Chief Accounting Officer in August
of
2005. Prior to joining the Company, he worked for FTI Consulting serving as
a
Manager in the Forensic and Litigation Consulting practice. He joined FTI
in 2002 where he worked on both large scale internal investigations of complex
accounting issues for national and international companies as well as litigation
consulting for accounting fraud cases. Prior to joining FTI Consulting, he
managed audits for Arthur Andersen.
Jorge
Garcia Massuet was appointed Vice President of the Company in June 2002. He
has
been Vice President of IGP since January 1999. He served as Vice President
and
General Manager of Fountainebleu Plaza, S.E., a real estate development firm,
from January 1994 to December 1998.
Harry
Chalstrom was appointed Vice President of the Company in January 2004 after
serving as Director of Rental Housing of the Company since November 2002. Prior
to that date, he worked for Bozzuto Construction Company from 1997 to 2002.
During his tenure at Bozzuto, he served as a Project Manager for apartment
construction projects.
Mark
L.
MacFarland was appointed Vice President of the Company in January 2006 after
serving as the Executive Director of Land Development for the Company since
June
2003. From June 2002 to June 2003, he worked as a consultant for the
Charles County Government working on numerous capital improvement
projects. Before serving as a consultant, he worked as an engineer and
developer in the power generation industry.
Rafael
Vélez was appointed Vice President of the Company in January 2006. Mr. Vélez has
been with the Company since September of 2001 when he was hired as the Chief
Accounting Officer of IGP LP, a wholly owned subsidiary of the Company. In
June
2002, Mr. Vélez was appointed as Vice President of IGP Group and in June 2003
was appointed and currently remains as Vice President, Secretary and Treasurer.
In June 2004, Mr. Vélez was appointed and currently remains as Senior Vice
President, Chief Financial Officer, Secretary and Treasurer of IGP LP. He has
more than 30 years experience in public and private accounting in the Real
Estate, Development, Construction and Property Management
Industries.
PART
II
|
MARKET
FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER
PURCHASES OF EQUITY
SECURITIES
|
The
principal market for our Company’s common shares is the American Stock Exchange
under the symbol "APO" and our shares are also listed on the NYSE
ARCA
(formerly the Pacific Exchange) under
the
same trading symbol. As of the close of business on March 1, 2007, there were
146 shareholders of record of ACPT’s common shares. On March 1, 2007, the
closing price reported by the American Stock Exchange was $19.13.
The
table
below sets forth, for the periods indicated, the high and low closing prices
of
the Company’s shares as reported in the consolidated reporting system of the
American Stock Exchange Composite, and the dividends declared per common share
for such calendar quarter.
|
|
|
|
Price
Range of ACPT Shares
|
|
Dividends
|
|
|
|
|
High
|
|
Low
|
|
Declared
|
|
|
|
|
|
|
|
|
|
2006
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fourth
|
|
$
20.24
|
|
$
17.49
|
|
$
0.10
|
|
|
Third
|
|
20.20
|
|
19.40
|
|
0.10
|
|
|
Second
|
|
22.25
|
|
20.00
|
|
0.10
|
|
|
First
|
|
23.25
|
|
19.48
|
|
0.53
|
|
|
|
|
|
|
|
|
|
2005
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fourth
|
|
$
26.35
|
|
$
16.50
|
|
$
0.10
|
|
|
Third
|
|
25.90
|
|
18.60
|
|
0.10
|
|
|
Second
|
|
19.94
|
|
13.30
|
|
0.10
|
|
|
First
|
|
14.07
|
|
12.11
|
|
0.10
|
Minimum
annual distributions
Under
the
terms of the Declaration of Trust of ACPT, the Board of Trustees will make
minimum annual distributions to the shareholders equal to at least 45% of the
net taxable income allocated to the shareholders, reduced by any Puerto Rico
income tax paid by ACPT and any U.S. federal income taxes paid by ARPT with
respect to undistributed capital gains.
Non-required
dividend distributions to shareholders
Dividend
distributions in addition to the required minimum distribution (as stated above)
will be evaluated quarterly and made at the discretion of the Board of Trustees.
In making such determinations, the Board of Trustees will take into account
various factors, including ACPT's anticipated needs for cash for future
expansion and development, current and anticipated expenses, obligations and
contingencies, and other similar working capital contributions.
Dividend
Distribution related to our IRS matter
As
announced on March 10, 2006 the Company entered into a closing agreement with
the United States Internal Revenue Service (“IRS”) by which the Company was able
to maintain its publicly traded partnership (“PTP”) status for U.S. federal
income tax purposes. The details of the closing agreement with the IRS
required that the Company report approximately $5.0 million to shareholders
as
taxable income on March 29, 2006. Under the terms of the Company’s
governing documents, it was required to make minimum annual distributions to
the
shareholders equal to at least 45% of net taxable income allocated to
shareholders. Accordingly, the Board of Trustees declared a dividend of
$0.43 per share, $2,230,000 in the aggregate. The dividend was paid on April
12,
2006 to shareholders of record on March 29, 2006.
Five-year
Stock Performance Graph
The
graph
below matches American Community Properties Trust's cumulative 5-year total
shareholder return on common stock with the cumulative total returns of the
S
& P 500 index and the NAREIT Equity index. The graph tracks the performance
of a $100 investment in our common shares and in each of the indexes (with
the
reinvestment of all dividends) from 12/31/2001 to 12/31/2006.
|
|
|
|
|
|
|
|
|
|
12/01
|
12/02
|
12/03
|
12/04
|
12/05
|
12/06
|
|
|
|
|
|
|
|
|
American
Community Properties Trust
|
|
100.00
|
87.84
|
130.88
|
200.68
|
329.25
|
340.78
|
S
& P 500
|
|
100.00
|
77.90
|
100.24
|
111.15
|
116.61
|
135.03
|
NAREIT
Equity
|
|
100.00
|
103.82
|
142.37
|
187.33
|
210.12
|
283.78
|
The
stock price performance included in this graph is not necessarily indicative
of
future stock price performance.
The
following table sets forth selected consolidated financial and operating data
of
the Company for the five years ended December 31, 2006. The information in
the
following table should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" of this Annual Report
on
Form 10-K.
|
|
Year
Ended December 31,
|
|
|
|
2006*
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(In
thousands, except per share and operating data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenues
|
|
$
|
98,163
|
|
$
|
62,313
|
|
$
|
49,011
|
|
$
|
55,506
|
|
$
|
36,902
|
|
Total
operating expenses
|
|
|
73,168
|
|
|
51,207
|
|
|
40,932
|
|
|
47,720
|
|
|
30,730
|
|
Operating income
|
|
|
24,995
|
|
|
11,106
|
|
|
8,079
|
|
|
7,786
|
|
|
6,172
|
|
Income
before provision (benefit) for income taxes
|
|
|
7,485
|
|
|
6,855
|
|
|
4,331
|
|
|
3,901
|
|
|
4,724
|
|
Income
tax provision (benefit)
|
|
|
2,894
|
|
|
(690
|
)
|
|
1,500
|
|
|
1,596
|
|
|
2,338
|
|
Net income
|
|
|
4,591
|
|
|
7,545
|
|
|
2,831
|
|
|
2,305
|
|
|
2,386
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.88
|
|
$
|
1.45
|
|
$
|
0.55
|
|
$
|
0.44
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.88
|
|
$
|
1.45
|
|
$
|
0.55
|
|
$
|
0.44
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
346,699
|
|
$
|
217,085
|
|
$
|
184,027
|
|
$
|
142,497
|
|
$
|
136,067
|
|
Recourse debt
|
|
|
29,351
|
|
|
32,818
|
|
|
27,192
|
|
|
24,634
|
|
|
43,206
|
|
Non-recourse debt
|
|
|
270,720
|
|
|
119,865
|
|
|
98,879
|
|
|
70,979
|
|
|
44,205
|
|
Other liabilities
|
|
|
30,774
|
|
|
29,912
|
|
|
29,065
|
|
|
19,031
|
|
|
21,429
|
|
Total
liabilities
|
|
|
330,845
|
|
|
182,595
|
|
|
155,136
|
|
|
114,644
|
|
|
108,840
|
|
Shareholders'
equity
|
|
|
15,854
|
|
|
34,490
|
|
|
28,891
|
|
|
27,853
|
|
|
27,227
|
|
Cash
dividends declared and paid per common share
|
|
$
|
0.83
|
|
$
|
0.40
|
|
$
|
0.35
|
|
$ |
-
|
|
$ |
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
apartment units managed at end of period
|
|
|
7,693
|
|
|
7,491
|
|
|
7,406
|
|
|
7,747
|
|
|
7,747
|
|
Community
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential lots sold
|
|
|
135
|
|
|
94
|
|
|
70
|
|
|
88
|
|
|
161
|
|
Residential lots transferred to homebuilding
|
|
|
-
|
|
|
-
|
|
|
160
|
|
|
-
|
|
|
-
|
|
Residential lots transferred to joint venture
|
|
|
-
|
|
|
-
|
|
|
352
|
|
|
-
|
|
|
-
|
|
Joint venture lots delivered
|
|
|
61
|
|
|
25
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Residential lots transferred to investment property
division
|
|
|
-
|
|
|
252
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial and business park acres sold
|
|
|
15
|
|
|
11
|
|
|
3
|
|
|
8
|
|
|
13
|
|
Homebuilding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes sold
|
|
|
78
|
|
|
32
|
|
|
55
|
|
|
124
|
|
|
29
|
|
*The
financial statements as of and for the year ended December 31, 2006 reflect
the
adoption of Emerging Issues Task Force 04-05, “Determining Whether a General
Partner as a Group Controls a Limited Partnership or Similar Entity When The
Limited Partners Have Certain Rights” (“EITF 04-05”) on January 1, 2006
(Refer to Note 2 of the Consolidated Financial Statements).
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
FORWARD
LOOKING STATEMENTS
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing in Item 8 of this report.
Historical results set forth in Selected Financial Information, Management's
Discussion and Analysis of Financial Condition and Results of Operation and
the
Financial Statements and Supplemental Data included in Items 6, 7 and 8 should
not be taken as indicative of our future operations.
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These include
statements about our business outlook, assessment of market and economic
conditions, strategies, future plans, anticipated costs and expenses, capital
spending, and any other statements that are not historical. The accuracy of
these statements is subject to a number of unknown risks, uncertainties, and
other factors that may cause our actual results, performance or achievements of
the Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Those
items are discussed under “Risk Factors” in Item 1A to this annual report on
Form 10-K.
GENERAL
American
Community Properties Trust ("ACPT" or the "Company") is a self managed holding
company that is primarily engaged in the investment in multifamily rental
properties, property management services, community development, and
homebuilding through its consolidated subsidiaries. The operations are managed
out of two primary offices: St. Charles, Maryland, which also houses the
executive offices, and San Juan, Puerto Rico.
The
U.S.
operations are managed through American Rental Management Company ("ARMC").
This
includes the management of apartment properties in which we have an ownership
interest, apartment properties owned by third parties and affiliates of J.
Michael Wilson, our Chairman and CEO, as well as our community development
operations. American Land Development U.S. Inc. ("ALD") and its subsidiary
own
and develop our land holdings in St. Charles, Maryland. St. Charles is a 9,000
acre planned community consisting of residential, commercial, recreational
and
open space land. It has provided the Company and its predecessor with inventory
for the last three decades with expectations of another three decades. Through
the aid of outside consultants, we plan, design and develop the land for sale
or
use in our own investment portfolio. ALD also has a 50% interest in a land
development joint venture formed to develop land for an active adult community
in St. Charles. American Rental Properties Trust ("ARPT") and its subsidiaries
hold the general and limited partnership interests in our U.S. apartment
property portfolio. The apartment properties are individually organized into
separate entities. ARPT's ownership in these entities ranges from 0.1% to 100%.
We expect to retain the land identified for future apartment units in St.
Charles to expand our apartment investment portfolio. We are also seeking
additional properties that will add value to our existing investment assets.
The
Puerto Rico operations are managed through Interstate General Properties Limited
Partnership S.E. ("IGP"), a wholly owned subsidiary of IGP Group Corp which
is a
wholly owned subsidiary of ACPT. IGP provides property management services
to
multifamily rental properties in Puerto Rico in which we have an ownership
interest (“Puerto Rico Apartments”), apartment properties owned by third
parties, our commercial properties, and property management associations related
to our planned communities. IGP also provides management services for our
homebuilding and community development operations. IGP holds the ownership
interests in the Puerto Rico Apartments and two commercial properties. The
Puerto Rico apartments are organized into separate partnerships and receive
HUD
subsidies. IGP's ownership in these partnerships ranges from 1% to 52.5%. IGP's
ownership in the commercial properties ranges from 28% to 100%. Our community
development assets in Puerto Rico, consisting of two planned communities, are
owned by Land Development Associates, S.E. ("LDA"). The first planned community,
Parque Escorial, is currently under development and consists of residential,
commercial and recreation land similar to our U.S. operations but on a smaller
scale. Our second planned community, Parque El Commandante, is expected to
be
similar in design; however it is currently in the planning stages. Our
homebuilding operation builds condominiums for sale on land located in its
planned communities. Each homebuilding project is organized into separate
entities, all wholly owned by IGP and LDA. LDA also retained a limited
partnership interest in the commercial building in Parque Escorial opened in
2005 which was built on land contributed by LDA.
ACPT
is
taxed as a U.S. partnership and its taxable income flows through to its
shareholders. ACPT is subject to Puerto Rico taxes on IGP Group’s taxable
income, generating foreign tax credits that have been passed through to ACPT’s
shareholders. A proposed IRS regulation would eliminate this treatment
commencing in 2007, if
finalized.
ACPT’s federal taxable income consists of certain passive income from IGP Group,
a controlled foreign corporation, distributions from IGP Group and dividends
from ACPT’s U.S. subsidiaries. Other than Interstate Commercial Properties
(“ICP”), which is taxed as a Puerto Rico corporation, the taxable income from
the remaining Puerto Rico operating entities passes through to IGP Group or
ALD.
Of this taxable income, only the portion of taxable income applicable to the
profits on the residential land sold in Parque Escorial passes through to ALD.
ALD, ARMC, and ARPT are taxed as U.S. corporations. The taxable income from
the
U.S. apartment properties flows through to ARPT.
NEW
ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF
PRESENTATION
In
June
2005, the FASB ratified Emerging Issues Task Force Issue 04-05, "Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights,"
or
EITF 04-05. EITF 04-05 provides an accounting model to be used by a general
partner, or group of general partners, to determine whether the general
partner(s) controls a limited partnership or similar entity in light of certain
rights held by the limited partners. In accordance with the provisions of EITF
04-05, beginning January 1, 2006 we have included the following partnerships
in
our consolidated group: Alturas Del Senorial Associates Limited Partnership,
Bayamon Garden Associates Limited Partnership, Carolina Associates Limited
Partnership S.E., Colinas de San Juan Associates Limited Partnership, Essex
Apartments Associates Limited Partnership, Huntington Associates Limited
Partnership, Jardines de Caparra Associates Limited Partnership, Monserrate
Associates Limited Partnership, San Anton Associates, Turabo Limited Dividend
Partnership and Valle del Sol Associates Limited Partnership. Historically,
our
interests in these partnerships were recorded using the equity method of
accounting.
The
impact of consolidating the financial statements of these partnerships increased
our operating assets and liabilities by $78.5 million and $97.7 million,
respectively, as of January 1, 2006. The addition to assets is primarily related
to real estate at historical cost, net of accumulated depreciation of
approximately $53.3 million, and the addition to liabilities is primarily
related to non-recourse debt of approximately $98.6 million held by these
limited partnerships. The Company recorded an overall reduction to retained
earnings of $19.1 million in a manner similar to a cumulative effect of a change
in accounting principle. The retained earnings impact is net of a deferred
tax
asset recorded of $9.8 million related to temporary differences arising from
the
negative deficits absorbed by the Company in consolidation.
With
respect to our accounting for minority interest in our consolidated
partnerships, when consolidated real estate partnerships make cash distributions
or allocate losses to partners in excess of the minority partners' basis in
the
property, we generally record a charge equal to the amount of such excess
distribution.
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting
for Income Taxes,”
and
it
seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes. In addition, FIN
48
requires expanded disclosure with respect to the uncertainty in income taxes
and
is effective as of the beginning of our 2007 fiscal year. We are currently
evaluating the impact, if any, that FIN 48 will have on our financial
statements.
CRITICAL
ACCOUNTING POLICIES
The
Securities and Exchange Commission defines critical accounting policies as
those
that are most important to the portrayal of our financial condition and results.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States, which we refer to as GAAP, requires
management to use judgment in the application of accounting policies, including
making estimates and assumptions. These judgments affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. If our judgment or interpretation of
the
facts and circumstances relating to various transactions had been different,
it
is possible that different accounting policies would have been applied resulting
in a different presentation of our financial statements. Below is a discussion
of accounting policies, which we consider critical in that they may require
complex judgment in their application or require estimates about matters, which
are inherently uncertain.
Sales,
Profit Recognition and Cost Capitalization
Community
development land sales are recognized at closing only when sufficient down
payments have been obtained, possession and other attributes of ownership have
been transferred to the buyer, and ACPT has no significant continuing
involvement. Under the provisions of SFAS 66, related to condominium sales,
revenues and
costs
are
recognized when construction is beyond the preliminary stage, the buyer is
committed to the extent of being unable to require a refund except for
non-delivery of the unit, sufficient units in the project have been sold to
ensure that the property will not be converted to rental property, the sales
proceeds are collectible and the aggregate sales proceeds and the total cost
of
the project can be reasonably estimated. Accordingly we recognize revenue and
costs upon settlement with the homebuyer which doesn’t occur until after we
receive use and occupancy permits for the building.
The
costs
of developing the land are allocated to our land assets and charged to cost
of
sales as the related inventories are sold. The costs the land and construction
of the condominiums are allocated to these assets and charged to cost of sales
as the condominiums are sold. The cost of sales is determined by the percentage
of completion method, which relies on total estimated costs and sales values.
Residential and commercial land sales can be highly cyclical. Once development
is undertaken, no assurances can be given that the Company will be able to
sell
the various developed lots or condominiums in a timely manner. Failure to sell
such lots and homes in a timely manner could result in significantly increased
carrying costs and erosion or elimination of profit with respect to any
development. Even though our cost estimates are based on outside engineers'
cost
estimates, construction contracts and historical costs, our actual development
and construction costs can exceed estimates for various reasons, including
but
not limited to unknown site conditions, rising prices and changes in government
regulations. Any estimates of such costs may differ substantially from the
actual results of such costs and reduce or eliminate the future profits with
respect to any development.
The
Company considers all debt and related interest expense available for
capitalization to the extent of average qualifying assets for the period.
Interest specific to the construction of qualifying assets, represented
primarily by our recourse debt, is first considered for capitalization. To
the
extent qualifying assets exceed debt specifically identified, a weighted average
rate including all other debt is applied. Any excess interest is reflected
as
interest expense.
Investment
in Unconsolidated Real Estate Entities
The
Company accounts for investments in unconsolidated real estate entities that
are
not considered variable interest entities under FIN 46(R) in accordance with
SOP
78-9 "Accounting
for Investments in Real Estate Ventures" and
APB
Opinion No. 18 "The
Equity Method of Accounting for Investments in Common Stock".
For
entities that are considered variable interest entities under FIN 46(R), the
Company performs an assessment to determine the primary beneficiary of the
entity as required by FIN 46(R). The Company accounts for variable interest
entities in which the Company is not a primary beneficiary and does not bear
a
majority of the risk of expected loss in accordance with the equity method
of
accounting.
The
Company considers many factors in determining whether or not an investment
should be recorded under the equity method, such as economic and ownership
interests, authority to make decisions, and contractual and substantive
participating rights of the partners. Income and losses are recognized in
accordance with the terms of the partnership agreements and any guarantee
obligations or commitments for financial support. The Company's investments
in
unconsolidated real estate entities accounted for under the equity method of
accounting consisted of general partnership interests in two limited
partnerships which own apartment properties in the United States; a limited
partnership interest in a limited partnership that owns a commercial property
in
Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited
liability company.
Impairment
of Long-Lived Assets
ACPT
carries its rental properties, homebuilding inventory, land and development
costs at the lower of cost or fair value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." For real estate assets such as our rental
properties which the Company plans to hold and use, which includes property
to
be developed in the future, property currently under development and real estate
projects that are completed or substantially complete, we evaluate whether
the
carrying amount of each of these assets will be recovered from their
undiscounted future cash flows arising from their use and eventual disposition.
If the carrying value were to be greater than the undiscounted future cash
flows, we would recognize an impairment loss to the extent the carrying amount
is not recoverable. Our estimates of the undiscounted operating cash flows
expected to be generated by each asset are performed on an individual project
basis and based on a number of assumptions that are subject to economic and
market uncertainties, including, among others, demand for apartment units,
competition, changes in market rental rates, and costs to operate and complete
each project.
The
Company evaluates, on an individual project basis, whether the carrying value
of
its substantially completed real estate projects, such as our homebuilding
inventory that are to be sold, will be recovered based on the fair value less
cost to sell. If the carrying value were to be greater than the fair value
less
costs to sell, we would
recognize
an impairment loss to the extent the carrying amount is not recoverable. Our
estimates of the fair value less costs to sell are based on a number of
assumptions that are subject to economic and market uncertainties, including,
among others, comparable sales, demand for commercial and residential lots
and
competition. The Company performed similar reviews for land held for future
development and sale considering such factors as the cash flows associated
with
future development expenditures. Should this evaluation indicate an impairment
has occurred, the Company will record an impairment charge equal to the excess
of the historical cost over fair value less costs to sell.
Depreciation
of Investments in Real Estate
The
Company's operating real estate is stated at cost and includes all costs related
to acquisitions, development and construction. We are required to make
assessments of the useful lives of our real estate assets for purposes of
determining the amount of depreciation expense to reflect on our income
statement on an annual basis. Our
assessments, all of which are judgmental determinations, of our investments
in
our real estate assets are as follows:
· |
Buildings
and improvements are depreciated over five to forty years using the
straight-line or double declining balance
methods,
|
· |
Furniture,
fixtures and equipment over five to seven years using the straight-line
method
|
· |
Leasehold
improvements are capitalized and depreciated over the lesser of the
life
of the lease or their estimated useful life,
|
· |
Maintenance
and other repair costs are charged to operations as
incurred.
|
Income
Taxes
The
Company's complex tax structure involves foreign source income and multiple
entities that file separate returns. Due to the complex nature of tax
regulations affecting our entities, our income tax expense and related balance
sheet amounts involve significant management estimates and judgments.
Contingencies
The
Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance.
If it has been determined that a loss is probable to occur, the estimated amount
of the loss is expensed in the financial statements. While the resolution of
these matters cannot be predicted with certainty, we rely on the advice of
our
outside counsel as to the potential and probable outcome of these proceedings
when evaluating any financial statement impact.
RESULTS
OF OPERATIONS
The
following discussion is based on the consolidated financial statements of the
Company. It compares the components of the results of operations of the Company
by segment for each of the three years ended December 31, 2006, 2005 and 2004.
As a result of implementing EITF 04-05, our net income for the year ended
December 31, 2006, on a consolidated basis, was reduced by $2,166,000, but
our
operating income was increased by $7,361,000. Historically, the Company’s
financial results have been significantly affected by the cyclical nature of
the
real estate industry. Accordingly, the Company’s historical financial statements
may not be indicative of future results. This discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
included elsewhere in this report.
Results
of Operations - U.S. Operations:
For
the
year ended December 31, 2006, our U.S. segment generated $15,299,000 of
operating income compared to $8,287,000 of operating income generated by the
segment for the same period in 2005 and $6,568,000 in 2004. Additional
information and analysis of the U.S. operations can be found below.
Rental
Property Revenues and Operating Expenses - U.S.
Operations:
In
the
prior period, fourteen U.S. based apartment properties in which we hold an
ownership interest qualified for the consolidation method of accounting.
Beginning January 1, 2006, two additional properties, Huntington Associates
Limited Partnership (“Huntington”) and Essex Apartments Associates Limited
Partnership (“Essex”) qualified for consolidation under the new provisions of
EITF 04-05. The rules of consolidation require that we include within our
financial statements the consolidated apartment properties' total revenue and
operating expenses. The portion of net income attributable to the interests
of
the outside owners of these properties and any losses and distributions in
excess of the minority owners' basis in those properties are reflected as
minority interest expense.
In
the fourth
quarter of 2005, we broke ground on the newest addition to our rental apartment
properties in St. Charles' Fairway Village, the Sheffield Greens Apartments
(“Sheffield Greens”), and began leasing efforts in the first quarter of 2006.
The 252-unit apartment project consists of nine, 3-story buildings and offers
1
and 2 bedroom units ranging in size from 800 to 1,400 square feet. The Company
completed the construction of the entire nine buildings on January 31, 2007.
The
first five buildings became available for occupancy during the fourth quarter
of
2006. As of December 31, 2006, ---39% of the total units in the complex were
leased.
Apartment
Acquisitions
A
summary
of our significant acquisitions in 2006, 2005 and 2004 is as follows. All of
the
acquired properties are operating as market rate properties.
· |
On
April 28, 2006, the
Company acquired two multifamily rental properties, Milford Station
I LLC
and Milford Station II LLC, in Baltimore, Maryland containing a
combined total of 250 units for approximately $14,300,000.
|
· |
On
May 23, 2005, the Company acquired the assets of Nottingham Apartments
LLC, in Baltimore, Maryland containing 85 units for approximately
$3,000,000.
|
· |
On
October 29, 2004, the Company acquired the assets of two apartment
properties, Owings Chase LLC and Prescott Square LLC, located in
Pikesville, Maryland containing a combined total of 307 units for
approximately $20,000,000.
|
As
of
December 31, 2006, thirteen of the consolidated properties are market rent
properties, allowing us to determine the appropriate rental rates. Even though
we can determine the rents, a portion of our units at some of our market rent
properties must be leased to tenants with low to moderate income. HUD subsidizes
four of the properties and the two remaining properties are a mix of subsidized
units and market rent units. HUD dictates the rents of the subsidized
units.
2006
compared to 2005
The
following table presents the results of rental property revenues and operating
expenses for the years ended December 31, 2006 and 2005 ($ in
thousands):
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of
EITF
04-05
|
December
31,
2005
|
Difference
|
Rental
property revenues
|
$32,505
|
$6,502
|
$26,003
|
$22,508
|
$3,495
|
Rental
operating expenses
|
$16,072
|
$3,936
|
$12,136
|
$10,129
|
$2,007
|
For
the
year ended December 31, 2006, rental property revenues increased $9,997,000
to
$32,505,000 compared to $22,508,000 for the year ended December 31, 2005. The
increase is primarily due to the impact of EITF 04-05 requiring us to include
the results of operations for two apartment properties, Huntington and Essex,
in
our consolidation beginning January 1, 2006. The revenues earned within these
two properties in 2006 were consistent with revenues earned in the prior year.
The increase in our rental property revenue during 2006 was also the result
of
our apartment acquisitions in May 2005 and April 2006 which added $1,693,000
of
rental property revenues. Other increases in rental property revenues during
2006 included a 6% increase in overall average rents resulting in an additional
$1,329,000 of rental property income, which includes the additional revenue
earned from the January 2006 conversion of one of our subsidized apartment
properties to a market rent property. The average increase in rents in 2006
for
properties in the Washington DC and Baltimore suburban areas ranged from 3%
to
4%. The increase in revenue was also the result of a benefit of $274,000
resulting from the completion of the amortization of acquired intangible leases
for Owings Chase and Prescott Square purchased in 2004, and the recognition
of
$200,000 of rent revenue earned from Sheffield Greens, our newest apartment
complex under construction as of December 31, 2006.
For
the
year ended December 31, 2006, rental property operating expenses increased
$5,943,000 to $16,072,000 compared to $10,129,000 for the year ended December
31, 2005. The increase is primarily the result of the impact of EITF 04-05,
which added an additional $3,936,000 in 2006. The increase in our rental
property operating expenses during 2006 is also the result of our apartment
acquisitions in May 2005 and April 2006 which increased our operating expenses
by $1,010,000 as well as operating expenses of $280,000 incurred by Sheffield
Greens. Overall, during 2006, our rental property expenses generally increased
approximately 7% on a comparative basis. The average increase in expenses in
2006 for properties in the Washington DC and Baltimore suburban areas was 3%.
The increase in excess of general inflationary adjustments was attributable
to
the rehabilitation of our apartment units, project wide cleaning, grounds and
maintenance and utility rates.
2005
compared to 2004
Rental
property revenues increased $3,501,000 to $22,508,000 for the year ended
December 31, 2005 compared to $19,007,000 for the same period in 2004. The
18%
increase was primarily due to the apartment acquisitions in October 2004 and
May
2005, an overall average annual rent increase of 5%, as well as an increase
in
rent generated by one of our properties that converted from a fully subsidized
property to a 100% market rate property in July 2004.
Rental
property operating expenses increased $2,042,000 for the year ended December
31,
2005 to $10,129,000 compared to $8,087,000 for the respective period in
2004. The increase in our rental property operating expenses in 2005 is
attributable to the growth in the size of our apartment operations including
acquisitions accounting for $1,807,000 of additional expenses, an increase
in
insurance costs and taxes and an increase due to the rising costs of
utilities.
Community
Development - U.S. Operations:
Land
sales revenue in any one period is affected by the mix of lot sizes and, to
a
greater extent, the mix between residential and commercial sales. In March
2004,
the Company executed an agreement with Lennar Corporation to sell 1,950
residential lots (1,359 single-family lots and 591 town home lots) in Fairway
Village in St. Charles, Maryland. The
agreement requires the homebuilder to provide $20,000,000 in letters of credit
to secure the purchase of the lots and purchase 200 residential lots per year,
provided that they are developed and available for delivery as defined by the
development agreement. Based on 200 lot sales per year, it is estimated that
lot
settlements will take place through 2015; however, the recent slowing of the
new
homes sales market in the United States, and more specifically in the Washington
D.C. suburban areas, could adversely impact Lennar’s willingness or ability to
take down 200 lots per year. In the event that Lennar does not take down
the required 200 lots per year, Lennar would lose their exclusivity within
Fairway Village as we would be allowed to sell these lots to other
homebuilders.
Sales
are closed on a lot by lot basis at the time when the builder purchases the
lot.
The final selling price per lot sold to Lennar may exceed the amount recognized
at closing since the final lot price is equal to 30% of the base price of the
home sold on the lot. Additional revenue exceeding the established minimum
take
down price per lot will be recognized upon Lennar's settlement with the
respective homebuyers. Residential lots vary in size and location resulting
in
pricing differences. Gross margins of residential lots are fairly consistent
within any given village in St. Charles. Commercial land is typically sold
by
contract that allows for a study period and delayed settlement until the
purchaser obtains the necessary permits for development. The sales prices and
gross margins for commercial parcels vary significantly depending on the
location, size, extent of development and ultimate use. Commercial land sales
are cyclical and usually have a noticeable positive effect on our earnings
in
the period they reach settlement.
2006
compared to 2005
Community
development land sales revenue increased $8,564,000 to $20,967,000 for the
year
ended December 31, 2006 compared to $12,403,000 for the year ended December
31,
2005. The 69% increase in our community development land sales within our U.S.
segment in 2006 is the result of our significant investment in residential
lot
development and delivery of residential lots to Lennar.
Residential
Land Sales
For
the
year ended December 31, 2006, we delivered 70 single-family lots and 65
town-home lots to Lennar, resulting in the recognition of revenues ranging
from
$100,000 to $125,000 per single family lot and $70,000 to $85,000 per town-home
lot plus water and sewer fees, road fees and other off-site fees. For the year
ended December 31 2005, we delivered 94 residential lots to Lennar at an initial
selling price of $100,000 per lot plus water and sewer fees, road fees and
other
off-site fees. As of December 31, 2006, we had 157 developed single-family
lots
and 53 finished town-home lots in backlog and ready for delivery.
During
the years ended December 31, 2006 and 2005, we also recognized $3,400,000 and
$2,000,000, respectively, of additional revenue for lots that were previously
sold to Lennar. This additional revenue is based on the final settlement price
of the homes as provided by our agreement with Lennar. Currently new town-homes
in Fairway Village are selling in the mid-$300,000’s while single-family homes
in Fairway Village are selling in excess of $450,000.
Commercial
Land Sales
For
the
year ended December 31, 2006, we sold 14.9 commercial acres in St. Charles
for
$2,800,000 compared to 1.34 commercial acres for $200,000 for the year ended
December 31, 2005. We closed on the first parcel in the O’Donnell Lake
Restaurant Park in the fourth quarter of 2006 and we expect the first restaurant
in the complex to open in late summer 2007. We are developing our commercial
parcels in the restaurant park surrounding the popular St. Charles Towne Center
and will continue to sell this land in the future. As of December 31, 2006,
our
backlog contained 10.15 commercial acres in St. Charles under contract for
a
total of $4,384,000.
St.
Charles Active Adult Community, LLC - Land Joint Venture
In
September 2004, the Company transferred a parcel of land in the Glen Eagles
Neighborhood in Fairway Village with a cost basis of $5,625,000 to a newly
formed joint venture with Lennar in exchange for cash of $4,277,000, and a
50%
membership interest in the venture. Pursuant to an operating agreement, the
joint venture will develop the property and sell it to Lennar’s homebuilding
division. The Company serves as the managing agent for the project and receives
a 3% management fee. The Company recorded deferred revenues equal to the cash
it
received at closing and deferred costs equal to 50% of the cost basis of the
land. We expect to recognize the profit on the portion of land transferred
as
lots are developed by the joint venture and sold to Lennar through the
amortization of previously deferred revenues and costs. In addition, the Company
will recognize off-site fees received from the joint venture when lots are
sold
by the joint venture. Pursuant to the terms of the lot option agreement, lots
began selling in the fourth quarter of 2005 and are expected to continue through
the second quarter of 2010. The remaining 50% of the land's cost basis was
recorded as our investment in the joint venture and is reflected within our
investments in unconsolidated real estate entities. The joint venture sold
61
lots to Lennar’s homebuilding division during the third and fourth quarters of
2006 compared to 25 lots delivered in the fourth quarter of 2005. As a result,
the Company recognized $1,300,000 in deferred revenue, management fees and
off-site fees and $419,000 of deferred costs for the year ended December 31,
2006 compared to $610,000 in deferred revenue, management fees and offsite
fees
and $176,000 of deferred costs for the year ended December 31,
2005.
Gross
Margin on Land Sales
The
gross
margins on land sales for the years ended December 31, 2006 and 2005 remained
consistent at 45%; however our gross margins on land sales in the U.S. can
fluctuate based on changes in the mix of residential and commercial land sales.
Customer
Dependence
Residential
land sales to Lennar within our U.S. segment were $18,204,000 for the year
ended
December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
of
our total year-to-date consolidated revenue. No other customers accounted for
more than 10% of our consolidated revenue for the year ended December 31, 2006.
Loss of all or a substantial portion of our land sales, as well as the joint
venture's land sales, to Lennar would have a significant adverse effect on
our
financial results until such lost sales could be replaced.
2005
compared to 2004
Community
development land sales revenue increased $5,404,000 to $12,403,000 for the
year
ended December 31, 2005 from $6,999,000 for the same period in 2004. The 77%
increase in our community development land sales revenue in 2005 is the result
of residential development and delivery of residential lots to
Lennar.
Residential
Land Sales
In
2005,
we delivered 94 lots to Lennar at an average selling price of $102,558 per
lot;
the price includes the initial selling price of $100,000 per lot plus water
and
sewer fees, road fees and other off-site fees. In 2004 we sold 70 standard
single family residential lots for an average initial selling price of $98,000
per lot. In 2005, we also recognized for the first time, additional revenue
of
$1,996,000 based on the final settlement of homes of 63 lots previously sold
to
Lennar in 2005 and 2004.
Prices
for our residential lots reflect the healthy housing market in 2005 and its
upward trend in home prices in Charles County. The current selling price of
town-homes in this area is in excess of $300,000 while single-family homes
in
Fairway Village are selling in excess of $450,000.
As
of December 31, 2005, we had 20
developed residential lots available for delivery.
Commercial
Land Sales
In
2005,
we sold 1.34 acres of commercial land for $3.43 per square foot compared to
1.07
acres of commercial land for sales prices for $2.75 per square foot for the
same
period in 2004. The average sales prices of these parcels differ due to their
location, use and level of development. As of December 31, 2005, our backlog
contained 16.8 acres of commercial acres under contract for a total of
$4,524,000.
St.
Charles Active Adult Community, LLC - Land Joint Venture
In
the
fourth quarter of 2005, the joint venture sold its first 25 lots to Lennar.
As a
result, the Company recognized $188,000 for fees, $316,000 of deferred revenue
and $195,000 of deferred costs. The joint venture did not sell any lots to
Lennar in 2004.
Gross
Margin on Land Sales
The
gross
margin on land sales for the year ended December 31, 2005 was 45% compared
to
37% for the same period of 2004. Our gross margins on land sales in 2005 and
2004 have been affected by increases in the price of steel, oil and fuel and
the
strong demand and limited supply for contractors for the development of lots
in
Fairway Village. These cost increases were more than offset by increased sales
prices of homes in Fairway Village.
Customer
Dependence
Our
community development land sales revenue from Lennar in 2005 was $12,203,000;
which accounts for 20% of the Company's total revenue and 32% of the U.S.
segment's revenue.
Management
and Other Fees - U.S. Operations:
We
earn
monthly management fees from all of the apartment properties that we own as
well
as our management of apartment properties owned by third parties and affiliates
of J. Michael Wilson. Effective April 30, 2006, the Company’s management
agreement with Chastleton Associates LP terminated when the apartment property
was sold to a third party. The property was previously owned by an affiliate.
Management fees generated by this property accounted for less than 1% of the
Company’s total revenue. The Company earned an agreed-upon management fee for
administrative services through the end of the second quarter 2006. At the
end
of February 2007, one of the properties owned by affiliates of J. Michael Wilson
was sold to a third party. We do not anticipate continuing to manage this
property subsequent to its sale.
We
receive an additional fee from the properties that we manage for their use
of
the property management computer system that we purchased at the end of 2001
and
a fee for vehicles purchased by the Company for use on behalf of the properties.
The cost of the computer system and vehicles are reflected within depreciation
expense.
The
Company manages the project development of the joint venture with Lennar for
a
market rate fee pursuant to a management agreement. These fees are based on
the
cost of the project and a prorated share is earned when each lot is sold.
This
section includes only the fees earned from the non-consolidated properties;
the
fees earned from the consolidated properties are eliminated in
consolidation.
2006
compared to 2005
($ in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of EITF
04-05
|
December
31,
2005
|
Difference
|
Management
and other fees
|
$663
|
$(375)
|
$1,038
|
$1,114
|
$(76)
|
Due
to
the required elimination of management fees in consolidation, the total
management fees decreased for the year ended December 31, 2006 compared to
year
ended December 31, 2005 as a result of the impact of EITF 04-05. Excluding
the
impact of EITF 04-05, management and other fees were relatively consistent
with
the prior periods.
2005
compared to 2004
Management
and other fees for the year ended December 31, 2005 decreased 26% to $1,114,000
compared to $1,500,000 for the same period in 2004. The $386,000 decrease in
management fees is due to a special fee from refinancing and an incentive
management fee from our managed properties in 2004 with no comparable fees
earned in 2005. Additionally, we terminated a management contract with a
non-owned property in October 2004 which accounted for approximately $133,000
of
management fee income in 2004. The Company serves as the managing agent for
the
land development joint venture project with Lennar and receives 3% of the
selling price of the finished lots as a management fee for its services. In
the
fourth quarter of 2005, the joint venture delivered 25 lots to Lennar and the
Company earned an $80,000 management fee with no comparable fees earned in
2004.
General,
Administrative, Selling and Marketing Expense - U.S.
Operations:
The
costs
associated with the oversight of our U.S. operations, accounting, human
resources, office management and technology, as well as corporate and other
executive office costs are included in this section. ARMC employs the
centralized office management approach for its property management services
for
our sixteen properties located in St. Charles, Maryland, five properties located
in the Baltimore, Maryland area and one property in Virginia and, to a lesser
extent, the other properties that we manage. Our unconsolidated and managed-only
apartment properties reimburse ARMC for certain costs incurred at the central
office that are attributable to the operations of those properties. In
accordance with EITF Topic 01-14, "Income
Statement Characterization of Reimbursements Received for Out of Pocket Expenses
Incurred,"
the
cost and reimbursement of these costs are not included in general and
administrative expenses, but rather they are reflected as separate line items
on
the consolidated income statement.
2006
compared to 2005
General,
administrative, selling and marketing costs incurred within our U.S. operations
decreased $537,000 to $6,370,000 for the year ended December 31, 2006, compared
to $6,907,000 for the year ended December 31, 2005. The 8% decrease in general,
administrative, selling and marketing costs is primarily attributable to a
decrease in the expense associated with our outstanding share incentive rights,
as a result of a reduction of shares outstanding due to prior year exercises,
coupled with a significant increase in the share price during 2005. The decrease
was partially offset by an increase in salaries and benefits, and legal fees
related to the closing agreement reached with the IRS earlier this
year.
2005
compared to 2004
General,
administrative, selling and marketing costs incurred within our U.S. operations
increased $1,672,000 to $6,907,000 for the year ended December 31, 2005,
compared to $5,235,000 for the same period of 2004. The 32% increase in
general, administrative, selling and marketing costs for the fiscal year ended
December 31, 2005 is attributable to an increase of $691,000 of additional
professional services fees including audit, tax compliance, consulting and
corporate costs incurred during the year as a result of the restatement,
additional corporate governance and fee increases in excess of inflation. The
increase is also due to an additional $625,000 in salaries and benefits as
a
result of additional staff, bonuses and normal annual increases. The market
for
qualified employees was very competitive, resulting in the additional salaries,
bonuses and recruiting fees. Other components
of
the
increase include $376,000 of additional charges related to our outstanding
share
appreciation rights as a result of the increase in our stock price in 2005
and
$102,000 in compensation expense for shares that were awarded to our
non-employee Trustees in June. The increases noted above were partially
offset by a reduction in bad debt expense due to the collection of previously
reserved accounts receivable balances from two apartment properties for which
we
serve as the general partner and one affiliated property that we
managed.
Depreciation
Expense - U.S. Operations:
2006
compared to 2005
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of EITF
04-05
|
December
31,
2005
|
Difference
|
Depreciation
expense
|
$4,787
|
$540
|
$4,247
|
$3,829
|
$418
|
Depreciation
expense increased $958,000 to $4,787,000 for the year ended December 31, 2006
compared to $3,829,000 for the year ended December 31, 2005. As a result of
adopting EITF 04-05 in 2006, we added an additional $540,000 of depreciation
expense to our 2006 consolidation. The remainder of the increase is attributable
to the acquisitions in May 2005 and April 2006 as well as capital improvements
made to the existing properties.
2005
compared to 2004
Depreciation
expense increased $617,000 to $3,829,000 for the year ended December 31, 2005
compared to $3,212,000 for the same period in 2004. Our apartment property
acquisitions in October 2004 and May 2005 increased our depreciation expense
in
2005 by $454,000. The remainder of the fiscal year's increase was affected
by
capital improvements made to our rental properties.
Interest
Income - U.S. Operations:
2006
compared to 2005
Interest
income for the year ended December 31, 2006 was $968,000 compared to $145,000
for the year ended December 31, 2005. The $823,000 increase in interest income
in 2006 is the result of the recognition of $855,000 of interest income in
2006
related to the Charles County bonds for the period from July 1, 2005 through
December 31, 2006, an 18 month period, with no comparable amounts recognized
in
2005. During 2006, the Company reached an agreement with Charles County whereby
the Company receives interest payments on any undistributed bond proceeds held
in escrow by the County. As development activities specified by the bond
agreement are completed, the Company draws down the escrowed bond proceeds.
The
interest agreement is expected to remain effective through the last draw made
by
the Company, and the Company expects to receive future annual interest payments
from the County.
2005
compared to 2004
Interest
income for the year ended December 31, 2005 was $145,000 compared to $199,000
for the year ended December 31, 2004. The $54,000 decrease in interest income
was generally related to reduced interest on intersegment debt.
Equity
in Earnings from Unconsolidated Entities - U.S.
Operations:
2006
compared to 2005
For
the
year ended December 31, 2006, the Company recognized a loss of $1,000 from
its
investment in its unconsolidated real estate entities compared to the
recognition of earnings of $135,000 for the year ended December 31, 2005. With
the implementation of the EITF 04-05, effective January 1, 2006, the Company
has
consolidated the operational results of Huntington and Essex which resulted
in
the overall decrease in our equity in earnings. We continue to account for
our
investments in two apartment partnerships, Brookside and Lakeside, using equity
accounting, but due to our limited ownership in these partnerships, our
recognition of the partnerships’ earnings is immaterial.
2005
compared to 2004
For
the
year ended December 31, 2005, the Company recognized earnings of $135,000 from
its investments in its unconsolidated real estate entities. For the same period
in 2004, the Company recognized a loss of $291,000 in its investments in its
unconsolidated real estate entities. The increase was principally the result
of
the write-off of deferred finance fees in one of our unconsolidated partnerships
which negatively impacted its earnings in 2004 with no comparable write-offs
in
2005.
Interest
Expense - U.S. Operations:
The
Company considers interest expense on all U.S. debt available for capitalization
to the extent of average qualifying assets for the period. Interest specific
to
the construction of qualifying assets, represented primarily by our recourse
debt, is first considered for capitalization. To the extent qualifying assets
exceed debt specifically identified, a weighted average rate including all
other
debt of the U.S. segment is applied. Any excess interest is reflected as
interest expense. For 2006 and 2005, the excess interest primarily relates
to
the interest incurred on the non-recourse debt from our investment
partnerships.
2006
compared to 2005
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of EITF
04-05
|
December
31,
2005
|
Difference
|
Interest
Expense
|
$9,852
|
$1,263
|
$8,589
|
$6,797
|
$1,792
|
Interest
expense for the year ended December 31, 2006 increased $3,055,000 to $9,852,000
compared to $6,797,000 for the year ended December 31, 2005. The increase is
primarily the result of EITF 04-05, which added $1,263,000 of interest expense
in 2006. Excluding the impact of EITF 04-05, the increase is the result of
additional interest expense of $599,000 recognized as a result of the conversion
of one of our properties from an interest subsidized property to a market rent
property in December 2005, $554,000 on the mortgages of the properties acquired
in May 2005 and April 2006, and $200,000 of the write off of pre-payment
penalties and other fees from the refinancing of two of our properties mortgages
in the fourth quarter of 2006 with no comparable amounts for 2005. The remainder
of the increase is related to reduced amounts of capitalized interest for 2006
as completed lots in Fairway Village and completed units in Sheffield Greens
were no longer eligible for capitalization. For the year ended December 31,
2006, $1,504,000 of interest was capitalized in the U.S. operations compared
to
$944,000 of interest capitalized during 2005.
2005
compared to 2004
Interest
expense increased 15% for the year ended December 31, 2005 to $6,797,000
compared to $5,916,000 for the same period in 2004. The $881,000 increase in
interest expense is primarily due to $845,000 of additional interest expense
related to the mortgages of the three most recently acquired apartment
properties in Baltimore, the write-off of pre-payment penalties and other fees
of $250,000 from the refinancing of one of our properties' mortgages in the
first quarter of 2005, and $223,000 of additional interest expense recognized
as
a result of the conversion of one of our properties from an interest subsidized
property to a market rent property in December 2004. The increase in 2005 was
reduced by loan fees amortized and included in interest expense in 2004 of
$221,000 for loans that were repaid by December 31, 2004 as well as loan fees
and prepayment penalties of $475,000 paid in connection with the refinancing
of
our apartment property’s mortgages in January 2004 with no comparable expense in
2005. The Company capitalized $944,000 of interest in its U.S. segment in 2005
compared to $534,000 of interest capitalized in 2004.
Minority
Interest in Consolidated Entities - U.S. Operations:
Minority
interest in consolidated entities includes the minority partner's share of
the
consolidated partnerships’ earnings and distributions to minority partners in
excess of their basis in the consolidated partnership. Losses charged to the
minority interest are limited to the minority partner's basis in the
partnership. Because the minority interest holders in most of our partnerships
have received distributions in excess of their basis, we anticipate volatility
in minority interest expense. Although this allows us to recognize 100
percent of the income of the partnerships up to accumulated distributions and
losses in excess of basis previously required to be recognized as our expense,
we will be required to recognize as expense 100 percent of future distributions
to minority partners and any subsequent losses.
2006
compared to 2005
Minority
interest for the year ended December 31, 2006 was $616,000 compared to $926,000
for the year ended December 31, 2005. The $310,000 decrease in minority interest
expense in 2006 is the result of distributions provided to third party owners
in
excess of their basis after the refinancing of Terrace in the fourth quarter
of
2005 with no comparable distributions made in 2006. This was offset by
distributions in excess of basis made to the limited partners of Huntington
for
which we are now required to consolidate as a result of the implementation
of
EITF 04-05.
2005
compared to 2004
Minority
interest decreased 28% in 2005 to $926,000 for the year ended December 31,
2005
compared to $1,285,000 for the same period in 2004. In 2004, we refinanced
the mortgages of Headen and Third Age that provided distributions to third
party
owners in excess of their basis. In 2005, we refinanced the mortgage of
Terrace that provided distributions to the third party owners in excess of
their
basis. The 2005 distributions to minority partners in excess of their
basis were less than the distributions paid out in 2004.
Provision
for Income Taxes - U.S. Operations:
The
effective tax rates for the years ended December 31, 2006, 2005, and 2004 were
41%, 54% and 40%, respectively. The statutory rate is 40%. The
effective tax rates for 2006, 2005 and 2004 differ from the statutory rate
due
to certain permanent differences and taxation of foreign source interest income
without a corresponding foreign tax credit.
Results
of Operations - Puerto Rico Operations:
For
the
year ended December 31, 2006, our Puerto Rico segment generated $9,696,000
of
operating income compared to $2,659,000 of operating income generated by the
segment for the same period in 2005 and $1,511,000 in 2004. Additional
information and analysis of the Puerto Rico operations can be found
below.
Rental
Property Revenues and Operating Expenses - Puerto Rico
Operations:
Effective
January 1, 2006, the Company implemented new consolidation guidance required
by
EITF 04-05. Under the new consolidation guidance, nine Puerto Rico based
apartment partnerships, operating twelve apartment properties, (“Puerto Rico
Apartments”) in which we hold an ownership interest now qualify for the
consolidation method of accounting. As a result, we included within our
financial statements the consolidated apartment properties’ total revenues and
operating expenses. The portion of net income attributable to the interests
of
the outside owners of these properties and any losses and distributions in
excess of the minority owners’ basis in those properties are reflected as
minority interest. As of December 31, 2006, these twelve consolidated properties
are HUD subsidized projects with rental rates governed by HUD.
The
following table presents the results of rental property revenues and operating
expenses for the years ended December 31, 2006, 2005 and 2004:
($
in thousands)
|
December
31, 2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31, 2006
Excluding
the impact of
EITF
04-05
|
December
31,
2005
|
Difference
|
Rental
property revenues
|
$21,524
|
$21,168
|
$356
|
$58
|
$298
|
Rental
operating expenses
|
$10,963
|
$
9,862
|
$1,101
|
$661
|
$440
|
2006
compared to 2005
Rental
property revenues increased $21,466,000 to $21,524,000 for the year ended
December 31, 2006 compared to $58,000 for the year ended December 31, 2005.
The
consolidation of the Puerto Rico Apartments as a result of EITF 04-05, increased
rental property revenues by $21,168,000 for the year ended December 31, 2006.
Although not included in the consolidated results for the same periods in 2005,
rental property revenues from the Puerto Rico Apartments were $20,589,000.
The
2.8% increase for the year ended December 31, 2006 was primarily related to
increases in rents in such period.
Rental
property operating expenses increased $10,302,000 to $10,963,000 for the year
ended December 31, 2006 compared to $661,000 for the year ended December 31,
2005. The consolidation of the Puerto Rico Apartments as a result of EITF 04-05
increased rental property operating expenses by $9,862,000 for the year ended
December 31, 2006. Although not included in the consolidated results for the
same periods in 2005, rental property revenues from the Puerto Rico Apartments
were $9,742,000. The 1.2% increase for the year ended December 31, 2006, was
primarily due to increases in utilities and other operating expenses, partially
offset by a reduction in repairs, painting and rehabilitation of units in such
period.
In
September 2005, the Company commenced the operations of the new commercial
rental property in the community of Parque Escorial, known as Escorial Building
One, in which it holds a 100% ownership interest. Escorial Building One is
a
three-story building with approximately 56,000 square feet of offices space
for
lease. The Company moved the Puerto Rico Corporate Office to the new facilities
in the third quarter of 2005, and leases approximately 20% of the
building.
For
the
year ended December 31, 2006, the commercial rental property generated $356,000
of rental property income compared to $58,000 for the same period in 2005.
Operating expenses for the commercial rental property during 2006 were $580,000,
as compared to $188,000 for the same period in 2005. As of December 31, 2006,
42% of the office space was leased with an additional 15% of office space
generating rent income under an option agreement. The option agreement requires
the tenant to make lease payments until the tenant completes certain permitting,
at which point a final lease will be executed as the tenant will occupy the
facility. However, until a lease is executed, the tenant can terminate the
option.
2005
compared to 2004
For
the
year ended December 31, 2005, the commercial rental property generated $58,000
of rental property income, net of IGP’s rent that is eliminated in consolidation
of $126,000. Operating expenses for the commercial rental property were
$188,000, producing an operating loss of $130,000. As of December 31, 2005,
32%
of the office space was leased.
Community
Development - Puerto Rico Operations:
Total
land sales revenue in any one period is affected by commercial sales which
are
cyclical in nature and usually have a noticeable positive impact on our earnings
in the period in which settlement is made.
2006
compared to 2005
There
were no community development land sales during the year ended December 31,
2006. Community land sales during the same period in 2005 were $10,397,000.
In
April 2005, the Company sold 7.2 commercial acres for the $7,448,000 and in
February 2005, sold 2.5 commercial acres for $2,949,000 in the master-planned
community of Parque Escorial. The gross margin on land sales for the year ended
December 31, 2005, was 28%. There were no commercial contracts for commercial
sales in backlog at December 31, 2006.
2005
compared to 2004
Community
development land sales for the year ended December 31, 2005 were $10,397,000
compared to $2,676,000. During 2005, the Company sold 9.7 commercial acres
in
the master-planned community of Parque Escorial. The gross profit margin for
the
years ended December 31, 2005 and 2004 were 28% and 26%, respectively. There
were no residential or commercial acres in backlog at December 31,
2005.
Customer
Dependence
In
2005,
within our Puerto Rico segment, we sold commercial acres in our office park
to
Jalexis, Inc. for $7,448,000 which represents 31% of the Puerto Rico segment’s
revenue and 12% of our total consolidated revenue for the year (See Note 5
to
the consolidated financial statements). No other customers within the Puerto
Rico segment accounted for more than 10% of our consolidated revenue in
2005.
Homebuilding
- Puerto Rico Operations:
The
Company organizes corporations as needed to operate each individual homebuilding
project. In April 2004, the Company commenced the construction of a new 160-unit
mid-rise condominium complex known as Torres del Escorial (“Torres”). The
condominium units were offered to buyers in the market in January 2005 and
delivery of the units commenced in the fourth quarter of 2005. During 2004,
the
Company completed and closed out its 208 unit complex known as Brisas de Parque
Escorial (“Brisas”). The condominium units are sold individually from an onsite
sales office to pre-qualified homebuyers.
2006
compared to 2005
Within
the Torres project and during the years ended December 31, 2006 and 2005, 78
and
32 units, respectively, were closed at an average selling price of approximately
$254,000 and $ 232,000 per unit, respectively, generating aggregate revenues
of
$19,838,000 and $7,424,000, respectively. The gross margins on home sales for
the years ended December 31, 2006 and 2005 were 25% and 18%, respectively.
The
increase in the gross profit margin is primarily attributable to two factors.
First, the cost of sales in 2005 included certain deferred commission expenses
charged as period costs when sales began in 2005. Secondly, the market has
allowed for an increase in the selling prices for the units sold within each
subsequent building which has improved the gross margins for this project.
As
of
December 31, 2006, 15 units of Torres were under contract at an average selling
price of $282,000 per unit. Each sales contract is backed by a $6,000 deposit.
For the year ended December 31, 2006, the Company had 68 new contracts and
42
canceled contracts. For the same period in 2005, the Company had 111 new
contracts and 11 canceled contracts. The Puerto Rico real estate market has
slowed substantially from 2005 to 2006. The reduced pace of sales has impacted
the Company somewhat, but not to the same extent as the overall Puerto Rico
market decline. The Company continues to believe that the remaining 50 units
in
Torres will sell in a reasonable period of time at favorable
prices.
2005
compared to 2004
During
the fourth quarter of 2005, 32 units within the Torres project were closed
at
average selling price of $232,000 per unit generating $7,424,000 in home sales
revenue. For the year ended December 31, 2004, the last 55 units within the
Brisas project were sold at a selling price of $179,000 per unit generating
$9,861,000 in home sales revenue.
The
gross
margin on home sales in 2005 was 18% as compared to 24% in 2004. The decrease
in
the gross margin on home sales is attributable to several factors. First, Brisas
units sold in 2004 benefited from increases in the market prices of homes sold
at the end of the project as compared to the beginning of the project. In
addition, certain deferred commission expenses were charged as period costs
for
the first units sold in Torres with no comparable expenses for the final Brisas
units sold in 2004. Finally, the gross profit percentage in 2004 was positively
impacted by Brisas units selling faster than anticipated resulting in less
than
expected interest costs.
As
of
December 31, 2005, 68 units were under contract at Torres with an average
selling price of $252,000 per unit.
Management
and Other fees - Puerto Rico Operations:
We
earn
monthly fees from our management of four non-owned apartment properties and
four
property-owner associations operating in Parque Escorial. This section currently
includes only the fees earned from the non-owned managed entities. For 2005
and
2004, this section also included fees earned from our previously unconsolidated
Puerto Rico Apartments. However, these fees are now eliminated in
consolidation.
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of EITF
04-05
|
December
31,
2005
|
Difference
|
Management
and other fees
|
$592
|
$(2,358)
|
$2,950
|
$2,128
|
$822
|
2006
compared to 2005
Due
to
the required elimination of management fees in consolidation, total management
fees decreased $1,536,000 for the year ended December 31, 2006, as compared
to
the year ended December 31, 2005 as a result of the impact of EITF 04-05.
On
a
comparative basis, the increase in management fees is primarily related to
incentive management fees and refinancing fees of $1,025,000 from the
refinancing of the non-recourse mortgages of Colinas de San Juan in April 2006
and Carolina Associates in December 2006, as compared to a refinancing fee
of
$96,000 earned from Bayamon Garden in April 2005. Also, management fees from
Parque Escorial Associations increased $53,000 during the year ended December
31, 2006. In 2005, we managed one commercial property owned by the Wilson Family
which was sold to a third party in April 2005. Fees earned from that property
in
2005 of $162,000 included a broker’s fee from the sale of the property with no
comparable fees earned in 2006.
2005
compared to 2004
Management
fees and other fees increased 1% in 2005 to $2,128,000 as compared to $2,106,000
in 2004. The increase is attributable to a special fee of $139,000 earned in
April 2005 from the sale of a non-owned commercial property that we managed,
a
$96,000 fee recognized in connection with the refinancing of one of our managed
properties in the second quarter of 2005 as well as an increase in the annual
rents of the apartment properties. Results for 2005 were affected by a reduction
in the recognition of management fees from the commercial properties sold in
December 31, 2004 and April 2005 and deferred financing fees that were fully
recognized in 2004.
General,
Administrative, Selling and Marketing Expenses - Puerto Rico
Operations:
The
costs
associated with the oversight of our operations, accounting, human resources,
office management and technology are included within this section. The apartment
properties reimburse IGP for certain costs incurred at IGP’s office that are
attributable to the operations of those properties. In accordance with EITF
01-14 the costs and reimbursement of these costs are not included within this
section but rather, they are reflected as separate line items on the
consolidated income statement. Due to the fact that we moved our corporate
office to our new office building, Escorial Office Building One, rent expense
and parking expenses are eliminated in consolidation.
2006
compared to 2005
General,
administrative, selling and marketing expenses increased 1% or $15,000 to
$2,847,000 during the year ended December 31, 2006, as compared to $2,832,000
for the same period of 2005.
The
1%
annual increase is attributable to an increase in selling and marketing expenses
incurred in the Torres project, with no comparable expense during the same
period in 2005 and increases in municipal and property taxes as well as salaries
and benefits. These increases were offset in part by a reduction in the expense
related to our share appreciation rights as a result of significant increases
in
our share price in the prior period while the share price in the current period
remained relatively constant, a reduction in office and parking rents, as well
as decreases in bad debts, consulting and outside tax services, legal services
and miscellaneous general expenses.
General,
administrative, selling and marketing expenses decreased 9% or $289,000 in
2005
to $2,832,000 compared to $3,121,000 in 2004. This decrease is primarily
attributable to a $190,000 reduction in miscellaneous, computer and other
expenses and a decrease in SARS expense of $62,000. Although our share price
increased substantially during the year, the number of shares vested and
outstanding decreased due to significant exercises during 2004.
Depreciation
Expense - Puerto Rico Operations:
($
in thousands)
|
December
31, 2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact
of EITF
04-05
|
December
31,
2005
|
Difference
|
Depreciation
expense
|
$3,615
|
$3,238
|
$377
|
$213
|
$164
|
2006
compared to 2005
Depreciation
expense for the year ended December 31, 2006 was $3,615,000 compared to $213,000
for the same period in 2005. The $3,402,000 increase is primarily attributable
to the adoption of EITF 04-05 and the inclusion of the Puerto Rico apartments
within the consolidated results. Depreciation expense, excluding the impact
of
EITF 04-05 increased $164,000 to $377,000 for the year ended December 31, 2006
compared to $213,000 for the same period in 2005. The increase primarily is
attributable to the depreciation expense in Escorial Building One, our new
commercial office building and related depreciation for new corporate office
furniture and leasehold improvements.
2005
compared to 2004
Depreciation
expense, on a comparable basis, increased $97,000 to $213,000 for the year
ended
December 31, 2005, compared to $116,000 for the same period in 2004. The
increase is primarily due to the depreciation expense in Escorial Building
One,
our new commercial office building, which commenced operation in September
2005.
Equity
in Earnings from Partnerships and Sponsor and Developer fees - Puerto Rico
Operations:
With
the
implementation of the EITF 04-05, effective January 1, 2006, the Company
consolidated the operating results of its apartment partnerships. Accordingly,
equity in earnings is no longer recorded for these apartment
partnerships.
We
account for our limited partner investment in the commercial rental property
owned by ELI and El Monte under the equity method of accounting. The earnings
from our investment in commercial rental property are reflected within this
section. The recognition of earnings depends on our investment basis in the
property, and where the partnership is in the earnings stream.
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact of
EITF
04-05
|
December
31,
2005
|
Difference
|
Equity
in earnings
|
$683
|
$262
|
$421
|
$1,008
|
$(587)
|
2006
compared to 2005
Equity
in
earnings from partnerships decreased $325,000 to $683,000 for the year ended
December 31, 2006 compared to $1,008,000 for the year ended December 31, 2005.
With the implementation of EITF 04-05, effective January 1, 2006, the Company
has consolidated the operational results of its Puerto Rico Apartments which
resulted in the overall decrease in our equity in earnings. The remainder of
the
decrease is related to operating, financial and depreciation expenses increasing
at a greater rate than the revenues of our investments accounted for using
the
equity method of accounting.
2005
compared to 2004
Equity
in
earnings from partnerships, on a comparable basis, decreased $1,959,000 to
$1,008,000 during the twelve months of 2005, compared to $2,967,000 for the
same
period of 2004. The decrease is the result of $1,771,000 of distributions
received in excess of our investment base from two of our partnerships for
which
the Company has no required funding obligation. The year 2005 decrease also
includes a reduction in the equity in earnings from our apartment partnerships
of $217,000 attributable to the increases in financial and operating expenses
within our apartment properties.
Interest
Expense - Puerto Rico Operations:
The
Company considers interest expense on all Puerto Rico debt available for
capitalization to the extent of average qualifying assets for the period.
Interest specific to the construction of qualifying assets, represented
primarily by our recourse debt, is first considered for capitalization. To
the
extent qualifying assets exceed debt specifically identified, a weighted average
rate including all other debt of the Puerto Rico segment is applied. Any excess
interest is reflected as interest expense. For 2006 and 2005, the excess
interest primarily relates to the interest incurred on the non-recourse debt
from our investment partnerships.
($
in thousands)
|
December
31,
2006
as
presented
|
Less
Effect
of
EITF
04-05
|
December
31,
2006
Excluding
the
impact of
EITF
04-05
|
December
31,
2005
|
Difference
|
Interest
expense
|
$7,057
|
$6,324
|
$733
|
$(836)
|
$1,569
|
2006
compared to 2005
Interest
expense for the year ended December 31, 2006 increased $7,893,000 to $7,057,000
compared to ($836,000) for the year ended December 31, 2005. Interest expense
for the year increased $6,324,000 as a result of the adoption of EITF 04-05
and
the addition of interest expense related to the apartment partnerships’
non-recourse mortgages. The remainder of the increase is attributable to the
$982,000 reversal of accrued interest in 2005 as a result of the closing
agreement reached with the IRS, with no comparable amount in 2006; and interest
expense of $632,000 incurred in 2006 on the new office building mortgage,
compared to $105,000 in 2005.
The
Company capitalized $1,225,000 of interest in the Puerto Rico segment in 2006
compared to $1,371,000 of interest capitalized in 2005.
2005
compared to 2004
Interest
expense decreased 437% in 2005 to ($836,000) compared to $248,000 in 2004.
The
decrease in 2005 is attributable to the $982,000 reversal of accrued interest
no
longer necessary as a result of the closing agreement reached with the IRS.
Refer to Note 10 in the Consolidated Financial Statements found in Item 8 of
the
2005 10-K for an additional discussion. The Company capitalized $1,371,000
of
interest in the Puerto Rico segment in 2005 compared to $770,000 of interest
capitalized in 2004.
Minority
Interest in Consolidated Entities - Puerto Rico
Operations:
As
a
result in implementing EITF 04-05, our Puerto Rico segment now records minority
interest expense related to the minority partners’ share of the consolidated
apartment partnerships earnings and distributions to minority partners in excess
of their basis in the consolidated partnership. Losses charged to the minority
interest are limited to the minority partners’ basis in the partnership. Because
the minority interest holders in most of our partnerships have received
distributions in excess of their basis, we anticipate volatility in minority
interest expense. Although this allows us to recognize 100 percent of the income
of the partnerships up to accumulated distributions and losses in excess of
basis previously required to be recognized as our expense, we will be required
to expense 100 percent of future distributions to minority partners and any
subsequent losses.
Minority
interest for the year ended December 31, 2006, was $2,404,000. The minority
interest expense for the period was primarily the result of distributions to
the
minority owners in excess of their basis from our consolidated apartment
partnerships. During 2006, surplus cash distributions of $1,249,000 were made
from the consolidated apartment partnerships to the minority owners in excess
of
their basis. In addition, the mortgage of one of our consolidated apartment
partnerships was refinanced and as a result, additional distributions of
$1,100,000 were made to the minority partners.
Provision
for Income Taxes - Puerto Rico Operations:
The
effective tax rate for 2006, 2005 and 2004 were 28%, (20%) and 35%,
respectively. The statutory rate is 29%. The statutory tax rate and the
effective tax rate for the years ended December 31, 2006 and 2004, differ from
the statutory rate due to U.S. taxes on Puerto Rico source income without the
full benefit of the foreign tax credit offset by special tax exempt
income. The difference in the statutory tax rate and the effective tax
rate for the year ended December 31, 2005 is primarily the result of the
resolution of income tax matters, which resulted in a benefit to income taxes
of
$2,421,000.
LIQUIDITY
AND CAPITAL RESOURCES
Summary
of Cash Flows
As
of
December 31, 2006, the Company had cash and cash equivalents of $27,459,000
and
$19,677,000 in restricted cash. The following table sets forth the changes
in
the Company’s cash flows ($ in thousands):
|
|
Years
Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
$
|
9,317
|
|
$
|
(3,148
|
)
|
$
|
8,656
|
|
Investing
Activities
|
|
|
(39,161
|
)
|
|
(9,265
|
)
|
|
(28,761
|
)
|
Financing
Activities
|
|
|
36,147
|
|
|
17,431
|
|
|
22,527
|
|
Net Increase in Cash
|
|
$
|
6,303
|
|
$
|
5,018
|
|
$
|
2,422
|
|
For
the
year ended December 31, 2006 operating activities provided $9,317,000 of cash
flows compared to $3,148,000 of cash flows used in operating activities for
the
year ended December 31, 2005. The $12,465,000 increase in our operating cash
is
primarily due to increased home sales for the year ended December 31, 2006
along
with a decrease in our homebuilding construction activities as a result of
being
in different phases of the Torres del Escorial project for the respective years
presented. The Company sold 78 condominium units within Torres during 2006
compared to the sale of 32 units in 2005 resulting in an additional $12,414,000
in homebuilding sales for 2006. The project was also nearing the end of the
construction phase during 2006 and used $6,438,000 of cash from operating
activities compared to $13,068,000 of operating cash used during 2005. The
increase in operating cash is also attributable to the operating cash flows
of
the 11 apartment partnerships now included within our consolidated results
for
2006 as a result of implementing the provisions of EITF 04-05. These increases
were offset by a decrease in community development land sales as a result of
a
$7,448,000 land sale in Puerto Rico in 2005 with no comparable sale in 2006
and
an increase in the Company’s investment in community development assets as well
as a $5,245,000 increase in cash paid for income taxes. Within our community
development operations in the U.S., the Company continues to develop residential
lots for delivery to Lennar as part of its March 2004 agreement with the
homebuilder. Also, in accordance with an agreement with the Charles County
government, the Company is accelerating the construction of two major roadway
links to the Charles County roadway system. For the year ended December
31, 2006, the Company added $25,120,000 of additions to our community
development assets in connection with these projects compared to $20,793,000
in
2005. From year to year, cash flow from operating activities depends primarily
upon changes in our net income, as discussed more fully above under "Results
of
Operations," as well as changes in our receivables and payables.
For
the
year ended December 31, 2006, the Company had $39,161,000 of net cash used
in
its investing activities compared to $9,265,000 of net cash used in 2005. Cash
provided by or used in investing activities generally relates to increases
in
our investment portfolio through acquisition, development or construction of
rental properties and land held for future use, net of returns on our
investments. On April 28, 2006, the Company completed the acquisition of two
apartment properties in Baltimore, Maryland containing a total of 250 units
for
approximately $14,300,000. Also, during 2006, we invested $19,972,000 in the
construction of an apartment project in St. Charles compared to construction
expenditures of $3,739,000 incurred in 2005 related to the construction of
our
office building in Parque Escorial and the start of the apartment project in
St.
Charles. Finally, as a result of
adding
11
additional properties to our consolidation as of January 1, 2006, under the
new
provisions of EITF-04-05, we added $4,723,000 to the opening consolidated cash
balance. For further discussion of the impact at the implementation of EITF
04-05, see Note 2 to our consolidated financial statements.
For
the
year ended December 31, 2006, $36,147,000 of cash was provided by our financing
activities compared to $17,431,000 of cash provided by financing activities
in
2005. Cash used in or provided by financing activities generally relates to
dividend distributions to our shareholders, distributions made to our minority
interest partners and advances and repayment of debt. The increase in
distributions to minority interest partners to $2,973,000 for the year ended
December 31, 2006 is primarily the result of including the results of the 11
additional apartment properties as discussed above. The increase in dividends
paid to shareholders from $2,048,000 for the year ended December 31, 2005 to
$4,261,000 for the year ended December 31, 2006 is the result of a special
$2,230,000 dividend paid related to the resolution of certain tax matters (see
Note 10 to the consolidated financial statements). Related to changes in our
debt items, generally, new debt incurred during a period depends upon the net
effect of our acquisition, development and refinancing activity. We received
proceeds from debt financing of $121,694,000 for 2006 as compared to $38,494,000
for 2005. The increase was attributable to the refinancings of several apartment
properties with proceeds totaling $73,820,000, new mortgage proceeds of
$11,836,000 related to the acquisition of Milford I and Milford II and proceeds
from the construction loan for Sheffield Greens Apartments of $16,611,000.
Repayments of debt also increased from $20,481,000 in 2005 to $81,958,000 for
2006. This increase is attributable to the repayment of prior mortgages which
were refinanced totaling $46,622,000 and the payoff of the Torres construction
loan of $19,325,000. Other debt repayments include normal principal payments
on
our amortizing mortgages. The Company also used a revolving acquisition and
development loan during the period which was repaid in full by the end of 2006.
Contractual
Financial Obligations
The
following table provides a summary of our fixed, non-cancelable, contractual
financial obligations as of December 31, 2006:
|
|
Payments
Due By Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
After
|
|
|
|
|
Total
|
|
|
1
Year
|
|
|
1-3
Years
|
|
|
3-5
Years
|
|
|
5
Years
|
|
|
|
|
Recourse
debt-community development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
homebuilding
|
|
$
|
24,694
|
|
$
|
1,224
|
|
$
|
6,591
|
|
$
|
2,974
|
|
$
|
13,905
|
|
Recourse
debt-investment properties
|
|
|
4,473
|
|
|
145
|
|
|
2,770
|
|
|
144
|
|
|
1,414
|
|
Capital
lease obligations
|
|
|
184
|
|
|
53
|
|
|
101
|
|
|
30
|
|
|
-
|
|
Total
Recourse Debt
|
|
|
29,351
|
|
|
1,422
|
|
|
9,462
|
|
|
3,148
|
|
|
15,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
debt-community development
|
|
|
500
|
|
|
500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Non-recourse
debt-investment properties
|
|
|
270,220
|
|
|
3,440
|
|
|
18,540
|
|
|
9,003
|
|
|
239,237
|
|
Total
Non-Recourse Debt
|
|
|
270,720
|
|
|
3,940
|
|
|
18,540
|
|
|
9,003
|
|
|
239,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations
|
|
|
1,325
|
|
|
369
|
|
|
916
|
|
|
40
|
|
|
-
|
|
Purchase
obligations
|
|
|
35,995
|
|
|
19,987
|
|
|
15,833
|
|
|
50
|
|
|
125
|
|
Total
contractual financial obligations
|
|
$
|
337,391
|
|
$
|
25,718
|
|
$
|
44,751
|
|
$
|
12,241
|
|
$
|
254,681
|
|
Recourse
Debt - U.S. Operations
On
April
14, 2006, the Company closed a three year $14,000,000 revolving line of credit
loan (“the Revolver”) secured by a first lien deed of trust on property located
in St. Charles, MD. The maximum amount of the loan at any one time is
$14,000,000. The facility includes various sub-limits on a revolving basis
for
amounts to finance apartment project acquisitions and land development in St.
Charles. The terms require certain financial covenants to be calculated annually
as of December 31, including a tangible net worth to senior debt ratio for
ALD
and a minimum net worth test for ACPT. The Company was in compliance with these
financial covenants as of December 31, 2006. As of December 31, 2006, no amounts
were outstanding on the Revolver. Management expects to fund development
operations from current cash balances and operating cash flows rather than
borrowings from the line of credit.
Pursuant
to
an agreement reached between ACPT and the Charles County Commissioners in 2002,
the Company agreed to accelerate the construction of two major roadway links
to
the Charles County (the "County") road system. As part of the agreement, the
County agreed to issue general obligation public improvement bonds (the “Bonds”)
to finance $20,000,000 of this construction guaranteed by letters of credit
provided by Lennar as part of a residential lot sales contract for 1,950 lots
in
Fairway Village. The Bonds were issued in three installments with the
final $6,000,000 installment issued in March 2006. The Bonds bear interest
rates ranging from 4% to 8%, for a blended lifetime rate of 5.6%, and call
for
semi-annual interest payments and annual principal payments and mature in
fifteen years. Under the terms of bond repayment agreements with the County,
the
Company is obligated to pay interest and principal on the full amount of the
Bonds; as such, the Company recorded the full amount of the debt and a
receivable from the County representing the remaining Bond proceeds to be
advanced to the Company as major infrastructure development within the project
occurs. As part of the agreement, the Company will pay the County a monthly
payment equal to one-sixth of the semi-annual interest payments and one-twelfth
of the annual principal payment. The County also requires ACPT to fund an escrow
account from lot sales that will be used to repay these bonds.
In
August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is anticipated to house
a
planned minor league baseball stadium and entertainment complex. Under the
terms
of the MOU, the Company donated 42 acres of land in St. Charles to the County
on
December 31, 2005. The Company also agreed to expedite off-site utilities,
storm-water management and road construction improvements that will serve the
entertainment complex and future portions of St. Charles so that the
improvements will be completed concurrently with the entertainment complex.
The
County will be responsible for infrastructure improvements on the site of the
complex. In return, the County agreed to issue $7,000,000 of general obligation
bonds to finance the infrastructure improvements. In March 2006, $4,000,000
of
bonds were issued for this project. The funds for this project will be repaid
by
ACPT over a 15-year period. In addition, the County agreed to increase the
baseline assumption from 200 to 300 school allocations per year commencing
with
the issuance of these bonds and continuing until such bonds are repaid in full.
During
2006, the Company reached an agreement with Charles County whereby the Company
receives interest payments on any undistributed bond proceeds held in escrow
by
the County. The agreement covers the period from July 1, 2005 through the last
draw made by the Company.
In
June
2005, the Company signed a two year, $3,000,000 recourse note that carries
a
fixed interest rate of 6.98%, requires the Company to pay monthly principal
and
interest payments until its maturity on May 15, 2007 and is collateralized
by
the Company's cash receipts from the two apartment properties acquired in
October 2004 and two parcels of land in St. Charles acquired in the second
quarter of 2005. This loan and another acquisition loan with an outstanding
balance of $1,778,000 as of December 31, 2006 were repaid in full subsequent
to
year end.
Recourse
Debt - Puerto Rico Operations
Substantially
all of the Company's 490 acres of community development land assets in Parque
El
Comandante within the Puerto Rico segment are encumbered by recourse debt.
The homebuilding and land assets in Parque Escorial are unencumbered as of
December 31, 2006. On September 1, 2006, LDA secured a revolving line of credit
facility of $15,000,000 to be utilized as follows: (i) to repay its outstanding
loan of $800,000; and (ii) to fund development costs of a project in which
the
Company plans to develop a planned community in Canovanas, Puerto Rico, to
fund
acquisitions and/or investments mainly in estate ventures, to fund transaction
costs and expenses, to fund future payments of interest under the line of credit
and to fund the working capital needs of the Company. The line of credit bears
interest at a fluctuating rate equivalent to the LIBOR Rate plus 200 basis
points (7.37% at December 31, 2006) and matures on August 31, 2008. The
outstanding balance of this facility on December 31, 2006, was
$2,600,000.
Non-Recourse
Debt - U.S. Operations
As
more
fully described in Note 4 to our Consolidated Financial Statements included
in
this Form 10-K, the non-recourse apartment properties' debt is collateralized
by
apartment projects. As of December 31, 2006, approximately 45% of this
debt is secured by the Federal Housing Administration ("FHA") or the Maryland
Housing Fund.
Non-recourse
debt within our U.S. operations also includes a construction loan for a new
apartment project in St. Charles. On August 11, 2005, Sheffield Greens
Apartments, LLC ("Sheffield Greens"), a wholly owned subsidiary of the Company,
obtained a non-recourse construction loan of $27,008,000 to fund the
construction costs for a
new
apartment property in St. Charles' Fairway Village. The construction loan will
mature in September 2007 and at such time will convert into a 40-year
non-recourse permanent mortgage. The loan has a fixed interest rate of 5.47%,
and requires interest-only payments during the construction phase followed
by
principal and interest payments until maturity. The loan is subject to a HUD
regulatory agreement. The loan documents provide for covenants and events of
default that are customary for mortgage loans insured by the Federal Housing
Authority.
On
April
28, 2006, the Company completed the acquisition of two apartment properties
in
Baltimore, Maryland containing a total of 250 units for approximately
$14,300,000. The acquisition was financed through a combination $11,836,000
of
non-recourse notes and borrowing $3,755,000 from the Revolver, which included
funding improvement escrows and payment of closing costs.
On
October 2, 2006, Fox Chase Apartments, LLC (“Fox Chase”), a majority-owned
subsidiary of the Company, secured a non-recourse mortgage of $13,000,000.
The
ten-year loan, amortized over 30 years, has a fixed interest rate of 6.06%,
requires principal and interest payments through maturity and a balloon payment
at the maturity date, November 1, 2016. The prior mortgage of $6,537,000 was
repaid and the net proceeds from the refinancing will be used for overall
apartment property improvements, the repayment of recourse debt, future
development efforts and potential acquisitions.
On
November 1, 2006, New Forest Apartments, LLC (“New Forest”), a majority-owned
subsidiary of the Company, secured a non-recourse mortgage of $23,000,000.
The
ten-year loan, amortized over 30 years, has a fixed interest rate of 6.075%,
requires principal and interest payments through maturity and a balloon payment
at the maturity date, November 1, 2016. The prior mortgage of $12,144,000 was
repaid and the net proceeds from the refinancing will be used for overall
apartment property improvements, the repayment of recourse debt, future
development efforts and potential acquisitions.
In
the
fourth quarter of 2005, the Company purchased 22 residential acres adjacent
to
the Sheffield Neighborhood in St. Charles for $1,000,000. The Company paid
$500,000 in cash and signed a two-year, non-interest bearing, non-recourse
note,
for $500,000 due in November 2007.
Non-Recourse
Debt - Puerto Rico Operations
As
more
fully described in Note 4 to our Consolidated Financial Statements included
in
this Form 10-K, the non-recourse apartment properties' debt is collateralized
by
the apartment projects. As of December 31, 2006, approximately 1% of this
debt is secured by the Federal Housing Administration ("FHA").
Non-recourse
debt within our Puerto Rico operations also includes a permanent mortgage of
$8,600,000 for the office building. The permanent loan facility consists of
a
thirty-year loan with a ten year fixed rate equal to 7.33%. At the end of the
first ten years the interest rate will be reset, at the discretion of
management, to a fixed rate for an additional five, seven or ten years equal
to
the SWAP rate plus 2.25%.
On
April
5, 2006, the non-recourse mortgage for one of our consolidated apartment
properties in Puerto Rico, Colinas de San Juan Associates Limited Partnership,
was refinanced with a ten-year, 6.59% non-recourse mortgage loan of $9,680,000.
The proceeds from the refinancing were used for capital improvements at the
property site and distributions to the general and limited
partners.
On
December 20, 2006, the non-recourse mortgage of one of our consolidated
apartment properties in Puerto Rico, Carolina Associates LP S.E.
(“Carolina”), was
refinanced with a ten-year, 5.95% non-recourse mortgage loan of $28,140,000.
The
proceeds from the refinancing were used to establish an escrow for capital
improvements to be made at the property site as well as to repay management
fees, and intercompany loans. In January 2007, the Company made an $800,000
distribution to the partners of Carolina which includes $400,000 to the limited
partners and $400,000 to the Company.
Purchase
Obligations and Other Contractual Obligations
In
addition to our contractual obligations described above, we have other purchase
obligations consisting primarily of contractual commitments for normal operating
expenses at our apartment properties, recurring corporate expenditures including
employment, consulting and compensation agreements and audit fees, non-recurring
corporate expenditures such as improvements at our investment properties, the
construction of the new apartment project in St. Charles, which was completed
in
February 2007, costs associated with our land development contracts for the
County’s road projects and the development of our land in the U.S. and Puerto
Rico. Our U.S. and Puerto Rico land development and construction contracts
are
subject to increases in cost of materials and labor and other project overruns.
Our overall capital requirements will depend upon acquisition opportunities,
the
level of improvements on existing properties and the cost of future phases
of
residential and commercial land
development.
In 2007, the Company plans to continue its development activity within the
master planned communities in St. Charles and Puerto Rico and may commit to
future contractual obligations at that time.
Liquidity
Requirements
Our
short-term liquidity requirements consist primarily of obligations under capital
and operating leases, normal recurring operating expenses, regular debt service
requirements, non-recurring expenditures and dividends to common shareholders.
The Company has historically met its liquidity requirements from cash flow
generated from residential and commercial land sales, home sales, property
management fees, and rental property revenue. However, a significant reduction
in the demand for real estate or a decline in the prices of real estate could
adversely impact our cash flows. Anticipated cash flow from operations, existing
loans, refinanced or extended loans, and new financing are expected to meet
our
financial commitments for the year. However, there are no assurances that these
funds will be generated.
We
are
actively seeking additions to our rental property portfolio. We are currently
pursuing various opportunities to purchase additional apartment properties
in
the Baltimore, Maryland and Washington, D.C. areas. Future acquisitions may
be
financed through a combination of Company equity, third party equity and market
rate mortgages. During 2007, we may seek additional development loans and
permanent mortgages for continued development and expansion of St. Charles
and
Parque Escorial and other potential rental property opportunities.
The
Company will evaluate and determine on a continuing basis, depending upon market
conditions and the outcome of events described under the section titled
"Forward-Looking Statements," the most efficient use of the Company's capital,
including acquisitions and dispositions, purchasing, refinancing, exchanging
or
retiring certain of the Company's outstanding debt obligations, distributions
to
shareholders and its existing contractual obligations.
DEBT
GUARANTEES AND OTHER OBLIGATIONS
ACPT
and
its subsidiaries typically provide guarantees for another subsidiary’s loan or
letters of credit. In many cases more than one company guarantees the same
debt.
All of these companies are consolidated and the debt or other financial
commitment is included in ACPT’s consolidated financial statements. These
guarantees should not impair our ability to conduct our business through our
subsidiaries or to pursue our development plans.
IMPACT
OF INFLATION AND CHANGING PRICES
Inflation
has been moderate in recent years. In general, we attempt to minimize any
inflationary effect by increasing our market rents, land prices and home prices.
However, in recent history, the increases in the HUD subsidies for the Puerto
Rico multifamily rental properties have not offset the increases in the
operating costs of the related properties resulting in a negative impact on
our
cash flow.
INTERCOMPANY
DIVIDEND RESTRICTIONS
Certain
of our debt and regulatory agreements require us to abide by covenants which,
among other things, limit the availability of our subsidiaries to pay dividends
or distributions. The regulatory agreements governing the apartment properties
limit the dividend to annual or semi-annual distributions of no more than
surplus cash. In addition, within the Puerto Rico segment the
distributions of two multifamily rental property partnerships are limited;
one is limited to a specified annual cumulative rate of 6% and another
is limited to a maximum distribution amount of $146,000. These restrictions
are not expected to impair our ability to conduct our business through our
subsidiaries or to pursue our development plans. Further, these partnerships
have made distributions or have accumulated losses in excess of the investment,
resulting in equity deficits. Accordingly, no equity is restricted related
to
these subsidiaries as of December 31, 2006.
As
discussed above, during 2006 the Company closed on the Revolver, a $14,000,000
revolving credit facility. The Revolver requires that ALD have a Senior Debt
to
Equity Ratio, as defined by the agreement, of not more than 3 to 1. As of
December 31, 2006, no balances were outstanding on the Revolver so no amounts
were restricted at year end.
ACPT
DIVIDEND RESTRICTIONS
In
addition to the ALD Senior Debt to Equity covenant, the Revolver requires ACPT
to maintain a Minimum Net Worth of $10,862,000. As of December 31, 2006, no
balances were outstanding on the Revolver so no amounts were restricted at
year
end.
INSURANCE
AND RISK OF UNINSURED LOSS
We
carry
various lines of insurance coverage for all of our investment properties,
including property insurance and believe that we are adequately covered against
normal risks. These policies, and other insurance policies we carry, have policy
specifications, insured limits and deductibles that we consider commercially
reasonable.
We
renewed our insurance coverage on May 1, 2006 for our Puerto Rico operations
and
October 1, 2006 for our U.S. operations for one-year policy terms. Although
the
insurance coverage provided for in the renewal policies did not materially
change from the preceding year, our overall premium costs decreased by 1% as
compared to the prior policy year.
Mold
growth may occur when excessive moisture accumulates in buildings or on building
materials, particularly if the moisture problem remains undiscovered or is
not
addressed over a period of time. Although the occurrence of mold at multifamily
and other structures, and the need to remediate such mold, is not a new
phenomenon, there has been increased awareness in recent years that certain
molds may in some instances lead to adverse health effects, including allergic
or other reactions. To help limit mold growth, we educate residents about the
importance of adequate ventilation and request or require that they notify
us
when they see mold or excessive moisture. We have established procedures for
promptly addressing and remediating mold or excessive moisture from apartment
homes when we become aware of its presence regardless of whether we or the
resident believe a health risk is present. However, we cannot assure that mold
or excessive moisture will be detected and remediated in a timely manner. If
a
significant mold problem arises at one of our properties, we could be required
to undertake a costly remediation program to contain or remove the mold from
the
affected community and could be exposed to other liabilities. We cannot assure
that we will have coverage under our existing policies for property damage
or
liability to third parties arising as a result of exposure to mold or a claim
of
exposure to mold at one of our apartment properties.
OFF-BALANCE
SHEET ARRANGEMENTS
We
do not
have any off-balance sheet arrangements within the meaning of SEC Regulation
S-K
Item 303(a)(4).
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
The
use
of financial instruments, such as debt instruments, subjects our Company to
market risks, which may affect our future earnings and cash flows as well as
the
fair value of our assets. Market risk generally refers to the risk of loss
from
changes in interest rates and market prices. We are exposed to market risk
primarily due to fluctuations in interest rates. We utilize both fixed-rate
and
variable-rate debt. For fixed-rate debt, changes in interest rates generally
affect the fair market value of the debt instrument, but not our earnings or
cash flow. Conversely, for variable- rate debt, changes in interest rates
generally do not impact the fair market value of the debt instrument but do
affect our earnings and cash flow. It is the Company's policy to minimize the
impact of variable rate debt to the greatest extent possible by pursuing equity
and long term fixed rate financing and refinancings of current fixed rate debt
at lower rates when favorable market conditions exist. The following table
provides information about the Company's financial instruments that are
sensitive to changes in interest rates. The table presents the Company's debt
obligations, principal repayments, and related weighted average interest rates
by expected maturity dates and fair values. The Company has no derivative
financial instruments. We believe that the change in the fair value of our
financial instruments resulting from a foreseeable fluctuation in interest
rates
would be immaterial to our total assets and total liabilities.
Principal
Amount by Expected Maturity
|
|
Average
Interest Rate
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, including current portions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate debt-principal
|
|
$
|
7,671
|
|
$
|
4,809
|
|
$
|
5,190
|
|
$
|
5,524
|
|
$
|
5,850
|
|
$
|
259,262
|
|
$
|
288,306
|
|
$
|
287,858
|
|
Fixed
rate debt-interest
|
|
|
16,398
|
|
|
15,194
|
|
|
14,900
|
|
|
14,604
|
|
|
14,293
|
|
|
97,763
|
|
|
173,152
|
|
|
|
|
Average
interest rate
|
|
|
5.77
|
%
|
|
5.71
|
%
|
|
5.73
|
%
|
|
5.73
|
%
|
|
5.74
|
%
|
|
5.85
|
%
|
|
5.76
|
%
|
|
5.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate debt-principal
|
|
|
2,055
|
|
|
2,894
|
|
|
6,816
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,765
|
|
|
11,765
|
|
Variable
rate debt-interest
|
|
|
752
|
|
|
652
|
|
|
167
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,571
|
|
|
|
|
Average
interest rate
|
|
|
9.21
|
%
|
|
7.37
|
%
|
|
7.37
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
|
7.98
|
%
|
|
7.98
|
%
|
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
Report
of Independent Registered Public Accounting Firm
To
the
Board of Trustees and Shareholders of
American
Community Properties Trust
We
have
audited the accompanying consolidated balance sheets of American Community
Properties Trust and subsidiaries (a Maryland real estate investment trust)
(the
“Company”) as of December 31, 2006 and 2005, and the related consolidated
statements of income, changes in shareholders’ equity and cash flows for each of
the three years in the period ended December 31, 2006. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These
consolidated financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform
an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express
no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Community
Properties Trust and subsidiaries at December 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As
discussed in Note 2 to the consolidated financial statements, in 2006 the
Company adopted the provisions of Emerging Task Force Issue 04-5, “Determining
Whether a General Partner, or the General Partner, as a Group Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain
Rights.”
/s/
Ernst & Young
LLP
McLean,
Virginia
March
21,
2007
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Rental property revenues
|
|
$
|
54,029
|
|
$
|
22,566
|
|
$
|
19,007
|
|
Community development-land sales
|
|
|
20,967
|
|
|
22,800
|
|
|
9,675
|
|
Homebuilding-home sales
|
|
|
19,838
|
|
|
7,424
|
|
|
9,861
|
|
Management and other fees, substantially all from related
entities
|
|
|
1,228
|
|
|
3,237
|
|
|
3,591
|
|
Reimbursement of expenses related to managed entities
|
|
|
2,101
|
|
|
6,286
|
|
|
6,877
|
|
Total revenues
|
|
|
98,163
|
|
|
62,313
|
|
|
49,011
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
Rental property operating expenses
|
|
|
27,013
|
|
|
10,790
|
|
|
8,529
|
|
Cost of land sales
|
|
|
11,607
|
|
|
14,233
|
|
|
6,383
|
|
Cost of home sales
|
|
|
14,833
|
|
|
6,122
|
|
|
7,474
|
|
General, administrative, selling and marketing
|
|
|
9,212
|
|
|
9,734
|
|
|
8,341
|
|
Depreciation and amortization
|
|
|
8,402
|
|
|
4,042
|
|
|
3,328
|
|
Expenses reimbursed from managed entities
|
|
|
2,101
|
|
|
6,286
|
|
|
6,877
|
|
Total expenses
|
|
|
73,168
|
|
|
51,207
|
|
|
40,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
24,995
|
|
|
11,106
|
|
|
8,079
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
1,673
|
|
|
895
|
|
|
528
|
|
Equity in earnings from unconsolidated entities
|
|
|
682
|
|
|
1,143
|
|
|
2,676
|
|
Interest expense
|
|
|
(16,845
|
)
|
|
(5,363
|
)
|
|
(5,667
|
)
|
Minority interest in consolidated entities
|
|
|
(3,020
|
)
|
|
(926
|
)
|
|
(1,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision (benefit) for income taxes
|
|
|
7,485
|
|
|
6,855
|
|
|
4,331
|
|
Provision
(benefit) for income taxes
|
|
|
2,894
|
|
|
(690
|
)
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,591
|
|
$
|
7,545
|
|
$
|
2,831
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share -Basic and Diluted
|
|
$
|
0.88
|
|
$
|
1.45
|
|
$
|
0.55
|
|
Weighted
average shares outstanding - Basic and Diluted
|
|
|
5,201
|
|
|
5,195
|
|
|
5,192
|
|
Cash
dividends per share
|
|
$
|
0.83
|
|
$
|
0.40
|
|
$
|
0.35
|
|
The
accompanying notes are an integral part of these consolidated
statements.
|
|
|
|
|
|
|
Note:
The
income statement for the year ended December 31, 2006 reflects the adoption
of
Emerging Issues Task Force Issue 04-05, “Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights,” (“EITF
04-05”) on January 1, 2006 (Refer to Note 2).
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
As
of
December
31, 2006
|
|
As
of
December
31, 2005
|
|
ASSETS
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
|
Operating real estate, net of accumulated depreciation
|
|
$
|
142,046
|
|
$
|
76,578
|
|
of $142,458 and $46,412 respectively
|
|
|
|
|
|
|
|
Land and development costs
|
|
|
67,745
|
|
|
54,232
|
|
Condominiums under construction
|
|
|
9,226
|
|
|
17,621
|
|
Rental projects under construction or development
|
|
|
24,430
|
|
|
4,458
|
|
Investments in real estate, net
|
|
|
243,447
|
|
|
152,889
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
27,459
|
|
|
21,156
|
|
Restricted
cash and escrow deposits
|
|
|
19,677
|
|
|
8,925
|
|
Investments
in unconsolidated real estate entities
|
|
|
6,591
|
|
|
9,738
|
|
Receivable
from bond proceeds
|
|
|
13,710
|
|
|
8,422
|
|
Accounts
receivable
|
|
|
4,320
|
|
|
1,332
|
|
Deferred
tax assets
|
|
|
18,157
|
|
|
5,610
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
1,157
|
|
|
1,182
|
|
Deferred
charges and other assets, net of amortization of
|
|
|
|
|
|
|
|
$1,655 and $898 respectively
|
|
|
12,181
|
|
|
7,831
|
|
Total Assets
|
|
$
|
346,699
|
|
$
|
217,085
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$
|
270,720
|
|
$
|
119,865
|
|
Recourse
debt
|
|
|
29,351
|
|
|
32,981
|
|
Accounts
payable and accrued liabilities
|
|
|
24,191
|
|
|
19,243
|
|
Deferred
income
|
|
|
3,591
|
|
|
3,961
|
|
Accrued
current income tax liability
|
|
|
2,992
|
|
|
6,545
|
|
Total Liabilities
|
|
|
330,845
|
|
|
182,595
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Common
shares, $.01 par value, 10,000,000 shares authorized,
|
|
|
|
|
|
|
|
5,229,954 shares and 5,197,954 shares issued and
outstanding
|
|
|
|
|
|
|
|
as of December 31, 2006 and December 31, 2005,
respectively
|
|
|
52
|
|
|
52
|
|
Treasury
stock, 67,709 shares at cost
|
|
|
(376
|
)
|
|
(376
|
)
|
Additional
paid-in capital
|
|
|
17,238
|
|
|
17,066
|
|
Retained
(deficit) earnings
|
|
|
(1,060
|
)
|
|
17,748
|
|
Total Shareholders' Equity
|
|
|
15,854
|
|
|
34,490
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
346,699
|
|
$
|
217,085
|
|
The
accompanying notes are an integral part of these consolidated
statements.
Note:
The
balance sheet as of December 31, 2006 reflects the adoption of Emerging Issues
Task Force Issue 04-05, “Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights,” (“EITF
04-05”) on January 1, 2006 (Refer to Note 2).
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|
|
(In
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Treasury
|
|
|
Paid-in
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
Number
|
|
|
Value
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Total
|
|
Balance
December 31, 2003
|
|
|
5,191,554
|
|
$ |
52
|
|
$ |
(376
|
)
|
$ |
16,964
|
|
$ |
11,213
|
|
$ |
27,853
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,831
|
|
|
2,831
|
|
Dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,793
|
)
|
|
(1,793
|
)
|
Balance
December 31, 2004
|
|
|
5,191,554
|
|
|
52
|
|
|
(376
|
)
|
|
16,964
|
|
|
12,251
|
|
|
28,891
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,545
|
|
|
7,545
|
|
Dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,048
|
)
|
|
(2,048
|
)
|
Issuance of shares to Trustees
|
|
|
6,400
|
|
|
-
|
|
|
-
|
|
|
102
|
|
|
-
|
|
|
102
|
|
Balance
December 31, 2005
|
|
|
5,197,954
|
|
|
52
|
|
|
(376
|
)
|
|
17,066
|
|
|
17,748
|
|
|
34,490
|
|
Net income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,591
|
|
|
4,591
|
|
Dividends paid
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,261
|
)
|
|
(4,261
|
)
|
Cumulative effect of change in accounting for EITF 04-05
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(19,138
|
)
|
|
(19,138
|
)
|
Issuance of restricted shares to Trustees
|
|
|
32,000
|
|
|
-
|
|
|
-
|
|
|
172
|
|
|
-
|
|
|
172
|
|
Balance
December 31, 2006
|
|
|
5,229,954
|
|
$
|
52
|
|
$
|
(376
|
)
|
$
|
17,238
|
|
$
|
(1,060
|
)
|
$
|
15,854
|
|
The accompanying notes are an integral part of these consolidated
statements.
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,591
|
|
$
|
7,545
|
|
$
|
2,831
|
|
Adjustments to reconcile net income to net cash provided
by
|
|
|
|
|
|
|
|
|
|
|
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,402
|
|
|
4,042
|
|
|
3,328
|
|
Distribution to minority interests in excess of
basis
|
|
|
2,973
|
|
|
922
|
|
|
1,230
|
|
Benefit for deferred income taxes
|
|
|
(2,706
|
)
|
|
(4,248
|
)
|
|
(1,878
|
)
|
Equity in earnings-unconsolidated entities
|
|
|
(682
|
)
|
|
(1,143
|
)
|
|
(2,676
|
)
|
Distribution of earnings from unconsolidated
entities
|
|
|
682
|
|
|
1,388
|
|
|
938
|
|
Cost of land sales
|
|
|
11,607
|
|
|
14,233
|
|
|
6,383
|
|
Cost of home sales
|
|
|
14,833
|
|
|
6,122
|
|
|
7,474
|
|
Stock based compensation expense
|
|
|
244
|
|
|
1,036
|
|
|
640
|
|
Minority interest in consolidated
entities
|
|
|
3,020
|
|
|
926
|
|
|
1,285
|
|
Amortization of deferred loan
costs
|
|
|
1,588
|
|
|
392
|
|
|
697
|
|
Changes in notes and accounts receivable
|
|
|
(2,387
|
)
|
|
300
|
|
|
(64
|
)
|
Additions to community development assets
|
|
|
(25,120
|
)
|
|
(20,793
|
)
|
|
(11,963
|
)
|
Homebuilding-construction expenditures
|
|
|
(6,438
|
)
|
|
(13,068
|
)
|
|
(8,204
|
)
|
Deferred income-joint venture
|
|
|
(370
|
)
|
|
(122
|
)
|
|
4,277
|
|
Changes in accounts payable, accrued
liabilities
|
|
|
(920
|
)
|
|
(680
|
)
|
|
4,358
|
|
Net cash provided by (used in) operating activities
|
|
$
|
9,317
|
|
$
|
(3,148
|
)
|
$
|
8,656
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Investment in office building and apartment construction
|
|
|
(19,972
|
)
|
|
(3,739
|
)
|
|
(5,660
|
)
|
Change in investments - unconsolidated entities
|
|
|
61
|
|
|
1,819
|
|
|
2,257
|
|
Cash from newly consolidated properties
|
|
|
4,723
|
|
|
-
|
|
|
-
|
|
Change in restricted cash
|
|
|
136
|
|
|
(936
|
)
|
|
(1,435
|
)
|
Additions to rental operating properties, net
|
|
|
(21,507
|
)
|
|
(5,687
|
)
|
|
(23,777
|
)
|
Other assets
|
|
|
(2,602
|
)
|
|
(722
|
)
|
|
(146
|
)
|
Net cash used in investing activities
|
|
$
|
(39,161
|
)
|
$
|
(9,265
|
)
|
$
|
(28,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds from debt financing
|
|
|
121,694
|
|
|
38,494
|
|
|
53,149
|
|
Payment of debt
|
|
|
(81,958
|
)
|
|
(20,481
|
)
|
|
(29,845
|
)
|
County Bonds proceeds, net of undisbursed funds
|
|
|
3,645
|
|
|
2,388
|
|
|
2,246
|
|
Payments of distributions to minority interests
|
|
|
(2,973
|
)
|
|
(922
|
)
|
|
(1,230
|
)
|
Dividends paid to shareholders
|
|
|
(4,261
|
)
|
|
(2,048
|
)
|
|
(1,793
|
)
|
Net cash provided by financing activities
|
|
$
|
36,147
|
|
$
|
17,431
|
|
$
|
22,527
|
|
Net
Increase in Cash and Cash Equivalents
|
|
|
6,303
|
|
|
5,018
|
|
|
2,422
|
|
Cash
and Cash Equivalents, Beginning of Year
|
|
|
21,156
|
|
|
16,138
|
|
|
13,716
|
|
Cash
and Cash Equivalents, End of Year
|
|
$
|
27,459
|
|
$
|
21,156
|
|
$
|
16,138
|
|
The accompanying notes are an integral part of these consolidated
statements.
|
AMERICAN
COMMUNITY PROPERTIES TRUST
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
American
Community Properties Trust ("ACPT") was formed on March 17, 1997 as a real
estate investment trust under Article 8 of the Maryland Trust Law. ACPT was
formed to succeed to most of Interstate General Company L.P.'s ("IGC" or
"Predecessor") real estate operations.
On
October 5, 1998 IGC transferred to ACPT the common shares of four subsidiaries
that collectively comprised the majority of the principal real estate operations
and assets of IGC. In exchange, ACPT issued to IGC 5,207,954 common shares
of
ACPT, all of which were distributed ("the Distribution") to the partners of
IGC.
IGC distributed to its partners the 5,207,954 common shares of ACPT, resulting
in the division of IGC's operations into two companies.
ACPT
is a
self-managed holding company that is primarily engaged in the investment of
rental properties, property management services, community development, and
homebuilding. These operations are concentrated in the Washington, D.C.
metropolitan area and Puerto Rico and are carried out through American Rental
Properties Trust ("ARPT"), American Rental Management Company ("ARMC "),
American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group")
and their subsidiaries.
ACPT
is
taxed as a U.S. partnership and its taxable income flows through to its
shareholders. ACPT is subject to Puerto Rico taxes on IGP Group’s taxable
income, generating foreign tax credits that have been passed through to ACPT’s
shareholders. An IRS regulation eliminating the pass through of these tax
credits to ACPT’s shareholders has been proposed and is expected to become
effective in 2007. ACPT’s federal taxable income consists of certain passive
income from IGP Group, a controlled foreign corporation, distributions from
IGP
Group and dividends from ACPT’s U.S. subsidiaries. Other than Interstate
Commercial Properties (“ICP”), which is taxed as a Puerto Rico corporation, the
taxable income from the remaining Puerto Rico operating entities passes through
to IGP Group or ALD. Of this taxable income, only the portion of taxable
income applicable to the profits, losses or gains on the residential land sold
in Parque Escorial passes through to ALD. ALD, ARMC, and ARPT are taxed as
U.S. corporations. The taxable income from the U.S. apartment properties
flows through to ARPT.
ARPT
ARPT
holds an ownership interest in 21 multifamily rental properties ("U.S. Apartment
Properties") indirectly through American Housing Properties L.P. ("AHP"), a
Delaware partnership, in which ARPT has a 99% limited partner interest and
American Housing Management Company, a wholly owned subsidiary of ARPT, has
a 1%
general partner interest.
ARMC
ARMC
performs property management services in the United States for the U.S.
Apartment Properties and for other rental apartments not owned by
ACPT.
ALD
ALD
owns
and operates the assets of ACPT's United States community development. These
include the following:
1. |
A
100% interest in St. Charles Community LLC ("SCC LLC") which holds
approximately 4,000 acres of land in St. Charles,
Maryland.
|
2. |
The
Class B interest in Interstate General Properties Limited Partnership
S.E., a Maryland partnership ("IGP") that represents IGP's rights
to
income, gains and losses associated with land in Parque Escorial,
Puerto
Rico held by Land Development Associates, S.E. ("LDA") and designated
for
development as saleable property.
|
3. |
Through
SCC LLC, a 50% interest in a land development joint venture, St.
Charles
Active Adult Community, LLC
("AAC").
|
IGP
Group
IGP
Group
owns and operates the assets of ACPT's Puerto Rico division indirectly through
a
99% limited partnership interest and 1% general partner interest in IGP
excluding the Class B IGP interest transferred to ALD. IGP's assets and
operations include:
1.
|
A
100% partnership interest in LDA, a Puerto Rico special partnership,
which
holds 120 acres of land in the planned community of Parque Escorial
and
490 acres of land in Canovanas;
|
2.
|
General
partner interests in 9 Puerto Rico apartment partnerships, and a
limited
partner interest in 1 of the 9 partnerships, these 9 partnerships
own 12
multifamily rental properties;
|
3.
|
A
limited partnership interest in ELI, S.E. ("ELI"), that shares 45.26%
of
the future cash flow generated from a 30 year lease to the State
Insurance
Fund of the Government of Puerto
Rico;
|
4.
|
An
indirect 100% ownership interest, through LDA and IGP, in Torres
del
Escorial, Inc. ("Torres"), a Puerto Rico corporation organized to
build
160 condominium units;
|
5.
|
A
100% ownership interest in Escorial Office Building I, Inc. (“EOBI”) a
Puerto Rico Corporation that holds the operations of a three-story,
56,000
square feet office building; and |
6. |
A
100% ownership interest in Interstate Commercial Properties, Inc.
("ICP"),
a Puerto Rico
corporation organized to hold a limited partner interest in El Monte
Properties S.E. ("EMP").
|
(2)
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis
of Presentation
The
accompanying consolidated financial statements include the accounts of American
Community Properties Trust and its majority owned subsidiaries and partnerships,
after eliminating all intercompany transactions. All of the entities included
in
the consolidated financial statements are hereinafter referred to collectively
as the "Company" or "ACPT".
The
Company consolidates entities which are not variable interest entities as
defined by FASB Interpretation No. 46 (revised December 2003) (“FIN 46 (R)”) in
which it owns, directly or indirectly, a majority voting interest in the entity.
In addition, beginning January 1, 2006, the Company consolidates entities,
regardless of ownership percentage, in which the Company serves as the general
partner and the limited partners do not have substantive kick-out rights or
substantive participation rights in accordance with Emerging Issues Task Force
Issue 04-05, "Determining
Whether a General Partner, or the General Partners as a Group, Controls a
Limited Partnership or Similar Entity When the Limited Partners Have Certain
Rights,"
(“EITF
04-05”). The assets of consolidated real estate partnerships not 100% owned by
the Company are generally not available to pay creditors of the
Company.
As
of
December 31, 2006, the consolidated group includes ACPT and its four major
subsidiaries, American Rental Properties Trust, American Rental Management
Company, American Land Development U.S., Inc. and IGP Group Corp. In addition,
the consolidated group includes American Housing Management Company, American
Housing Properties L.P., St. Charles Community, LLC, Interstate General
Properties Limited Partnership, S.E., Land Development Associates S.E., LDA
Group LLC, Torres del Escorial, Inc., Escorial Office Building I, Inc.,
Interstate Commercial Properties, Inc., Bannister Associates Limited
Partnership, Coachman's LLC, Crossland Associates Limited Partnership, Fox
Chase
Apartments, LLC, Headen House Associates Limited Partnership, Lancaster
Apartments Limited Partnership, Milford Station I, LLC, Milford Station II,
LLC,
New Forest Apartments, LLC, Nottingham South, LLC, Owings Chase, LLC, Palmer
Apartments Associates Limited Partnership, Prescott Square, LLC, Sheffield
Greens Apartments, LLC, Village Lake LLC, Wakefield Terrace Associates Limited
Partnership, Wakefield Third Age Associates Limited Partnership, Alturas del
Senorial Associates Limited Partnership, Bayamon Garden Associates Limited
Partnership, Carolina Associates Limited Partnership S.E., Colinas de San Juan
Associates Limited Partnership, Essex Apartments Associates Limited Partnership,
Huntington Associates Limited Partnership, Jardines de Caparra Associates
Limited Partnership, Monserrate Associates Limited Partnership, San Anton
Associates S.E., Turabo Limited Dividend Partnership and Valle del Sol
Associates Limited Partnership.
The
Company's investments in entities that it does not control are recorded using
the equity method of accounting. Refer to Note 3 for further discussion
regarding Investments in Unconsolidated Real Estate Entities.
Implementation
of EITF 04-05
As
of
January 1, 2006, we consolidated 11 partnerships which were previously
unconsolidated as a result of the application of EITF 04-05. Those partnerships
own, or control other entities that own, 14 multifamily rental properties.
Our
interests in the profits and losses of these partnerships range from 1 to 50
percent.
The
initial consolidation of those partnerships resulted in increases (decreases),
net of intercompany eliminations, and included the recording of deferred taxes
in amounts reported in our consolidated balance sheet as of January 1, 2006,
as
follows (in thousands):
|
|
Increase
(decrease)
|
|
Operating
real estate, net of accumulated depreciation
|
|
$
|
53,282
|
|
Cash
and cash equivalents
|
|
|
4,723
|
|
Investments
in unconsolidated real estate entities
|
|
|
(920
|
)
|
Deferred
tax assets
|
|
|
9,841
|
|
All
other assets
|
|
|
11,618
|
|
Total
assets
|
|
$
|
78,544
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$
|
98,556
|
|
All
other liabilities
|
|
|
(874
|
)
|
Shareholders’
equity
|
|
|
(19,138
|
)
|
Total
liabilities and shareholders’ equity
|
|
$
|
78,544
|
|
The
Company recorded an overall reduction to retained earnings of $19.1 million
in a
manner similar to a cumulative effect of a change in accounting principle.
The
retained earnings impact is net of a deferred tax asset recorded of $9.8 million
related to temporary differences arising from the capital deficits absorbed
by
the Company as a result of consolidating the partnerships.
The
impact to our consolidated statements of income for the year ended December
31,
2006 is summarized as follows (in thousands):
|
|
Balance
prior
|
|
|
|
For
the year
|
|
|
|
to
the
|
|
|
|
Ended
|
|
|
|
Implementation
|
|
Increase
|
|
December
31,
|
|
|
|
of
EITF 04-05
|
|
(Decrease)
|
|
2006
|
|
Rental
property revenues
|
|
$
|
26,359
|
|
$
|
27,670
|
|
$
|
54,029
|
|
Management
and other fees
|
|
|
3,961
|
|
|
(2,733
|
)
|
|
1,228
|
|
Reimbursement
of expenses related to managed entities
|
|
|
6,238
|
|
|
(4,137
|
)
|
|
2,101
|
|
Total
revenues
|
|
|
77,363
|
|
|
20,800
|
|
|
98,163
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
property operating expenses
|
|
|
13,215
|
|
|
13,798
|
|
|
27,013
|
|
Depreciation
and amortization
|
|
|
4,624
|
|
|
3,778
|
|
|
8,402
|
|
Expenses
reimbursed from managed entities
|
|
|
6,238
|
|
|
(4,137
|
)
|
|
2,101
|
|
Total
expenses
|
|
|
59,729
|
|
|
13,439
|
|
|
73,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,634
|
|
|
7,361
|
|
|
24,995
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings from unconsolidated entities
|
|
|
1,022
|
|
|
(340
|
)
|
|
682
|
|
Interest
expense
|
|
|
(9,258
|
)
|
|
(7,587
|
)
|
|
(16,845
|
)
|
Minority
interest in consolidated entities
|
|
|
(541
|
)
|
|
(2,479
|
)
|
|
(3,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
10,530
|
|
|
(3,045
|
)
|
|
7,485
|
|
Provision
(benefit) for income taxes
|
|
|
3,773
|
|
|
(879
|
)
|
|
2,894
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
6,757
|
|
|
(2,166
|
)
|
|
4,591
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share basic and diluted
|
|
$
|
1.30
|
|
$
|
(0.42
|
)
|
$
|
0.88
|
|
In
prior
periods, we used the equity method of accounting to account for our investments
in the additional 11 partnerships that we consolidated in 2006 in accordance
with EITF 04-05. Under the equity method of accounting, we recognized
partnership income or losses based generally on our percentage interest in
the
partnership. Consolidation of a partnership does not ordinarily result in a
change to the net amount of the partnership income or loss that is recognized
using the equity method of accounting. However, when consolidated real estate
partnerships make cash distributions or allocate losses to partners in excess
of
the minority partners’ basis in the property, generally accepted accounting
principles require that the consolidating partner record a charge equal to
the
amount of such excess distribution. Certain of the partnerships that we
consolidated in accordance with EITF 04-05 had deficits in equity that resulted
from losses and distributions made to the partners in excess of basis during
prior periods when we accounted for our investment using the equity method
of
accounting. Had we consolidated these entities in prior periods, we would have
been required to recognize the non-controlling partners’ share of those losses
and distributions in excess of basis.
Summary
of Significant Accounting Policies
Sales,
Profit Recognition and Cost Capitalization
In
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 66,
“Accounting
for Sales of Real Estate,” community
development land sales are recognized at closing only when sufficient down
payments have been obtained, possession and other attributes of ownership have
been transferred to the buyer, and ACPT has no significant continuing
involvement. Under the provisions of SFAS 66, related to condominium sales,
revenues and costs are to be recognized when construction is beyond the
preliminary stage, the buyer is committed to the extent of being unable to
require a refund except for non-delivery of the unit, sufficient units in the
project have been sold to ensure that the property will not be converted to
rental property, the sales proceeds are collectible and the aggregate sales
proceeds and the total cost of the project can be reasonably estimated.
Accordingly we recognize revenues and costs upon settlement with the homebuyer
which doesn’t occur until after we receive use and occupancy permits for the
building.
In
accordance with SFAS 67 "Accounting
for Costs and Initial Rental Operations of Real Estate
Projects",
the
costs of acquiring and developing land are allocated to these assets and charged
to cost of sales as the related inventories are sold. Within our homebuilding
operations, the costs of acquiring the land and construction of the condominiums
are allocated to these assets and charged to cost of sales as the condominiums
are sold. The cost of sales is determined by the percentage of completion
method. The Company considers interest expense on all debt available for
capitalization to the extent of average qualifying assets for the period.
Interest specific to the construction of qualifying assets, represented
primarily by our recourse debt, is first considered for capitalization. To
the
extent qualifying assets exceed debt specifically identified, a weighted average
rate including all other debt is applied. Any excess interest is reflected
as
interest expense.
Revenue
Recognition for Rental Properties
Rental
income related to leases is recognized on an accrual basis when due from
residents and applicable government agencies in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue
Recognition"
and SFAS
No. 13, "Accounting
for Leases."
In
accordance with the Company's standard lease terms, rental payments are
generally due on a monthly basis. Any cash concessions given at the inception
of
the lease are amortized over the approximate life of the lease, which is
generally one year. Leases entered into between a resident and a partnership
for
the rental of an apartment unit are generally year-to-year, renewable upon
consent of both parties on an annual basis or monthly basis for shorter term
leases.
Allowance
for Doubtful Accounts
We
record
a provision for losses on accounts receivable equal to the estimated
uncollectible amounts. This estimate is based on our historical experience
and a
review of the current status of the Company's receivables. The allowance for
uncollectible receivables was $1,018,000 and $1,337,000 at December 31, 2006
and
2005, respectively.
Management
Fees
The
Company recognizes revenue from property management, development and other
services in the period in which services are rendered and fees
earned.
Impairment
of Long-Lived Assets
ACPT
carries its rental properties, homebuilding inventory, land and development
costs at the lower of cost or fair value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." For real estate assets such as our rental
properties which the Company plans to hold and use, which includes property
to
be developed in the future, property currently under development and real estate
projects that are completed or substantially complete, we evaluate whether
the
carrying amount of each of these assets will be recovered from their
undiscounted future cash flows arising from their use and eventual disposition.
If the carrying value were to be greater than the undiscounted future cash
flows, we would recognize an impairment loss to the extent the carrying amount
is not recoverable. Our estimates of the undiscounted operating cash flows
expected to be generated by each asset are performed on an individual project
basis and based on a number of assumptions that are subject to economic and
market uncertainties, including, among others, demand for apartment units,
competition, changes in market rental rates, and costs to operate and complete
each project.
There
have been no impairment charges for the years ended December 31, 2006, 2005
and
2004.
The
Company evaluates, on an individual project basis, whether the carrying value
of
its substantially completed real estate projects, such as our homebuilding
inventory that are to be sold, will be recovered based on the fair value less
cost to sell. If the carrying value were to be greater than the fair value
less
costs to sell, we would recognize an impairment loss to the extent the carrying
amount is not recoverable. Our estimates of the fair value less costs to sell
are based on a number of assumptions that are subject to economic and market
uncertainties, including, among others, comparable sales, demand for commercial
and residential lots and competition. The Company performed similar reviews
for
land held for future development and sale considering such factors as the cash
flows associated with future development expenditures. Should this evaluation
indicate an impairment has occurred, the Company will record an impairment
charge equal to the excess of the historical cost over fair value less costs
to
sell. There
have been no impairment charges for the years ended December 31, 2006, 2005
and
2004.
Cost
Reimbursements
The
apartment properties reimburse the Company for certain costs incurred at the
central office that are attributable to the operations of those properties.
In
accordance with EITF 01-14, “Income Statement
Characterization of Reimbursements Received for Out of Pocket Expenses
Incurred”
the
cost and reimbursement of these costs are not included in general,
administrative, selling and marketing expenses, but rather they are reflected
as
separate line items on the consolidated income statement.
Depreciable
Assets and Depreciation
The
Company's operating real estate is stated at cost and includes all costs related
to acquisitions, development and construction. The Company makes assessments
of
the useful lives of our real estate assets for purposes of determining the
amount of depreciation expense to reflect on our income statement on an annual
basis. The assessments, all of which are judgmental determinations, are as
follows:
-
Buildings
and improvements are depreciated over five
to forty years using the straight-line or double declining balance
methods,
-
Furniture,
fixtures and equpiment are depreciated over
five to seven years using the straight-line method,
-
Leasehold
improvements are capitalized and depreciated
over the lesser of the life of the lease or their estimated useful
life,
-
Maintenance
and other repair costs are charged to
operations as incurred.
Operating
Real Estate
The
table
below presents the major classes of depreciable assets as of December 31, 2006
and 2005 (in thousands):
|
|
December
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building
|
|
$
|
240,264
|
|
$
|
102,140
|
|
Building
improvements
|
|
|
8,022
|
|
|
4,525
|
|
Equipment
|
|
|
12,569
|
|
|
6,260
|
|
|
|
|
260,855
|
|
|
112,925
|
|
Less:
Accumulated
depreciation
|
|
|
142,458
|
|
|
46,412
|
|
|
|
|
118,397
|
|
|
66,513
|
|
Land
|
|
|
23,649
|
|
|
10,065
|
|
Operating
properties, net
|
|
$
|
142,046
|
|
$
|
76,578
|
|
Other
Property and Equipment
In
addition, the Company owned other property and equipment of $1,157,000 and
$1,182,000, net of accumulated depreciation of $2,101,000 and $1,769,000
respectively, as of December 31, 2006 and December 31, 2005 respectively.
Depreciation
Total
depreciation expense was $8,402,000, $4,042,000 and $3,328,000 for the years
ended December 31, 2006, 2005 and 2004, respectively.
Acquired
Real Estate Properties
On
April
28, 2006, the Company acquired two multifamily rental properties, Milford
Station I LLC and Milford Station II LLC, in Baltimore, Maryland containing
a
combined total of 250 units for approximately $14,300,000. On
May
23, 2005, the Company, through its subsidiary AHP, completed the acquisition
of
Nottingham South Apartments (Nottingham), a multifamily rental property in
Baltimore, Maryland containing 85 units for approximately $3,000,000. The
acquisitions were financed through a combination of cash and non-recourse debt
financing. All
of
the acquired properties are operating as market rate properties.
We
allocated the purchase price of acquired properties to the related physical
assets (land and building) and in-place leases based on the fair values of
each
component, in accordance with SFAS No. 141, "Business
Combinations."
The
value ascribed to in-place leases is based on the rental rates for the existing
leases compared to market rent for leases of similar terms and present valuing
the difference based on tenant credit risk rates. In preparing this calculation,
we considered the estimated costs to make an apartment unit rent ready, the
estimated costs and lost income associated with executing a new lease on an
apartment unit, and the remaining terms of leases in place. The Company
depreciates the amounts allocated to building and improvements over
40 years on a straight-line basis and amortizes the amounts allocated to
intangible assets relating to in-place leases, totaling $104,000 for the 2005
acquisition and $199,000 for the 2006 acquisition, which are included in other
operating assets in the accompanying balance sheet, over the remaining term
of
the related leases, which term is no longer than one year. As of December 31,
2006, the intangible assets relating to the in-place leases for Nottingham
were
fully amortized.
Investment
in Unconsolidated Apartment Partnerships
Pursuant
to the respective partnership agreements, the general partners of the
unconsolidated partnerships are prohibited from selling or encumbering their
general partner interest or selling the partnership assets without majority
limited partner approval. The Company accounts for its investments in
unconsolidated apartment partnerships under the equity method of accounting
as
the Company exercises significant influence, but does not control these
entities. Under the equity method of accounting the net equity investment of
the
Company is reflected in the Consolidated Balance Sheets and the Company’s share
of net income from the partnership is included on the Consolidated Statements
of
Income.
ACPT's
investments
consist of nominal capital contributions, working capital loans and ACPT's share
of unconsolidated partnership income reduced by ACPT’s share of distributions
and losses. The working capital loans receive priority distributions from the
cash flow generated from the operations of the partnerships.
Minority
Interest in Consolidated Entities
We
reflect unaffiliated partners' interests in consolidated real estate
partnerships as an accrued liability on our consolidated balance sheet. This
accrued liability in consolidated real estate partnerships represents the
minority partners' share of the underlying net assets of our consolidated real
estate partnerships. When these consolidated real estate partnerships make
cash
distributions or allocate losses to minority limited partners in excess of
the
minority limited partners' basis in the property, we generally absorb the excess
losses and record a charge equal to the amount of such excess distribution.
We
report these charges and the minority partners’ share of income during the
current period in the consolidated statements of income as minority interest
in
consolidated entities. Although
this allows us to recognize 100 percent of the income of the partnerships up
to
accumulated distributions and losses in excess of basis previously required
to
be recognized as our expense, we will be required to recognize as expense 100
percent of future distributions to minority partners, net of our recapture
of
minority partner’s share of income, and any subsequent losses. For
the
years ended December 31, 2006, 2005 and 2004, we recorded in the
consolidated financial statements charges for excess partnership losses and
distributions to minority partners of approximately $2,211,000, $542,000 and
$1,084,000, respectively.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash on hand, unrestricted deposits with financial
institutions and short-term investments with original maturities of three months
or less.
Restricted
cash and escrow deposits include funds held in restricted escrow accounts used
for maintenance and capital improvements with the approval of HUD and/or the
State Finance Agency. The account also includes tenant security deposits as
well
as deposits collected within our homebuilding operations as well as funds in
an
escrow account that are restricted for the repayment of the County
bonds.
Cash
flow
from our consolidated apartment properties whose mortgage loans are insured
by
the Federal Housing Authority ("FHA"), or financed through the housing agencies
in Maryland, Virginia or Puerto Rico (the "Financing Agencies,") are subject
to
guidelines and limits established by the apartment partnerships' regulatory
agreements with HUD and the State Financing Agencies. For two of our Puerto
Rico
partnerships, the regulatory agreements also require that if cash from
operations exceeds the allowable cash distributions, the surplus must be
deposited into restricted escrow accounts held by the mortgagee and controlled
by HUD or the applicable Financing Agency.
Income
Taxes
The
Company's complex tax structure involves foreign source income and multiple
entities that file separate returns. Due to the complex nature of tax
regulations affecting our entities, our income tax expense and related balance
sheet amounts involve significant management estimates and
judgments.
ACPT
was
structured in a manner so as not to be subject to U.S. income taxes provided
that its income constituted qualifying income for purposes of the Publicly
Traded Partnership (“PTP”) provisions of the Internal Revenue Code. ACPT's
shareholders are expected to be taxed directly on their share of ACPT's income.
ALD and ARMC are subject to federal and state tax at the applicable corporate
rates. ARPT qualified as a real estate investment trust during 1998, but did
not
meet the ownership requirements in 1999. Therefore, commencing in 1999, ARPT
has
been taxed as an U.S. C corporation. Furthermore, ACPT, ALD and ARMC are subject
to Puerto Rico income tax on its Puerto Rico source income.
Earnings
Per Share and Dividends
The
Company follows the provisions of SFAS No. 128, “Earnings
per Share.”
The
calculation of basic earnings per share is based on the average number of
common
shares outstanding during the period. The calculation of diluted earnings
per
share includes the effect of all potentially dilutive securities (primarily
unvested restricted share grants as described in Note 8). The following table
presents the number of shares used in the calculation of basic earnings per
share and diluted earnings per share (in thousands, except per share
data):
|
|
Year
Ended December 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,591
|
|
$
|
7,545
|
|
$
|
2,831
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
5,201
|
|
|
5,195
|
|
|
5,192
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
0.88
|
|
$
|
1.45
|
|
$
|
0.55
|
|
The
Company
accrues for dividends when declared. During the year ended December 31, 2006,
the Company declared and paid cash dividends of $0.73 per share on 5,197,954
common shares outstanding and $0.10 per share on 5,229,954 common shares
outstanding. During the year ended December 31, 2005, the Company declared
and
paid cash dividends of $0.20 per share on 5,191,554 common shares outstanding
and $0.20 per share on 5,197,954 common shares outstanding. During the year
ended December 31, 2004, the Company declared and paid cash dividends of $0.35
per share on the 5,191,554 common shares outstanding.
Share
Based Payments
Prior
to
2006, we applied the provisions of Statement of Financial Accounting Standard
No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) to our
Share Appreciation Rights outstanding (see Note 8). SFAS 123 provided that
liability based awards be accounted for using the intrinsic value. Effective
January 1, 2006, we adopted Statement of Financial Accounting Standard (SFAS)
No. 123(R) “Share Based Payment,” a revision of SFAS No. 123. Under the
new guidance, liability instruments are measured at fair value as opposed to
intrinsic value. In addition SFAS 123R requires that we measure the total
compensation cost for equity based payments at the grant date fair value and
amortize the expense over the related service period. We adopted the provisions
of SFAS 123(R) using the modified prospective application method. The
implementation of SFAS 123(R) did not have a material impact on our financial
statements.
Comprehensive
Income
ACPT
has
no items of comprehensive income that would require separate reporting in the
accompanying consolidated statements of shareholders' equity.
Reclassification
Certain
amounts from prior years have been reclassified to conform to our current year's
presentation. Most notably the Company’s consolidated balance sheet as of
December 31, 2005 was reclassified to conform to the revised presentation
elected as of January 1, 2006. The revised presentation is more condensed than
prior periods and categorizes assets and liabilities by type.
Use
of
Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles, which we refer to as GAAP, requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements, and accompanying notes and disclosures. These estimates are prepared
using management’s best judgement, after considering past and current events and
economic conditions. Actual results could differ from those
estimates.
Impact
of Recently Issued Accounting Standards
SFAS
157
In
September 2006, the FASB issued SFAS 157, "Fair
Value Measurements." SFAS
157
defines fair values as the price that would be received to sell an asset or
paid
to transfer a liability in an orderly transaction between market participants
in
the market in which the reporting entity transacts. SFAS 157 applies whenever
other standards require assets or liabilities to be measured at fair value
and
does not expand the use of fair value in any new circumstances. SFAS 157
establishes a hierarchy that prioritizes the information used in developing
fair
value estimates. The hierarchy gives the highest priority to quoted prices
in
active markets and the lowest priority to unobservable data, such as the
reporting entity’s own data. SFAS 157 requires fair value measurements to be
disclosed by level within the fair value hierarchy. SFAS 157 is effective for
fiscal years beginning after November 15, 2007. We have not yet determined
the
impact that SFAS 157 will have on our financial statements.
FIN
48
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting
for Income Taxes,”
and
it
seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes. In addition, FIN
48
requires expanded disclosure with respect to the uncertainty in income taxes
and
is effective as of the beginning of our 2007 fiscal year. We are currently
evaluating the impact, if any, that FIN 48 will have on our financial
statements.
EITF
Issue No. 06-08
In
November
2006, the Emerging Issues Task force of the FASB (“EITF”) reached a consensus on
EITF Issue No. 06-08, “Applicability of a Buyer’s Continuing Investment
under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales
of
Condominiums” (“EITF 06-08”). EITF 06-08 will require condominium sales to
meet the continuing investment criterion in FAS No. 66 in order for profit
to be
recognized under the percentage-of-completion method. EITF 06-08 will be
effective for annual reporting periods beginning after March 15, 2007. The
cumulative effect of applying EITF 06-08, if any, is to be reported as an
adjustment to the opening balance of retained earnings in the year of adoption.
We are evaluating the impact that EITF 06-08 may have, if any, on our financial
statements.
(3)
|
INVESTMENT
IN UNCONSOLIDATED REAL ESTATE ENTITIES
|
The
Company accounts for investments in unconsolidated real estate entities that
are
not considered variable interest entities under FIN 46(R) in accordance with
SOP
78-9 "Accounting
for Investments in Real Estate Ventures" and
APB
Opinion No. 18 "The
Equity Method of Accounting for Investments in Common Stock".
For
entities that are considered variable interest entities under FIN 46(R), the
Company performs an assessment to determine the primary beneficiary of the
entity as required by FIN 46(R). The Company accounts for variable interest
entities in which the Company is not a primary beneficiary and does not bear
a
majority of the risk of expected loss in accordance with the equity method
of
accounting.
The
Company considers many factors in determining whether or not an investment
should be recorded under the equity method, such as economic and ownership
interests, authority to make decisions, and contractual and substantive
participating rights of the partners. Income and losses are recognized in
accordance with the terms of the partnership agreements and any guarantee
obligations or commitments for financial support. The Company's investments
in
unconsolidated real estate entities accounted for under the equity method of
accounting currently consists of general partnership interests in two limited
partnerships which own apartment properties in the United States; a limited
partnership interest in a limited partnership that owns a commercial property
in
Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited
liability company.
Apartment
Partnerships
The
unconsolidated apartment partnerships as of December 31, 2006 include two
partnerships owning 110 rental units compared to 13 partnerships owning 3,463
rental units in 16 apartment complexes as of December 31, 2005. The two
remaining unconsolidated complexes are owned by Brookside Gardens Limited
Partnership and Lakeside Apartments Limited Partnership.
We
have
determined that two of our unconsolidated apartment partnerships, Brookside
Gardens and Lakeside Apartments, are variable interest entities under FIN 46(R),
however, the Company is not required to consolidate the partnerships due to
the
fact that it is not the primary beneficiary and does not bear the majority
of
the risk of expected losses. The Company holds less than a 20% economic interest
in Brookside and Lakeside. As a general partner, we have significant influence
over operations of Brookside and Lakeside that is disproportionate to our
economic ownership in these two partnerships. In accordance with SOP 78-9 and
APB No. 18, these investments are accounted for under the equity method. The
Company is exposed to losses consisting of our net investment, loans and unpaid
fees for Brookside of $189,000 and $197,000 and for Lakeside of $172,000 and
$169,000 as of December 31, 2006 and 2005, respectively. All amounts are fully
reserved. Pursuant to the partnership agreement for Brookside, the Company,
as
general partner, is responsible for providing operating deficit loans to the
partnership in the event that it is not able to generate sufficient cash flows
from its operating activities.
Commercial
Partnerships
The
Company holds a limited partner interest in a commercial property in Puerto
Rico
that it accounts for under the equity method of accounting. ELI, S.E. ("ELI"),
is a partnership formed for the purpose of constructing a building for lease
to
the State Insurance Fund of the Government of Puerto Rico. ACPT contributed
the
land in exchange for $700,000 and 27.82% ownership interest in the partnership's
assets, equal to a 45.26% interest in cash flow generated by the thirty-year
lease of the building.
On
April
30, 2004, the Company purchased a 50% limited partnership interest in El Monte
Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family,
a
related party. In December 2004, a third party buyer purchased El Monte for
$20,000,000, $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds
from the sale of the real estate were distributed to the partners. As a result,
the Company received $2,500,000 in cash and recognized $986,000 of income in
2004. The gain on sale was reduced by the amount of the seller's note which
is
subject to future subordination. In January 2005, El Monte distributed to the
Company its share of the $3,000,000 note, $1,500,000. The Company will recognize
income as it receives cash payments on the note which was repaid in full in
January 2007. See Note 15 for more details. El Monte will distribute any
remaining cash when it winds up its affairs.
Land
Development Joint Venture
In
September 2004, the Company entered into a joint venture agreement with Lennar
Corporation for the development of a 352-unit, active adult community located
in
St. Charles, Maryland. The Company manages the project's development for a
market rate fee pursuant to a management agreement. In September 2004, the
Company transferred land to the joint venture in exchange for a 50% ownership
interest and $4,277,000 in cash. The Company's investment in the joint venture
was recorded at 50% of the historical cost basis of the land with the other
50%
recorded within our deferred charges and other assets. The proceeds received
are
reflected as deferred revenue. The deferred revenue and related deferred costs
will be recognized into income as the joint venture sells lots to Lennar. In
March 2005, the joint venture closed a non-recourse development loan which
was
amended in June 2006 and again in December 2006. According to the terms of
the
loan, both the Company and Lennar provided development completion guarantees.
The joint venture sold 61 lots to Lennar’s homebuilding division during 2006
compared to 25 lots delivered during 2005. As a result, the Company recognized
$1,300,000 in deferred revenue, management fees and off-site fees and $419,000
of deferred costs for the year ended December 31, 2006 compared to $610,000
in
deferred revenue, management fees and offsite fees and $176,000 of deferred
costs for the year ended December 31, 2005
The
following table summarizes the financial data and principal activities of the
unconsolidated real estate entities, which the Company accounts for under the
equity method. The information is presented to segregate the apartment
partnerships from the commercial partnerships as well as our 50% ownership
interest in the land development joint venture, which are all accounted for
as
“investments in unconsolidated real estate entities” on the balance
sheet.
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
Apartment
|
|
Commercial
|
|
Joint
|
|
|
|
|
|
Properties
|
|
Property
|
|
Venture
|
|
Total
|
|
|
|
(in
thousands)
|
|
Summary
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
5,142
|
|
$
|
27,726
|
|
$
|
12,154
|
|
$ |
45,022
|
|
December 31, 2005
|
|
|
77,830
|
|
|
28,464
|
|
|
11,947
|
|
|
118,241
|
|
Total
Non-Recourse Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
3,244
|
|
|
22,960
|
|
|
3,476
|
|
|
29,680
|
|
December 31, 2005
|
|
|
101,848
|
|
|
23,120
|
|
|
4,019
|
|
|
128,987
|
|
Total Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
1,242
|
|
|
722
|
|
|
1,744
|
|
|
3,708
|
|
December 31, 2005
|
|
|
9,782
|
|
|
1,516
|
|
|
994
|
|
|
12,292
|
|
Total Equity/(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
656
|
|
|
4,044
|
|
|
6,934
|
|
|
11,634
|
|
December 31, 2005
|
|
|
(33,800
|
)
|
|
3,828
|
|
|
6,934
|
|
|
(23,038
|
)
|
Company's Investment, net (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
-
|
|
|
4,763
|
|
|
1,828
|
|
|
6,591
|
|
December 31, 2005
|
|
|
(1,597
|
)
|
|
4,824
|
|
|
1,828
|
|
|
5,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
$
|
790
|
|
$
|
3,660
|
|
$
|
5,840
|
|
$
|
10,290
|
|
Year Ended December 31, 2005
|
|
|
27,729
|
|
|
3,658
|
|
|
2,711
|
|
|
34,098
|
|
Year Ended December 31, 2004
|
|
|
27,350
|
|
|
16,009
|
|
|
-
|
|
|
43,359
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
(113
|
)
|
|
1,855
|
|
|
-
|
|
|
1,742
|
|
Year Ended December 31, 2005
|
|
|
1,384
|
|
|
1,812
|
|
|
-
|
|
|
3,196
|
|
Year Ended December 31, 2004
|
|
|
1,139
|
|
|
11,336
|
|
|
-
|
|
|
12,475
|
|
Company's recognition of equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
(1
|
)
|
|
683
|
|
|
-
|
|
|
682
|
|
Year Ended December 31, 2005
|
|
|
451
|
|
|
692
|
|
|
-
|
|
|
1,143
|
|
Year Ended December 31, 2004 (2)
|
|
|
925
|
|
|
1,751
|
|
|
-
|
|
|
2,676
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
Apartment
|
|
Commercial
|
|
Joint
|
|
|
|
|
|
Properties
|
|
Property
|
|
Venture
|
|
Total
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
$
|
95
|
|
$
|
1,857
|
|
$
|
6,579
|
|
$
|
8,531
|
|
Year Ended December 31, 2005
|
|
|
6,460
|
|
|
1,840
|
|
|
759
|
|
|
9,059
|
|
Year Ended December 31, 2004
|
|
|
5,561
|
|
|
11,976
|
|
|
-
|
|
|
17,537
|
|
Company's share of cash flows from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
1
|
|
|
840
|
|
|
3,290
|
|
|
4,131
|
|
Year Ended December 31, 2005
|
|
|
2,131
|
|
|
833
|
|
|
379
|
|
|
3,343
|
|
Year Ended December 31, 2004
|
|
|
1,612
|
|
|
5,905
|
|
|
-
|
|
|
7,517
|
|
Operating cash distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
-
|
|
|
1,639
|
|
|
-
|
|
|
1,639
|
|
Year Ended December 31, 2005
|
|
|
2,968
|
|
|
1,600
|
|
|
-
|
|
|
4,568
|
|
Year Ended December 31, 2004
|
|
|
991
|
|
|
6,537
|
|
|
-
|
|
|
7,528
|
|
Company's share of operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
-
|
|
|
743
|
|
|
-
|
|
|
743
|
|
Year Ended December 31, 2005
|
|
|
1,320
|
|
|
740
|
|
|
-
|
|
|
2,060
|
|
Year Ended December 31, 2004
|
|
|
344
|
|
|
3,255
|
|
|
-
|
|
|
3,599
|
|
Refinancing cash distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Year Ended December 31, 2005
|
|
|
100
|
|
|
-
|
|
|
2,320
|
|
|
2,420
|
|
Year Ended December 31, 2004
|
|
|
2,526
|
|
|
-
|
|
|
-
|
|
|
2,526
|
|
Company's share of refinancing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Year Ended December 31, 2005
|
|
|
1
|
|
|
-
|
|
|
1,160
|
|
|
1,161
|
|
Year Ended December 31, 2004
|
|
|
1,249
|
|
|
-
|
|
|
-
|
|
|
1,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(1) |
Represents
the Company's net investment, including assets and accrued liabilities
in
the consolidated balance sheet for unconsolidated real estate
entities.
|
(2) |
Increase
due to El Monte’s sale of primary
assets
|
The Company's outstanding debt is collateralized primarily by land, land
improvements, homebuilding assets, receivables, investment properties,
investments in partnerships, and rental properties. The following table
summarizes the indebtedness of the Company at December 31, 2006 and 2005 (in
thousands):
|
|
Maturity
|
|
Interest
|
|
Outstanding
as of
|
|
|
|
Dates
|
|
Rates
(a)
|
|
December
31,
|
|
December
31,
|
|
|
|
From/To
|
|
From/To
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Recourse
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
Development (b), ( c), (d)
|
|
|
08-31-08/03-01-21
|
|
|
P+1%/8
|
%
|
$
|
24,694
|
|
$
|
14,161
|
|
Homebuilding (e)
|
|
|
PAID
|
|
|
P
|
|
|
-
|
|
|
13,905
|
|
Investment Properties (f)
|
|
|
05-15-07/01-23-13
|
|
|
P+1.25%/6.98
|
%
|
|
4,473
|
|
|
4,752
|
|
General obligations (g)
|
|
|
07-29-07/01-01-12
|
|
|
Non-interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bearing/8.10%
|
|
|
184
|
|
|
163
|
|
Total
Recourse Debt
|
|
|
|
|
|
|
|
|
29,351
|
|
|
32,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Recourse
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Development (h)
|
|
|
11-23-07
|
|
|
Non-interest
bearing
|
|
|
500
|
|
|
500
|
|
Investment Properties (i), (j), (k)
|
|
|
04-30-09/08-01-47
|
|
|
4.95%/10
|
%
|
|
270,220
|
|
|
119,365
|
|
Total
Non-Recourse Debt
|
|
|
|
|
|
|
|
|
270,720
|
|
|
119,865
|
|
Total debt
|
|
|
|
|
|
|
|
$
|
300,071
|
|
$
|
152,846
|
|
(a)
"P" = Prime lending interest rate. (The prime rate at December 31, 2006
was 8.25%)
(b)
As of December 31, 2006, $22,094,000 of the community development recourse
debt
relates to the general obligation bonds issued by the Charles County government
as described in detail under the heading "Financial Commitments" in Note
5.
(c)
On April 14, 2006, the Company closed a three year $14,000,000 revolving
acquisition and development line of credit loan (“the Revolver”)
secured by a first lien deed of trust on property
located in St. Charles, MD. The maximum amount of the loan at any one time
is $14,000,000. The facility includes various sub-limits on a revolving
basis for amounts to finance apartment project acquisitions and land development
in St. Charles. The terms require certain financial covenants to be
calculated annually as of December 31, including a tangible net worth to
senior
debt ratio for ALD and a minimum net worth test for ACPT. As of December
31, 2006, the Company was in compliance with these financial covenants, however
no amounts were outstanding on the Revolver.
(d)
On September 1, 2006, LDA secured a revolving line of credit facility of
$15,000,000 to be utilized as follows: (i) to repay its outstanding loan
of
$800,000; and (ii) to fund development costs of a project in which the Company
plans to develop a planned community in Canovanas, Puerto Rico, to fund
acquisitions and/or investments mainly in estate ventures, to fund transaction
costs and expenses, to fund future payments of interest under the line of
credit
and to fund the working capital needs of the Company. The line of credit
bears interest at a fluctuating rate equivalent to the LIBOR Rate plus 200
basis
points (7.37% at December 31, 2006) and matures on August 31, 2008. The
outstanding balance of this facility on December 31, 2006, was
$2,600,000.
(e)
This debt was related to the homebuilding operations and was composed of
a
$26,000,000 revolving construction loan with a maximum outstanding balance
limited to $18,000,000 for Torres Del Escorial. This loan was repaid in
full by December 31, 2006.
(f)
As of December 31, 2006 and 2005, the outstanding recourse debt within the
investment properties is comprised of a loan borrowed to finance the acquisition
of our propertiesVillageLake and Coachman's in January 2003, as well as a
two-year, $3,000,000 recourse note that the Company obtained in June 2005.
The loan carries a fixed interest rate of 6.98% and requires the Company
to pay
monthly principal and interest payments until its maturity on May 15, 2007
and
is collateralized by the Company's cash receipts from the two apartment
properties acquired in 2004 and two parcels of land in St. Charles acquired
in
the second quarter of 2005. Both of these loans were repaid in full in
January 2007.
(g)
The general recourse debt outstanding as of December 31, 2006 is made up
of
various capital leases outstanding within our U.S. and Puerto Rico operations
as
well as vehicle notes.
(h)
In the fourth quarter 2005, the Company purchased 22 residential acres adjacent
to the Sheffield Neighborhood for $1,000,000. The Company funded half of
the purchase price with cash and signed a two-year note for $500,000 due
in
November 2007. The Company plans to annex the land into the St. Charles
master plan community.
(i)
The non-recourse debt related to the investment properties is
collateralized by the multifamily rental properties and an $8,578,000 mortgage
on the office building in Parque Escorial. As of December 31, 2006,
approximately $82,636,000 of this debt is secured by the Federal Housing
Administration ("FHA") or the Maryland Housing Fund. The non-recourse debt
related to the investment properties also includes a construction loan for
Sheffield Greens Apartments LLC (Sheffield Greens). As of December 31,
2006, the balance of the construction loan was $22,351,000. The
construction loan will convert to a 40 year non-recourse permanent mortgage
not
later than September of 2007.
(j)
On April 5, 2006, the non-recourse mortgage for one of our consolidated
apartment properties in Puerto Rico, Colinas de San Juan Associates L.P.,
was
refinanced with a 6.59%, non-recourse mortgage loan of $9,680,000. On
October 2, 2006, the non-recourse mortgage of Fox Chase Apartments, LLC (“Fox
Chase”), a majority-owned subsidiary of the Company, was refinanced with a
6.06%, non-recourse loan of $13,000,000. On November 1, 2006, the
non-recourse mortgage of New Forest Apartments, LLC (“New Forest”), a
majority-owned subsidiary of the Company, was refinanced with a 6.075%
non-recourse loan of $23,000,000. On December 20, 2006, the non-recourse
mortgage of one of our consolidated apartment properties in Puerto Rico,
Carolina Associates LP S.E. (“Carolina”), was refinanced with a 5.95%
non-recourse mortgage loan of $28,140,000. Each loan is a ten-year
loan, amortized over 30 years requiring principal and interest payments through
maturity and a balloon payment at the maturity date. The proceeds from
these refinancings were used for capital improvements at the property sites
and
distributions to the general and limited partners.
(k)
On April 28, 2006, the Company, through its subsidiary AHP, acquired two
apartment properties which were financed through a combination of $11,836,000
of
non-recourse notes and borrowings of $3,755,000 from the Revolver.
The
Company’s loans
contain various financial, cross collateral, cross default, technical and
restrictive provisions. As of December 31, 2006, the Company is in compliance
with the provisions of its loan agreements.
ACPT's
weighted average interest rate on the amounts outstanding at December 31, 2006
and 2005 on its variable rate debt was 7.23% and 5.995%,
respectively.
The
stated maturities of ACPT's indebtedness at December 31, 2006 are as follows
(in
thousands):
2007
|
|
$
|
9,726
|
|
2008
|
|
|
7,703
|
|
2009
|
|
|
12,006
|
|
2010
|
|
|
5,524
|
|
2011
|
|
|
5,850
|
|
Thereafter
|
|
|
259,262
|
|
|
|
$
|
300,071
|
|
The
components of interest and other financing costs, net, are summarized as follows
(in thousands):
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed
|
|
$
|
16,845
|
|
$
|
5,363
|
|
$
|
5,667
|
|
Capitalized
|
|
|
2,729
|
|
|
2,315
|
|
|
1,304
|
|
|
|
$
|
19,574
|
|
$
|
7,678
|
|
$
|
6,971
|
|
(5)
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
Financial
Commitments
Pursuant
to an agreement reached between ACPT and the Charles County Commissioners in
2002, the Company agreed to accelerate the construction of two major roadway
links to the Charles County (the "County") road system. As part of the
agreement, the County agreed to issue general obligation public improvement
bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
letters of credit provided by Lennar as part of a residential lot sales contract
for 1,950 lots in Fairway Village. The Bonds were issued in three
installments with the final $6,000,000 installment issued in March 2006.
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime
rate
of 5.6%, and call for semi-annual interest payments and annual principal
payments and mature in fifteen years. Under the terms of bond repayment
agreements with the County, the Company is obligated to pay interest and
principal on the full amount of the Bonds; as such, the Company recorded the
full amount of the debt and a receivable from the County representing the
remaining Bond proceeds to be advanced to the Company as major infrastructure
development within the project occurs. As part of the agreement, the Company
will pay the County a monthly payment equal to one-sixth of the semi-annual
interest payments and one-twelfth of the annual principal payment. The County
will also require ACPT to fund an escrow account from lot sales that will be
used to repay these bonds.
In
August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is anticipated to house
a
planned minor league baseball stadium and entertainment complex. Under the
terms
of the MOU, the Company donated 42 acres of land in St. Charles to the County
on
December 31, 2005. The Company also agreed to expedite off-site utilities,
storm-water management and road construction improvements that will serve the
entertainment complex and future portions of St. Charles so that the
improvements will be completed concurrently with the entertainment complex.
In
return, the County agreed to issue $7,000,000 of general obligation bonds to
finance the infrastructure improvements. In March 2006, $4,000,000 of bonds
were
issued for this project. The funds for this project will be repaid by ACPT
over
a 15-year period. In addition, the County agreed increase the baseline
assumption from 200 to 300 school allocations per year commencing with the
issuance of these bonds and continuing until such bonds are repaid in full.
During
2006, the Company reached an agreement with Charles County whereby the Company
receives interest payments on any undistributed bond proceeds held in escrow
by
the County. The agreement covers the period from July 1, 2005 through the last
draw made by the Company.
As
of
December 31, 2006, ACPT is guarantor of $28,006,000 of surety bonds for the
completion of land development projects with Charles County; substantially
all
are for the benefit of the Charles County Commissioners.
Consulting
Agreement and Arrangement
ACPT
entered into a consulting and retirement compensation agreement with IGC's
founder and Chief Executive Officer, James J. Wilson, effective October 5,
1998
(the "Consulting Agreement"). Under the terms of the Consulting Agreement,
the
Company will pay Mr. Wilson $200,000 through October 2008.
Guarantees
ACPT
and
its subsidiaries typically provide guarantees for another subsidiary’s loans. In
many cases more than one company guarantees the same debt. Since all of these
companies are consolidated, the debt or other financial commitment made by
the
subsidiaries to third parties and guaranteed by ACPT, is included within ACPT’s
consolidated financial statements. As of December 31, 2006, ACPT has guaranteed
$26,567,000 of outstanding debt owed by its subsidiaries. IGP has guaranteed
$2,600,000 of its subsidiaries’ outstanding debt. In addition, Charles Community
LLC guaranteed $4,473,000 of outstanding debt owed by AHP. The guarantees will
remain in effect until the debt service is fully repaid by the respective
borrowing subsidiary. The terms of the debt service guarantees outstanding
range
from one to fifteen years. We do not expect the guarantees to impair the
individual subsidiary or the Company's ability to conduct business or to pursue
its future development plans.
Legal
Matters
Loiza
Valley
On
November 24, 1997, Comité Loiza Valley en Acción, Inc., resident owners of
Urbanización Loiza Valley in Canovanas, Puerto Rico, a neighborhood consisting
of 56 houses near the property owned by LDA, filed a claim in the Superior
Court
of Carolina, Puerto Rico against Cantera Hipodromo, Inc. (the “lessee” who
operates a quarry on the land owned by LDA), the owners of the lessee, the
lessee’s Insurance Companies and LDA. The Plaintiffs allege that as a result of
certain explosions occurring in the quarry, their houses have suffered different
types of damages and they have also suffered physical injuries and mental
anguish. The damages claimed exceed $11,000,000. The physical damage to the
property is estimated at less than $1,000,000. The lease agreement contains
an
indemnification clause in favor of LDA. The lessee has public liability
insurance coverage of $1,000,000 through Integrand Assurance Company and an
umbrella insurance coverage of $2,000,000 through American International
Insurance Company. In the status hearing held on August 10, 2005, the court
initially scheduled the beginning of the trial for November 2006, however the
trial has been delayed until May 2007.
Jalexis,
Inc
In
late
November 2006, several subsidiaries of the Company (LDA, IGP and IGP Group)
were
named in a lawsuit filed by Jalexis, Inc. (“Jalexis”). The lawsuit claims
damages for more than $15 million allegedly suffered due to faulty subsoil
conditions in a piece of land within the master plan of Parque Escorial (“Lot
I-13W”). Settlement of Lot I-13W occurred on April 29, 2005 under an option
agreement dated April 19, 2004. Jalexis purchased Lot I-13W from LDA for
approximately $7.5 million, which represented 12% of our total consolidated
revenues for 2005. In the purchase agreement, LDA did not make any
representations or warranties with regard to the soil and subsoil conditions
as
Lot I-13W was sold to Jalexis “as is” and “where is”. The Company believes that
it has a strong defense in this case; however, our insurance carrier denies
any
obligation to assume responsibility for the defense. The Company believes that
this lawsuit should be covered by our insurance policy and therefore, we are
readdressing this issue to the insurance company.
Due
to
the inherent uncertainties of the judicial process, we are unable to either
predict the outcome of or estimate a range of potential loss associated with
these matters. While we intend to vigorously defend these matters and believe
we
have meritorious defenses available to us, there can be no assurance that we
would prevail. If these matters are not resolved in our favor, we believe we
are
insured for potential losses. Any amounts that exceed our insurance coverage
could have a material adverse effect on our financial condition and results
of
operations.
The
Company
and/or its subsidiaries have been named as defendants, along with other
companies, in tenant-related lawsuits. The Company carries liability insurance
against these types of claims that management believes meets industry
standards. To date, payments made to the plaintiffs of the settled cases
were covered by our insurance policy. The Company believes it has strong
defenses to these ordinary course claims, and intends to continue to defend
itself vigorously in these matters.
In
the
normal course of business, ACPT is involved in various pending or unasserted
claims. In the opinion of management, these are not expected to have a material
impact on the financial condition or future operations of ACPT.
ACPT
operates certain property and equipment under leases, some with purchase options
that expire at various dates through 2010. ACPT is also obligated under several
non-cancelable operating leases for office space and equipment. Capital leases
of $147,000, exclusive of $25,000 of interest, are reported with general
recourse debt in the Debt Note (see Note 4). The following is a schedule of
the
future minimum lease payments for operating leases as of December 31, 2006
(in
thousands):
|
|
Operating
|
|
|
|
Obligations
|
|
|
|
|
|
2007
|
|
$
|
369
|
|
2008
|
|
|
340
|
|
2009
|
|
|
336
|
|
2010
|
|
|
240
|
|
2011
|
|
|
40
|
|
Thereafter
|
|
|
-
|
|
Total
minimum lease payments
|
|
$
|
1,325
|
|
Rental
expense under non-cancelable operating leases was $271,000 in 2006, $441,000
in
2005 and $472,000 in 2004 and is included in general, administrative, selling
and marketing expenses and rental properties operating expenses in the
accompanying consolidated statements of income.
ACPT
leases office space to tenants under certain non-cancelable operating leases
expiring through 2015. The following is a schedule of the future minimum
payments to be received as of December 31, 2006 (in thousands):
|
|
Lease
|
|
|
|
Income
|
|
|
|
|
|
2007
|
|
$
|
756
|
|
2008
|
|
|
773
|
|
2009
|
|
|
786
|
|
2010
|
|
|
735
|
|
2011
|
|
|
466
|
|
Thereafter
|
|
|
1,604
|
|
Total
minimum lease payments
|
|
$
|
5,120
|
|
(7)
|
RELATED
PARTY TRANSACTIONS
|
Certain
officers and trustees of ACPT have ownership interests in various entities
that
conduct business with the Company. The financial impact of the related party
transactions on the accompanying consolidated financial statements is reflected
below (in thousands):
CONSOLIDATED
STATEMENT OF INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
and Other Fees
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated subsidiaries with third party partners
|
|
|
|
|
$
|
42
|
|
$
|
1,915
|
|
$
|
2,294
|
|
Affiliates of J. Michael Wilson, CEO and Chairman
|
|
|
|
|
|
334
|
|
|
619
|
|
|
706
|
|
|
|
|
|
|
$
|
376
|
|
$
|
2,534
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
Property Revenues
(B)
|
|
|
|
|
$
|
20
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated real estate entities with third party
partners
|
|
|
|
|
$
|
8
|
|
$
|
8
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates of J. Michael Wilson, CEO and Chairman
|
|
|
(C1
|
)
|
$
|
19
|
|
$
|
154
|
|
$
|
392
|
|
Reserve additions and other write-offs-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated real estate entities with third party
partners
|
|
|
(A
|
)
|
|
5
|
|
|
(18
|
)
|
|
138
|
|
Affiliates of J. Michael Wilson, CEO and Chairman
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(28
|
)
|
IGC
|
|
|
|
|
|
-
|
|
|
(3
|
)
|
|
3
|
|
Reimbursement to IBC for ACPT's share of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Wilson's compensation
|
|
|
|
|
|
470
|
|
|
440
|
|
|
380
|
|
Reimbursement of administrative costs-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates of J. Michael Wilson, CEO and Chairman
|
|
|
(C2
|
)
|
|
(65
|
)
|
|
(21
|
)
|
|
(21
|
)
|
James J. Wilson, IGC Chairman and Director
|
|
|
(C3
|
)
|
|
200
|
|
|
200
|
|
|
200
|
|
Thomas J. Shafer, Trustee
|
|
|
(C4
|
)
|
|
60
|
|
|
42
|
|
|
42
|
|
|
|
|
|
|
$
|
689
|
|
$
|
794
|
|
$
|
1,106
|
|
BALANCE
SHEET:
|
|
|
|
|
|
|
|
Balance
December 31,
|
|
Balance
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Assets
Related to Rental Properties
|
|
|
|
|
|
|
|
Receivables
- All unsecured and due on demand
|
|
|
|
|
|
|
|
Unconsolidated real estate entities with third party partners, net
of
reserves
|
|
$
|
-
|
|
$
|
506
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
Receivables
- All unsecured and due on demand
|
|
|
|
|
|
|
|
Affiliate of J. Michael Wilson, CEO and Chairman
|
|
$
|
128
|
|
$
|
108
|
|
(A) Management
and Other Services
The
Company provides management and other support services to its unconsolidated
subsidiaries and other affiliated entities in the normal course of business.
The
fees earned from these services are typically collected on a monthly basis,
one
month in arrears. Receivables are unsecured and due on demand. Certain
partnerships experiencing cash shortfalls have not paid timely. Generally,
receivable balances of these partnerships are fully reserved, until satisfied
or
the prospect of collectibility improves. The collectibility of management fee
receivables is
evaluated
quarterly. Any increase or decrease in the reserves is reflected accordingly
as
additional bad debt expenses or recovery of such expenses.
On
September 21, 2004, ARMC exercised its rights under Section 7.3 of the
Management Agreement with Capital Park Apartments Limited Partnership to
terminate the agreement due to defaults by the Owner of the apartment
partnership. The termination was effective October 11, 2004. Management fees
generated by this property represented less than 1% of the Company’s total
revenue.
In
prior
years, we managed two commercial properties in Puerto Rico owned by the Wilson
Family. The Wilson Family properties were sold to third parties in two separate
transactions, one in December 2004 and the other in April 2005. Management
fees
generated by these properties represented less than 1% of the Company's total
revenue.
Effective
April 30, 2006, ARMC’s management agreement with Chastleton Associates LP
terminated when the apartment property was sold to a third party. The property
was previously owned by an affiliate. Management fees generated by this property
accounted for less than 1% of the Company’s total revenue. The Company earned an
agreed-upon management fee for administrative services through the end of the
second quarter 2006.
At
the
end of February 2007, one of the properties owned by affiliates of J. Michael
Wilson was sold to a third party. We do not anticipate continuing to manage
this
property subsequent to its sale. See
Note
15 for more details.
(B) Rental
Property Revenue
On
September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
Waste Technologies, Inc. (“CWT”), a Company owned by the J. Michael Wilson
Family. The lease provides for 1,842 square feet of office space to be leased
by
CWT for five years at $19.00 per rentable square foot. The company provided
CWT
with an allowance of $9,000 in tenant improvements which are being amortized
over the life of the lease. In addition, CWT shall have the right to terminate
this lease at any time after one year, provided it gives Landlord written notice
six (6) months prior to termination. The lease agreement is
unconditionally guaranteed by Interstate Business Corporation (“IBC”), a company
owned by the J. Michael Wilson Family.
(C)
Other
Other
transactions with related parties are as follows:
(1)
|
In
2005, the Company rented executive office space and other property
from an
affiliate in the United States pursuant to a lease that expires in
2010.
In management’s opinion, all leases with affiliated persons were on terms
at least as favorable as these generally available from unaffiliated
persons for comparable property. Effective January 27, 2006, the
office
building was sold to a third party who assumed the Company’s lease
agreements.
|
(2)
|
Represents
shared office expense reimbursements.
|
(3)
|
Represents
fees paid to James J. Wilson pursuant to a consulting and retirement
agreement. At Mr. Wilson's request, payments are made to
IGC.
|
(4)
|
Represents
fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
agreement.
|
Related
Party Acquisitions
El
Monte
On
April
30, 2004, the Company purchased a 50% limited partnership interest in El Monte
Properties S.E. ("El Monte") from Insular Properties Limited Partnership
("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family.
Per the terms of the agreement, the Company was responsible to fund $400,000
of
capital improvements and lease stabilization costs, and had a priority on cash
distributions up to its advances plus accrued interest at 8%, investment and
a
13% cumulative preferred return on its investment. The purchase price was based
on a third party appraisal of $16,500,000 dated April 22, 2003. The Company's
limited partnership investment was accounted for under the equity method of
accounting.
In
December 2004, a third party buyer purchased El Monte for $20,000,000 -
$17,000,000 in cash and $3,000,000 in notes. The net cash proceeds from the
sale
of the real estate were distributed to the partners. As a result, the Company
received $2,500,000 in cash and recognized $986,000 of income in 2004. El Monte
distributed the note, $1,500,000 to the Company, in January 2005. The note
bears
interest at a rate of prime plus 2% and matures on December 3, 2009. The
principal and accrued interest due under the note were paid in full in January
2007. See Note 15 for more details. El Monte will distribute any remaining
cash
when it winds up its affairs.
(8)
|
SHARE
GRANTS AND APPRECIATION RIGHTS
|
ACPT
adopted an employee share incentive plan (the "Share Incentive Plan") and a
Trustee share incentive plan (the "Trustee Share Plan") to provide for
share-based incentive compensation for officers, key employees and
Trustees.
Under
the
Share Incentive Plan, the Compensation Committee of the Board of Trustees (the
"Compensation Committee") may grant to key employees the following types of
share-based incentive compensation awards ("Awards") (i) options to purchase
a
specified number of shares ("Options"), (ii) forfeitable shares that vest upon
the occurrence of certain vesting criteria ("Restricted Shares"), or (iii)
Share
Appreciation Rights ("Rights") that entitle the holder to receive upon exercise
an amount payable in cash, shares or other property (or any combination of
the
foregoing) equal to the difference between the market value of shares and a
base
price fixed on the date of grant. A total of 208,000 registered shares have
been
reserved for issuance under the Share Incentive Plan.
The
Share
Incentive Plan authorizes the Compensation Committee to determine the exercise
price and manner of payment for Options and the base price for Rights. The
Compensation Committee is also authorized to determine the duration and vesting
criteria for Awards, including whether vesting will be accelerated upon a change
in control of ACPT. The rights of key employees under Awards are not
transferable other than to immediate family members or by will or the laws
of
interstate succession.
The
Trustee Share Plan authorizes the Board of Trustees, in its discretion, to
grant
to eligible Trustees awards of the same types and terms of Awards as provided
under the Share Incentive Plan. Only Trustees who are not employees of ACPT
or
any affiliated company are eligible to receive Awards under the Trustee Share
Plan. A total of 52,000 registered shares have been reserved for issuance under
the Trustee Share Plan.
Trustee
Share Grants
On
August
28, 2006, the Company awarded 8,000 shares to each of its four non-employee
Trustees pursuant to the Trustee Share Plan. The shares vest annually at a
rate of 1,600 per year, per Trustee, with the initial tranche of shares vesting
immediately at the grant date. In accordance with SFAS 123(R), the Company
measured compensation cost as $643,000, which represents the grant date fair
value. The Company will recognize compensation expense over the vesting period
and accordingly, recognized $172,000 for the year ended December 31,
2006.
On
June
29, 2005, 1,600 shares were issued to each of the four non-employee Trustees
under the Trustee Share Plan. These shares were granted free of any
restrictions. At that time, the Company recognized $102,000 of compensation
expense.
Share
Appreciation Rights
In
April
2001, 140,000 Rights were granted to employees. These Rights bear a $4 base
price, and vested in equal increments over a five-year period commencing April
2002. As of December 31, 2006, there are 32,400 outstanding Rights which are
all
exercisable and expire on April 30, 2011. During 2006, 2005 and 2004, the
Company recognized $72,000, $951,000, and $640,000, of compensation expense
in
connection with the outstanding Rights, respectively.
(9)
|
RETIREMENT
AND PROFIT SHARING PLANS
|
ACPT’s
Retirement Plan (the "Retirement Plan") is a defined contribution plan which
provides for contributions to be made by ACPT. The Retirement Plan covers
employees of American Rental Management Company and Interstate General
Properties Ltd. Partnership SE and is qualified
under both the United States Internal Revenue Code and the Puerto Rico Internal
Revenue Code. Employees
are eligible to participate in the Retirement Plan when they have completed
a
minimum employment period of 1,000 hours and shall become a participant on
either January 1st
or July
1st
following the date of hire. ACPT contributes to the accounts of eligible
employees in amounts equal to 5.7% of base salaries and wages not in excess
of
the U.S. Social Security taxable wage base, and 11.4% of salaries (limited
to
$220,000) that exceed that wage base. Eligible employees also may make voluntary
contributions to their accounts and self direct the investment of their account
balances in various investment funds offered under the plan. The Retirement
Plan
also contains a profit sharing provision that allows the Company to make cash
awards to selected employees, a portion of which is contributed to the
Retirement Plan. Contributions made by the Company based on wages to the
Retirement Plan were $560,000, $532,000, and $503,000 in 2006, 2005, and 2004
respectively.
ARMC,
ALD
and ARPT are subject to federal and state income tax. ACPT is subject to Puerto
Rico income tax on its Puerto Rico source income. During the 4th
quarter
of 2005, the Company determined that certain income from our Puerto Rico
operations could be treated as income of ACPT even though it was not distributed
to ACPT. This undistributed income may not constitute qualifying income for
purposes of the PTP provisions of the Internal Revenue Code and could have
affected ACPT's tax status as a PTP. Accordingly, the Company restated its
prior
period financial statements to accrue for this contingency because we believed
a
liability related to this issue was both probable and reasonably estimated.
The
Company decreased net income $474,000 and $416,000 for the years ended December
31, 2004 and 2003, respectively, and decreased retained earnings as of December
31, 2002 by $3,479,000 for the period 1998 through the end of 2002 for this
matter. As announced on March 10, 2006, the Company entered into a closing
agreement with the IRS allowing ACPT to retain its PTP status. The closing
agreement requires ACPT to allocate $4,955,000 of income from the periods 1998
through 2004 to its shareholders of record on March 29, 2006. Under the terms
of
ACPT’s governing documents, it is required to make minimum annual distributions
to the shareholders equal to at least 45% of net taxable income allocated to
shareholders. Accordingly, the Board of Trustees declared a distribution to
the
shareholders of approximately $2,230,000 representing 45% of the allocated
income. In addition, the Company was required to pay an assessment to the IRS
of
$975,000 related to the delay in reporting the income to the IRS. This payment
has been reflected as income tax expense and was made by the Company in March
2006. As of December 31, 2005, we have accounted for this matter according
to
the terms of the closing agreement, and accordingly, have adjusted the accrual
for income taxes that had been previously recorded in the event ACPT was not
able to retain its PTP status. The reversal of this accrual and the resolution
of other tax matters resulted in a net benefit to income taxes of $2,421,000
for
the year ended December 31, 2005. In addition to the impact on income taxes,
the
resolution of these matters also resulted in the reversal of $982,000 in
previously accrued interest related to delayed payment of corporate taxes should
we have been taxed as a corporation, which is no longer necessary.
The
reconciliation below for the provision for income taxes includes income from
ARMC, ALD, ARPT and Puerto Rico source income. The 2006 permanent differences
reflect special tax exempt income, the 2005 permanent differences reflect the
IRS assessment and the 2004 permanent differences reflect special tax exempt
income and the utilization of previously reserved net operating losses.
The
following table reconciles the effective rate to the statutory rate (in
thousands, except amounts in %):
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
Amount
|
|
Income
|
|
Amount
|
|
Income
|
|
Amount
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
at statutory U.S. federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
tax rate
|
|
$
|
2,620
|
|
|
35
|
% |
$
|
2,399
|
|
|
35
|
% |
$
|
1,516
|
|
|
35
|
% |
State
income taxes, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal
tax benefit
|
|
|
271
|
|
|
4
|
% |
|
142
|
|
|
2
|
% |
|
58
|
|
|
1
|
% |
Income
tax matters adjustment
|
|
|
-
|
|
|
-
|
% |
|
(2,421
|
)
|
|
(35
|
)%
|
|
-
|
|
|
-
|
% |
Income
only subject to foreign tax
|
|
|
(41
|
)
|
|
(1
|
)%
|
|
(290
|
)
|
|
(4
|
)%
|
|
(182
|
)
|
|
(4
|
)%
|
Permanent
differences
|
|
|
(189
|
)
|
|
(2
|
)%
|
|
(382
|
)
|
|
(6
|
)%
|
|
(106
|
)
|
|
(2
|
)%
|
Other
|
|
|
233
|
|
|
3
|
% |
|
(138
|
)
|
|
(2
|
)%
|
|
214
|
|
|
5
|
% |
Income
tax provision (benefit)
|
|
$
|
2,894
|
|
|
39
|
% |
$
|
(690
|
)
|
|
(10
|
)%
|
$
|
1,500
|
|
|
35
|
% |
The
provision for income taxes includes the following components (in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
3,040
|
|
$
|
836
|
|
$
|
1,875
|
|
Puerto
Rico
|
|
|
2,560
|
|
|
2,722
|
|
|
1,503
|
|
|
|
|
5,600
|
|
|
3,558
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(558
|
)
|
|
(2,401
|
)
|
|
(2,149
|
)
|
Puerto
Rico
|
|
|
(2,148
|
)
|
|
(1,847
|
)
|
|
271
|
|
|
|
|
(2,706
|
)
|
|
(4,248
|
)
|
|
(1,878
|
)
|
Provision
(Benefit) for Income Taxes
|
|
$
|
2894
|
|
$
|
(690
|
)
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a
result of the implementation of EITF 04-05, a cumulative effect adjustment
for
certain deferred items was recorded as a benefit to retained earnings on January
1, 2006. The total adjustment was $9,841,000, made up of $5,386,000 and
$4,455,000 for the United States and Puerto Rico, respectively.
Certain
items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of this difference is reported
as
deferred income taxes. Deferred income taxes are determined in accordance with
SFAS No. 109, "Accounting for Income Taxes," and such amounts as measured by
tax
laws.
The
components of deferred income tax (asset) liability include the
following:
|
|
At
December 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Deferred
income related to long-term receivables from partnerships operating
in
Puerto Rico
|
|
$
|
282
|
|
$
|
282
|
|
Receivables
from partnerships operating in United States
|
|
|
1,170
|
|
|
1,170
|
|
Tax
benefit on equity in earnings of partnerships operating in Puerto
Rico
|
|
|
(6,618
|
)
|
|
(761
|
)
|
Tax
benefit on equity in earnings of partnerships operating in United
States
|
|
|
(9,287
|
)
|
|
(3,432
|
)
|
Tax
on deferred income
|
|
|
(956
|
)
|
|
(633
|
)
|
Tax
on land development costs capitalized for book purposes
but
|
|
|
|
|
|
|
|
deducted
currently for tax purposes
|
|
|
366
|
|
|
1,425
|
|
Tax
on differences in basis related to joint venture in United
States
|
|
|
(557
|
)
|
|
(579
|
)
|
Tax
on differences in basis related to land in United States
|
|
|
(2,563
|
)
|
|
(2,597
|
)
|
Tax
on differences in basis related to land in Puerto Rico
|
|
|
(157
|
)
|
|
(402
|
)
|
Tax
on basis difference for Puerto Rico commercial venture
|
|
|
913
|
|
|
1,085
|
|
Allowance
for doubtful accounts
|
|
|
(155
|
)
|
|
(382
|
)
|
Accrued
expenses
|
|
|
(277
|
)
|
|
(368
|
)
|
Net
operating loss carryforwards
|
|
|
-
|
|
|
(466
|
)
|
Alternative
minimum tax credits
|
|
|
(113
|
)
|
|
-
|
|
Other
|
|
|
(205
|
)
|
|
48
|
|
|
|
$
|
(18,157
|
)
|
$
|
(5,610
|
)
|
At
December 31, 2006, the Company did not have any net operating loss
carryforwards.
(11)
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The
balance sheet carrying amounts of cash and cash equivalents, receivables and
other current assets approximate fair value due to the short-term nature of
these items. As of December 31, 2006 and 2005, the book value of long-term
fixed
rate debt was $288,306,000 and $136,102,000, respectively, and the fair value
of
total debt was $299,623,000 and $137,456,000, respectively, which was determined
by discounting future cash flows using borrowing rates currently available
to
the Company for loans with similar terms and maturities.
ACPT
has
two reportable segments: U.S. operations and Puerto Rico operations. The
Company's chief decision-makers allocate resources and evaluate the Company's
performance based on these two segments. The U.S. segment is comprised of
different components grouped by product type or service, to include: investments
in rental properties, community development and property management services.
The Puerto Rico segment entails the following components: investment in rental
properties, community development, homebuilding and property management
services. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Customer
Dependence
Residential
land sales to Lennar within our U.S. segment were $18,204,000 for the year
ended
December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
of
our total year-to-date consolidated revenue. No other customers accounted for
more than 10% of our consolidated revenue for the year ended December 31, 2006.
In
2005,
within our U.S. segment, residential
land sales to Lennar, amounted to $12,203,000, which represents 32% of the
U.S.
segment’s revenue and 20% of our total consolidated revenue for the year. In our
Puerto Rico segment, we sold commercial acres in our office park to Jalexis,
Inc. for $7,448,000 which represents 31% of the Puerto Rico segment’s revenue
and 12% of our total consolidated revenue for the year (See Note 5). No other
customers accounted for more than 10% of our consolidated revenue for the year
ended December 31, 2005.
In
2004
residential land sales to Lennar amounted to $6,798,000, which represented
22%
of the U.S. segment’s revenue and 14% of our consolidated revenue. No other
customers accounted for more than 10% of our consolidated revenue for the year
ended December 31, 2004.
The
following presents the financial information for each reportable segment for
the
years ended December 31, 2006, 2005 and 2004 (in thousands):
|
|
United
States
|
|
Puerto
Rico
|
|
Segment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
sales revenue
|
|
$
|
20,967
|
|
$
|
-
|
|
$
|
-
|
$ |
20,967
|
Cost
of land sales
|
|
|
11,607
|
|
|
-
|
|
|
-
|
|
11,607
|
Home
sales revenue
|
|
|
-
|
|
|
19,838
|
|
|
-
|
|
19,838
|
Cost
of home sales
|
|
|
-
|
|
|
14,833
|
|
|
-
|
|
14,833
|
Rental
property revenues
|
|
|
32,505
|
|
|
21,524
|
|
|
-
|
|
54,029
|
Rental
property operating expenses
|
|
|
16,072
|
|
|
10,963
|
|
|
(22
|
)
|
27,013
|
Management
and other fees
|
|
|
663
|
|
|
592
|
|
|
(27
|
)
|
1,228
|
General,
administrative, selling and marketing expense
|
|
|
6,370
|
|
|
2,847
|
|
|
(5
|
)
|
9,212
|
Depreciation
and amortization
|
|
|
4,787
|
|
|
3,615
|
|
|
-
|
|
8,402
|
Operating
income
|
|
|
15,299
|
|
|
9,696
|
|
|
-
|
|
24,995
|
Interest
income
|
|
|
968
|
|
|
137
|
|
|
(64
|
)
|
1,041
|
Equity
in earnings from unconsolidated entities
|
|
|
(1
|
)
|
|
683
|
|
|
-
|
|
682
|
Interest
expense
|
|
|
9,852
|
|
|
7,057
|
|
|
(64
|
)
|
16,845
|
Minority
interest in consolidated entities
|
|
|
616
|
|
|
2,404
|
|
|
-
|
|
3,020
|
Income
before provision for income taxes
|
|
|
6,170
|
|
|
1,315
|
|
|
-
|
|
7,485
|
Income
tax provision
|
|
|
2,530
|
|
|
364
|
|
|
-
|
|
2,894
|
Net
income
|
|
|
3,640
|
|
|
951
|
|
|
-
|
|
4,591
|
Gross
profit on land sales
|
|
|
9,360
|
|
|
-
|
|
|
-
|
|
9,360
|
Gross
profit on home sales
|
|
|
-
|
|
|
5,005
|
|
|
-
|
|
5,005
|
Total
assets
|
|
|
241,847
|
|
|
107,115
|
|
|
(2,263
|
)
|
346,699
|
Additions
to long lived assets
|
|
|
38,324
|
|
|
1,530
|
|
|
-
|
|
39,854
|
|
|
United
|
|
Puerto
|
|
Inter-
|
|
|
|
|
|
States
|
|
Rico
|
|
Segment
|
|
Total
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
sales revenue
|
|
$
|
12,403
|
|
$
|
10,397
|
|
$
|
-
|
|
$
|
22,800
|
|
Cost
of land sales
|
|
|
6,873
|
|
|
7,520
|
|
|
(160
|
)
|
|
14,233
|
|
Home
sales revenue
|
|
|
-
|
|
|
7,424
|
|
|
-
|
|
|
7,424
|
|
Cost
of home sales
|
|
|
-
|
|
|
6,122
|
|
|
|
|
|
6,122
|
|
Rental
property revenues
|
|
|
22,508
|
|
|
58
|
|
|
-
|
|
|
22,566
|
|
Rental
property operating expenses
|
|
|
10,129
|
|
|
661
|
|
|
-
|
|
|
10,790
|
|
Management
and other fees
|
|
|
1,114
|
|
|
2,128
|
|
|
(5
|
)
|
|
3,237
|
|
General,
administrative, selling and marketing expense
|
|
|
6,907
|
|
|
2,832
|
|
|
(5
|
)
|
|
9,734
|
|
Depreciation
and amortization
|
|
|
3,829
|
|
|
213
|
|
|
-
|
|
|
4,042
|
|
Operating
income
|
|
|
8,287
|
|
|
2,659
|
|
|
160
|
|
|
11,106
|
|
Interest
income
|
|
|
145
|
|
|
722
|
|
|
(669
|
)
|
|
198
|
|
Equity
in earnings from unconsolidated entities
|
|
|
135
|
|
|
1,008
|
|
|
-
|
|
|
1,143
|
|
Interest
expense
|
|
|
6,797
|
|
|
(836
|
)
|
|
(598
|
)
|
|
5,363
|
|
Minority
interest in consolidated entities
|
|
|
926
|
|
|
-
|
|
|
-
|
|
|
926
|
|
Income
before provision/(benefit) for income taxes
|
|
|
844
|
|
|
5,922
|
|
|
89
|
|
|
6,855
|
|
Income
tax provision/(benefit)
|
|
|
456
|
|
|
(1,181
|
)
|
|
35
|
|
|
(690
|
)
|
Net
income
|
|
|
290
|
|
|
7,201
|
|
|
54
|
|
|
7,545
|
|
Gross
profit on land sale
|
|
|
5,530
|
|
|
2,877
|
|
|
160
|
|
|
8,567
|
|
Gross
profit on home sales
|
|
|
-
|
|
|
1,302
|
|
|
-
|
|
|
1,302
|
|
Total
assets
|
|
|
159,889
|
|
|
67,511
|
|
|
(10,315
|
)
|
|
217,085
|
|
Additions
to long lived assets
|
|
|
6,944
|
|
|
1,787
|
|
|
-
|
|
|
8,731
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
sales revenue
|
|
$
|
6,999
|
|
$
|
2,676
|
|
$
|
-
|
|
$
|
9,675
|
|
Cost
of land sales
|
|
|
4,404
|
|
|
1,979
|
|
|
-
|
|
|
6,383
|
|
Home
sales revenue
|
|
|
-
|
|
|
9,861
|
|
|
-
|
|
|
9,861
|
|
Cost
of home sales
|
|
|
-
|
|
|
7,474
|
|
|
-
|
|
|
7,474
|
|
Rental
property revenues
|
|
|
19,007
|
|
|
-
|
|
|
-
|
|
|
19,007
|
|
Rental
property operating expenses
|
|
|
8,087
|
|
|
442
|
|
|
-
|
|
|
8,529
|
|
Management
and other fees
|
|
|
1,500
|
|
|
2,106
|
|
|
(15
|
)
|
|
3,591
|
|
General,
administrative, selling and marketing expense
|
|
|
5,235
|
|
|
3,121
|
|
|
(15
|
)
|
|
8,341
|
|
Depreciation
and amortization
|
|
|
3,212
|
|
|
116
|
|
|
-
|
|
|
3,328
|
|
Operating
income
|
|
|
6,568
|
|
|
1,511
|
|
|
-
|
|
|
8,079
|
|
Interest
income
|
|
|
199
|
|
|
672
|
|
|
(645
|
)
|
|
226
|
|
Equity
in earnings from unconsolidated entities
|
|
|
(291
|
)
|
|
2,967
|
|
|
-
|
|
|
2,676
|
|
Interest
expense
|
|
|
5,916
|
|
|
248
|
|
|
(497
|
)
|
|
5,667
|
|
Minority
interest in consolidated entities
|
|
|
1,285
|
|
|
-
|
|
|
-
|
|
|
1,285
|
|
(Loss)Income
before (benefit)/provision for income taxes
|
|
|
(680
|
)
|
|
5,130
|
|
|
(119
|
)
|
|
4,331
|
|
Income
tax (benefit)/provision
|
|
|
(274
|
)
|
|
1,774
|
|
|
-
|
|
|
1,500
|
|
Net
(loss) income
|
|
|
(406
|
)
|
|
3,356
|
|
|
(119
|
)
|
|
2,831
|
|
Gross
profit on land sale
|
|
|
2,595
|
|
|
697
|
|
|
-
|
|
|
3,292
|
|
Gross
profit on home sales
|
|
|
-
|
|
|
2,387
|
|
|
-
|
|
|
2,387
|
|
Total
assets
|
|
|
129,361
|
|
|
70,537
|
|
|
(15,871
|
)
|
|
184,027
|
|
Additions
to long lived assets
|
|
|
22,388
|
|
|
5,421
|
|
|
-
|
|
|
27,809
|
|
(13)
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
Interest
paid, income taxes paid, debt assumed and land transferred were as follows
for
the years ended December 31 (in thousands):
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
17,535
|
|
$
|
7,926
|
|
$
|
5,369
|
|
Income
taxes paid
|
|
$
|
8,157
|
|
$
|
2,912
|
|
$
|
3,385
|
|
Assumption
of non-recourse debt
|
|
$ |
-
|
|
$
|
500
|
|
$ |
-
|
|
Transfer
of land to joint venture
|
|
$ |
-
|
|
$ |
-
|
|
$
|
5,625
|
|
(14)
|
QUARTERLY
FINANCIAL DATA (Unaudited)
|
ACPT’s
quarterly results are summarized as follows:
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
21,622
|
|
$
|
24,070
|
|
$
|
24,421
|
|
$
|
28,050
|
|
$
|
98,163
|
|
Operating
income
|
|
|
5,187
|
|
|
5,790
|
|
|
6,343
|
|
|
7,675
|
|
|
24,995
|
|
Net
income
|
|
|
501
|
|
|
457
|
|
|
2,044
|
|
|
1,589
|
|
|
4,591
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
0.10
|
|
|
0.09
|
|
|
0.39
|
|
|
0.30
|
|
|
0.88
|
|
Common
shares trading range (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
23.25
|
|
|
22.25
|
|
|
20.20
|
|
|
20.24
|
|
|
23.25
|
|
Low
|
|
|
19.48
|
|
|
20.00
|
|
|
19.40
|
|
|
17.49
|
|
|
17.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
|
(In
thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,393
|
|
$
|
17,080
|
|
$
|
12,136
|
|
$
|
21,704
|
|
$
|
62,313
|
|
Operating
income
|
|
|
1,357
|
|
|
3,249
|
|
|
2,191
|
|
|
4,309
|
|
|
11,106
|
|
Net
income (b)
|
|
|
40
|
|
|
1,476
|
|
|
389
|
|
|
5,640
|
|
|
7,545
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
0.01
|
|
|
0.28
|
|
|
0.07
|
|
|
1.09
|
|
|
1.45
|
|
Common
shares trading range (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
14.07
|
|
|
19.94
|
|
|
25.90
|
|
|
26.35
|
|
|
26.35
|
|
Low
|
|
|
12.11
|
|
|
13.30
|
|
|
18.60
|
|
|
16.50
|
|
|
12.11
|
|
(a)
Trading ranges are based on the American Stock Exchange.
(b)
Net income for the year and quarter ended December 31, 2005 included a net
benefit of $3,394,000 and $3,839,000, respectively, related to the reversal
of
accruals no longer necessary as a result of the closing agreement reached
with
the IRS.
El
Monte note repayment
On
January 24, 2007, the Company received $1,700,000 as payment in full of the
principal balance and all accrued interest related to the El Monte note
receivable. As previously noted, the Company deferred revenue recognition on
this note until the cash was received.
Multifamily
Rental Property Mortgage Refinancings
On
January 30, 2007, the non-recourse mortgage for one of our consolidated
multifamily rental properties in the U.S., Coachmans Apartments, LLC, was
refinanced with a non-recourse mortgage loan of $11,000,000. The proceeds from
the refinancing will be used for capital improvements at the property site
and
distributions to the partners.
On
February 1, 2007, the non-recourse mortgage for one of our consolidated
multifamily rental properties in the U.S., Village Lake Apartments, LLC, was
refinanced with a non-recourse mortgage loan of $9,300,000. The proceeds from
the refinancing will be used for capital improvements at the property site
and
distributions to the partners.
Debt
Extinguishment
In
January of 2007, the Company repaid two outstanding recourse debt obligations
totaling $4,473,000 as of December 31, 2006. These obligations were repaid
in
conjunction with distributions received from the mortgage refinancings noted
above.
Cash
Dividend
On
February 28, 2007, the Board of Trustees declared a cash dividend of $0.10
per
share, payable on March 28, 2007 to shareholders of record on March 14,
2007.
Termination
of Management Contract
Effective
February 28, 2007, ARMC's management agreement with G.L. Limited Partnerships
was terminated upon the sale of the apartment property to a third party.
Management fees generated by this property represent less than 1% of the
Company's total revenue.
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
Subsequent
|
|
|
|
Bldgs.
&
|
|
|
|
Accumulated
|
|
Constructed
|
|
|
|
Description
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total
|
|
Depreciation
|
|
or
Acquired
|
|
Depreciable
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bannister
Apartments
|
|
$
|
12,692
|
|
$
|
410
|
|
$
|
4,180
|
|
$
|
5,229
|
|
$
|
410
|
|
$
|
9,409
|
|
$
|
9,819
|
|
$
|
5,723
|
|
|
11/30/1976
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookmont
Apartments
|
|
|
7,405
|
|
|
162
|
|
|
2,677
|
|
|
2,710
|
|
|
162
|
|
|
5,387
|
|
|
5,549
|
|
|
3,527
|
|
|
5/18/1979
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coachman's
|
|
|
5,313
|
|
|
572
|
|
|
6,421
|
|
|
328
|
|
|
572
|
|
|
6,749
|
|
|
7,321
|
|
|
2,916
|
|
|
9/5/1989
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossland
Apartments
|
|
|
4,146
|
|
|
350
|
|
|
2,697
|
|
|
274
|
|
|
350
|
|
|
2,971
|
|
|
3,321
|
|
|
2,187
|
|
|
1/13/1978
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Essex
Village Apts.
|
|
|
14,272
|
|
|
2,667
|
|
|
21,381
|
|
|
(3,456
|
)
|
|
2,667
|
|
|
17,925
|
|
|
20,592
|
|
|
16,175
|
|
|
1/31/1982
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Richmond,
VA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fox
Chase Apartments
|
|
|
12,987
|
|
|
745
|
|
|
7,014
|
|
|
801
|
|
|
745
|
|
|
7,815
|
|
|
8,560
|
|
|
3,651
|
|
|
3/31/1987
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headen
Apartments
|
|
|
6,994
|
|
|
205
|
|
|
4,765
|
|
|
3,425
|
|
|
205
|
|
|
8,190
|
|
|
8,395
|
|
|
5,643
|
|
|
10/30/1980
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
Subsequent
|
|
|
|
Bldgs.
&
|
|
|
|
Accumulated
|
|
Constructed
|
|
|
|
Description
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total
|
|
Depreciation
|
|
or
Acquired
|
|
Depreciable
Life
|
|
Huntington
Apartments
|
|
|
9,326
|
|
|
350
|
|
|
8,513
|
|
|
1,215
|
|
|
350
|
|
|
9,728
|
|
|
10,078
|
|
|
5,922
|
|
|
10/7/1980
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lancaster
Apartments
|
|
|
8,622
|
|
|
484
|
|
|
4,292
|
|
|
1,086
|
|
|
484
|
|
|
5,378
|
|
|
5,862
|
|
|
2,957
|
|
|
12/31/1985
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milford
Station I
|
|
|
10,491
|
|
|
2,658
|
|
|
9,878
|
|
|
513
|
|
|
2,659
|
|
|
10,391
|
|
|
13,050
|
|
|
186
|
|
|
5/1/2006
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milford
Station II
|
|
|
1,345
|
|
|
455
|
|
|
1,350
|
|
|
31
|
|
|
455
|
|
|
1,381
|
|
|
1,836
|
|
|
25
|
|
|
5/1/2006
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Forest Apartments
|
|
|
22,977
|
|
|
1,229
|
|
|
12,102
|
|
|
1,576
|
|
|
1,229
|
|
|
13,678
|
|
|
14,907
|
|
|
6,229
|
|
|
6/28/1988
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nottingham
South
|
|
|
2,560
|
|
|
359
|
|
|
2,586
|
|
|
68
|
|
|
359
|
|
|
2,654
|
|
|
3,013
|
|
|
106
|
|
|
5/23/2005
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owings
Chase
|
|
|
12,536
|
|
|
1,691
|
|
|
13,428
|
|
|
416
|
|
|
1,691
|
|
|
13,844
|
|
|
15,535
|
|
|
915
|
|
|
10/29/2004
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
Subsequent
|
|
|
|
Bldgs.
&
|
|
|
|
Accumulated
|
|
Constructed
|
|
|
|
Description
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total
|
|
Depreciation
|
|
or
Acquired
|
|
Depreciable
Life
|
|
Palmer
Apartments
|
|
$ |
6,838
|
|
$ |
471
|
|
$ |
4,788
|
|
$ |
3,702
|
|
$ |
471
|
|
$ |
8,490
|
|
$ |
8,961
|
|
$ |
5,816
|
|
|
3/31/1980
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prescott
Square
|
|
|
3,636
|
|
|
470
|
|
|
3,867
|
|
|
225
|
|
|
470
|
|
|
4,092
|
|
|
4,562
|
|
|
258
|
|
|
10/29/2004
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrace
Apartments
|
|
|
10,179
|
|
|
497
|
|
|
5,377
|
|
|
5,264
|
|
|
497
|
|
|
10,641
|
|
|
11,138
|
|
|
6,830
|
|
|
11/1/1979
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village
Lake
|
|
|
6,402
|
|
|
824
|
|
|
6,858
|
|
|
271
|
|
|
824
|
|
|
7,129
|
|
|
7,953
|
|
|
2,391
|
|
|
10/1/1993
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto
Rico Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alturas
Del Senorial
|
|
|
3,551
|
|
|
345
|
|
|
4,185
|
|
|
515
|
|
|
345
|
|
|
4,700
|
|
|
5,045
|
|
|
3,274
|
|
|
11/17/1979
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon
Garden
|
|
|
9,419
|
|
|
1,153
|
|
|
12,050
|
|
|
975
|
|
|
1,153
|
|
|
13,025
|
|
|
14,178
|
|
|
8,542
|
|
|
7/6/1981
|
|
|
Bldg-40
Yrs
|
|
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Bayamon,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
Subsequent
|
|
|
|
Bldgs.
&
|
|
|
|
Accumulated
|
|
Constructed
|
|
|
|
Description
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total
|
|
Depreciation
|
|
or
Acquired
|
|
Depreciable
Life
|
|
Colinas
De San Juan
|
|
|
9,610
|
|
|
900
|
|
|
10,742
|
|
|
976
|
|
|
900
|
|
|
11,718
|
|
|
12,618
|
|
|
7,792
|
|
|
3/20/1981
|
|
|
Bldg-40
Yrs
|
|
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
San
Juan, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
De
Diego
|
|
|
5,600
|
|
|
601
|
|
|
6,718
|
|
|
620
|
|
|
601
|
|
|
7,338
|
|
|
7,939
|
|
|
4,983
|
|
|
3/20/1980
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escorial
Office
|
|
|
8,578
|
|
|
1,596
|
|
|
8,202
|
|
|
466
|
|
|
1,596
|
|
|
8,668
|
|
|
10,264
|
|
|
299
|
|
|
9/1/2005
|
|
|
Bldg-40
Yrs
|
|
Building
I, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Puerto
Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jardines
De Caparra
|
|
|
6,417
|
|
|
546
|
|
|
5,719
|
|
|
1,722
|
|
|
546
|
|
|
7,441
|
|
|
7,987
|
|
|
4,921
|
|
|
4/1/1980
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Bayamon,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
I
|
|
|
7,386
|
|
|
543
|
|
|
10,436
|
|
|
1,750
|
|
|
543
|
|
|
12,186
|
|
|
12,729
|
|
|
8,322
|
|
|
5/1/1979
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Carolina,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
II
|
|
|
10,120
|
|
|
731
|
|
|
11,172
|
|
|
1,436
|
|
|
731
|
|
|
12,608
|
|
|
13,339
|
|
|
8,461
|
|
|
1/30/1980
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Carolina,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Anton
|
|
|
4,218
|
|
|
313
|
|
|
3,525
|
|
|
1,659
|
|
|
313
|
|
|
5,184
|
|
|
5,497
|
|
|
3,727
|
|
|
12/10/1974
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Carolina,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
Subsequent
|
|
|
|
Bldgs.
&
|
|
|
|
Accumulated
|
|
Date
Constructed
|
|
|
|
Description
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
Costs
|
|
Land
|
|
Improvements
|
|
Total
|
|
Depreciation
|
|
or
Acquired
|
|
Depreciable
Life
|
|
Santa
Juana
|
|
|
7,220
|
|
|
509
|
|
|
6,748
|
|
|
744
|
|
|
509
|
|
|
7,492
|
|
|
8,001
|
|
|
5,063
|
|
|
2/8/1980
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Caguas,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Torre
De Las Cumbres
|
|
|
5,200
|
|
|
466
|
|
|
5,954
|
|
|
645
|
|
|
466
|
|
|
6,599
|
|
|
7,065
|
|
|
4,550
|
|
|
12/6/1979
|
|
|
Bldg-40
Yrs
|
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle
Del Sol
|
|
|
10,718
|
|
|
992
|
|
|
14,017
|
|
|
835
|
|
|
992
|
|
|
14,852
|
|
|
15,844
|
|
|
9,126
|
|
|
3/15/1983
|
|
|
Bldg-40
Yrs
|
|
Highrise
and Walk-up Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Bayamon,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vistas
Del Turabo
|
|
|
1,111
|
|
|
354
|
|
|
2,508
|
|
|
684
|
|
|
354
|
|
|
3,192
|
|
|
3,546
|
|
|
1,941
|
|
|
12/30/1983
|
|
|
Bldg-40
Yrs
|
|
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
Bldg
Equip-5/7 Yrs
|
|
Caguas,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consolidated Properties
|
|
|
247,869
|
|
|
23,648
|
|
|
224,150
|
|
|
36,705
|
|
|
23,649
|
|
|
260,855
|
|
|
284,504
|
|
|
142,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookside
Gardens Apartments
|
|
|
1,264
|
|
|
156
|
|
|
2,487
|
|
|
57
|
|
|
156
|
|
|
2,544
|
|
|
2,700
|
|
|
1,125
|
|
|
11/10/1994
|
|
|
Bldg-40
Yrs
|
|
Garden
Shared Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lakeside
Apartments
|
|
|
1,983
|
|
|
440
|
|
|
3,649
|
|
|
35
|
|
|
440
|
|
|
3,684
|
|
|
4,124
|
|
|
945
|
|
|
7/1/1996
|
|
|
Bldg-40
Yrs
|
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
|
|
Bldg
Equip-5/7 Yrs
|
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Unconsolidated Properties
|
|
|
3,247
|
|
|
596
|
|
|
6,136
|
|
|
92
|
|
|
596
|
|
|
6,228
|
|
|
6,824
|
|
|
2,070
|
|
|
|
|
|
|
|
Total
Properties
|
|
$
|
251,116
|
|
$
|
24,244
|
|
$
|
230,286
|
|
$
|
36,797
|
|
$
|
24,245
|
|
$
|
267,083
|
|
$
|
291,328
|
|
$
|
144,528
|
|
|
|
|
|
|
|
(1)
Operating real estate shown on the Consolidated Balance Sheets includes
real estate assets of $284,504 net of accumulated depreciation of
$142,458.
|
|
|
|
THE
AGGREGATE COST,NET OF DEPRECIATION AND AMORTIZATION, FOR FEDERAL
INCOME
TAX PURPOSES FOR U.S. AND P.R. PROPERTIES IS $107,827
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2006 AND 2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Unconsolidated
|
|
|
|
|
|
Partnerships
|
|
Partnerships
|
|
Total
|
|
|
|
|
|
|
|
|
|
Real
Estate at December 31, 2004
|
|
$
|
108,535
|
|
$
|
147,373
|
|
$
|
255,908
|
|
Additions
for 2005:
|
|
|
|
|
|
|
|
|
|
|
Improvements
|
|
|
2,503
|
|
|
2,622
|
|
|
5,125
|
|
Acquisition
(land and building)
|
|
|
2,945
|
|
|
-
|
|
|
2,945
|
|
New
construction (land and building)
|
|
|
9,798
|
|
|
-
|
|
|
9,798
|
|
Deductions
for 2005:
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
791
|
|
|
516
|
|
|
1,307
|
|
Real
Estate at December 31, 2005
|
|
|
122,990
|
|
|
149,479
|
|
|
272,469
|
|
Additions
for 2006:
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of previously unconsolidated partnerships
|
|
|
142,680
|
|
|
(142,680
|
)
|
|
-
|
|
Improvements
|
|
|
5,915
|
|
|
39
|
|
|
5,954
|
|
Acquisition
(land and building)
|
|
|
14,341
|
|
|
-
|
|
|
14,341
|
|
Deductions
for 2006:
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
1,422
|
|
|
14
|
|
|
1,436
|
|
Real
Estate at December 31, 2006
|
|
$
|
284,504
|
|
$
|
6,824
|
|
$
|
291,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation at December 31, 2004
|
|
$ |
43,464
|
|
$ |
86,839
|
|
$ |
130,303
|
|
Additions
for 2005:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
3,739
|
|
|
4,955
|
|
|
8,694
|
|
Acquisition
|
|
|
|
|
|
-
|
|
|
-
|
|
Deductions
for 2005:
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
791
|
|
|
516
|
|
|
1,307
|
|
Accumulated
depreciation at December 31, 2005
|
|
|
46,412
|
|
|
91,278
|
|
|
137,690
|
|
Consolidation
of previously unconsolidated partnerships
|
|
|
89,395
|
|
|
(89,395
|
)
|
|
-
|
|
Additions
for 2006:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
8,073
|
|
|
201
|
|
|
8,274
|
|
Deductions
for 2006:
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
1,422
|
|
|
14
|
|
|
1,436
|
|
Accumulated
depreciation at December 31, 2006
|
|
$
|
142,458
|
|
$
|
2,070
|
|
$
|
144,528
|
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Evaluation
of Disclosure Controls and Procedures
In
connection with the preparation of this Form 10-K, as of December 31, 2006,
an
evaluation was performed under the supervision and with the participation of
the
Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management
reviewed the selection, application and monitoring of our historical accounting
policies. Based on that evaluation, the CEO and CFO concluded that these
disclosure controls and procedures, because of the material weakness in internal
control discussed below, were not effective in ensuring that the information
required to be disclosed in our reports filed with the SEC is recorded,
processed, summarized and reported on a timely basis.
During
the preparation of the Company's 2004 tax returns in the fourth quarter 2005,
the Company became aware that certain intercompany interest income was subject
to U.S. withholding tax when the interest was paid and certain income from
its
Puerto Rico operations could be treated as income of ACPT even though it was
not
distributed to ACPT. The Company determined that neither the obligation to
pay
the withholding tax or exposure related to the tax status had been previously
accrued. Accordingly, the Company announced on November 15, 2005, that the
Company would restate financial statements for the periods covered in its Form
10-K for the fiscal year ended December 31, 2004 and the Forms 10-Q for the
first two quarters of fiscal 2005 to correct previously reported amounts related
to these income tax matters.
The
Company determined the accounting errors referenced above indicated a material
weakness in internal controls with respect to accounting for income taxes.
A material weakness in internal control is a significant deficiency, or
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the financial statements would not
be
prevented or detected on a timely basis by the Company. The Company has
implemented controls and procedures designed to remediate this material
weakness. These controls and procedures include hiring a new Director of Tax
who
will help manage the tax compliance and tax accounting process, retaining
international tax advisors to provide the Company with updates related to
changes in international tax laws impacting the Company, providing in-house
tax
professionals and senior financial management with additional training to
enhance their awareness of potential international tax matters and
implementation of other additional control procedures related to accounting
for
income taxes. In order to remediate the material weakness, management must
ensure that these new controls and procedures are operating effectively and
fully address the risks giving rise to the material weakness. Management
believes that once sufficient evidence of the operating effectiveness of these
controls exists, the material weakness will be fully remediated.
Management’s
Annual Report on Internal Control Over Financial Reporting and Attestation
Report of the Independent Registered Public Accounting
Firm
Not
applicable.
Changes
in Internal Control Over Financial Reporting
Except
as
discussed above, there have been no other changes during the Company's quarter
ended December 31, 2006, in the Company's internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financing reporting.
None.
PART
III
Certain
information required by Part III is omitted from this Annual Report on Form
10-K. The Company will file a definitive proxy statement with the Securities
and
Exchange Commission (the "Commission") pursuant to Regulation 14A (the "Proxy
Statement") not later than 120 days after the end of the fiscal year covered
by
this Report, and certain information to be included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such incorporation does not include the Performance Graph included in the Proxy
Statement.
|
TRUSTEES,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The
information required by this Item for executive officers is set forth under
the
heading "Executive Officers of the Registrant" in Part I, Item 4a of this
report.
The
information required by this Item with respect to Trustees is incorporated
by
reference to the Company's Proxy Statement under the caption "Election of
Trustees" to be filed with the Commission for its Annual Shareholders' Meeting
to be held in June 2007.
The
information required by this Item with respect to the Company’s Audit Committee
Financial Expert is incorporated by reference to the Company's Proxy Statement
under the caption "Audit Committee Financial Expert" to be filed with the
Commission for its Annual Shareholders' Meeting to be held in June
2007.
Section
16(A) Beneficial Ownership Reporting Compliance
The
information required by this Item is incorporated by reference to the Company's
Proxy Statement to be filed with the Commission for its Annual Shareholders'
Meeting to be held in June 2007.
Code
of Ethics
We
established a Code of Ethics for Principal Executive Officers and Senior
Financial Officers, and a Code of Business Ethics for all Officers and Employees
of the Company. Copies of the codes, and any waivers or amendments to such
codes
which are applicable to our executive officers, or senior financial officers
can
be requested at no cost by writing to the following address or telephoning
us at
the following telephone number:
American
Community Properties Trust
222
Smallwood Village Center
St.
Charles, MD 20602
Attention:
Director of Investor Relations
(301)
843-8600
The
information required by this Item is incorporated by reference to the Company's
Proxy Statement to be filed with the Commission for its Annual Shareholders'
Meeting to be held in June 2007.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
|
The
information required by this Item is incorporated by reference to the Company's
Proxy Statement to be filed with the Commission for its Annual Shareholders'
Meeting to be held in June 2007.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND TRUSTEE
INDEPENDENCE
|
The
information required by this Item is incorporated by reference to the Company's
Proxy Statement to be filed with the Commission for its Annual Shareholders'
Meeting to be held in June 2007.
|
PRINCIPAL
ACCOUNTING FEES AND
SERVICES
|
The
information required by this Item is incorporated by reference to the Company’s
Proxy Statement to be filed with the Commission for its Annual Shareholders'
Meeting to be held in June 2007.
PART
IV
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES
|
(a) 1. Financial
Statements
The
following consolidated financial statements of American Community
Properties Trust are filed as part of this report on Form 10-K under
Item
8 - Financial Statements and Supplementary
Data:
|
Report
of
Independent Registered Public Accounting Firm
Consolidated
Statements of Income for the years ended December 31, 2006, 2005 and
2004
Consolidated
Balance Sheets as of December 31, 2006 and 2005
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December
31,
2006, 2005 and 2004
Consolidated
Statements of Cash Flows for the years ended December 31, 2006, 2005 and
2004
Notes
to
Consolidated Financial Statements for the years ended December 31, 2006 and
2005
2. Financial
Statement Schedules
The following financial statement schedules are contained herein:
Schedule III -- Real Estate and Accumulated Depreciation as of December 31,
2006
3. Exhibits
Exhibits
required by Securities and Exchange Commission Section 601 of Regulation
S-K.
Exhibit
No.
|
Description
of Exhibit
|
Reference
|
|
|
|
3.1
|
Form
of Restated Declaration of Trust of the Company
|
Exhibit
3.1 to Form S-11
|
3.2
|
Amended
and Restated Bylaws of the Company
|
Filed
Herewith
|
4.1
|
Form
of Common Share Certificate
|
Exhibit
4.1 to Form S-11
|
10.1
|
Employment
Agreement, dated August 25, 1998, between the Company and Edwin L.
Kelly*
|
Exhibit
10.1 to Form S-11
|
10.2
|
Employment
Agreement, dated November 10, 2003, between the Company and Paul
A.
Resnik*
|
Exhibit
10.3 to 2003 Form 10-K
|
10.3
|
Employment
Agreement, dated May 12, 2004, between Interstate General Properties
Limited Partnership S.E. and Jorge Garcia Massuet*
|
Exhibit
10.1 to Form 10-Q for the quarter ended March 31, 2004
|
10.4
|
Form
of Consulting Agreement, dated August 24, 1998, between the Company
and
James J. Wilson*
|
Exhibit
10.4 to Form S-11
|
10.5
|
Employment
and Consulting Agreement for Carlos R. Rodriguez *
|
Exhibit
10.1 to Form 10-Q for quarter ended June 30, 2006
|
10.6
|
Employees'
Share Incentive Plan*
|
Exhibit
10.5 to Form S-11
|
10.7
|
Trustee's
Share Incentive Plan*
|
Exhibit
10.6 to Form S-11
|
10.8
|
Consulting
Agreement between St. Charles Community, LLC and Thomas J. Shafer
dated
January 1, 1998*
|
Exhibit
10.14 to 1998 Form 10-K
|
10.9
|
Amendment
to Consulting Agreement between St. Charles Community, LLC and Thomas
J.
Shafer dated January 28, 2002*
|
Exhibit
10.15 to 2001 Form 10-K
|
10.10
|
Indemnification
Agreement between American Community Properties Trust and Antonio
Ginorio
dated August 30, 2006*
|
Exhibit
10.1 to Form 8-K filed on August 31, 2006
|
10.11
|
Indemnification
Agreement between American Community Properties Trust and Thomas
S. Condit
dated August 30, 2006*
|
Exhibit
10.2 to Form 8-K filed on August 31, 2006
|
10.12
|
Indemnification
Agreement between American Community Properties Trust and T. Michael
Scott
dated August 30, 2006*
|
Exhibit
10.3 to Form 8-K filed on August 31, 2006
|
10.13
|
Indemnification
Agreement between American Community Properties Trust and Thomas
J. Shafer
dated August 30, 2006 *
|
Exhibit
10.4 to Form 8-K filed on August 31, 2006
|
10.14
|
Settlement
Agreement dated July 22, 2002 between the County Commissioners of
Charles
County, Maryland and St. Charles Associates Limited Partnership,
Interstate General Company, St. Charles Community LLC
|
Exhibit
10.1 to Form 10-Q for the quarter ended June 30, 2002
|
10.15
|
Consent
Judgment dated July 22, 2002
|
Exhibit
10.2 to Form 10-Q for the quarter ended June 30, 2002
|
10.16
|
Indenture
dated July 22, 2002 between St. Charles Associates Limited Partnership,
Interstate General Company, St. Charles Community LLC and the County
Commissioners of Charles County
|
Exhibit
10.3 to Form 10-Q for the quarter ended June 30, 2002
|
10.17
|
Amended
Order to Docket #90 dated July 22, 2002
|
Exhibit
10.2 to Form 10-Q for the quarter ended September 30,
2002
|
10.18
|
Certificate
of Limited Partnership of Village Lake Apartments Limited Partnership
dated May 17, 1991
|
Exhibit
10.37 to 2002 Form 10-K
|
10.19
|
First
Amendment to Certificate of Limited Partnership of Village Lake Apartments
Limited Partnership dated May 13, 1992
|
Exhibit
10.38 to 2002 Form 10-K
|
10.20
|
Second
Amendment to Certificate and Agreement of Limited Partnership of
Village
Lake Apartments Limited Partnership dated January 23, 2003
|
Exhibit
10.39 to 2002 Form 10-K
|
10.21
|
Limited
Partnership Agreement and Amended and Restated Limited Partnership
Certificate of Coachman's Limited Partnership dated June 2,
1988
|
Exhibit
10.40 to 2002 Form 10-K
|
10.22
|
Assignment
of Partnership Interest and Amendment to the Certificate of Limited
Partnership of Coachman's Limited Partnership dated June 30,
1997
|
Exhibit
10.41 to 2002 Form 10-K
|
10.23
|
Assignment
of Partnership Interest and Amendment to the Certificate of Limited
Partnership of Coachman's Limited Partnership dated September 28,
2001
|
Exhibit
10.42 to 2002 Form 10-K
|
10.24
|
Third
Amendment to Limited Partnership Agreement and Amended and Restated
Limited Partnership Certificate of Coachman's Limited Partnership
dated
January 23, 2003
|
Exhibit
10.43 to 2002 Form 10-K
|
10.25
|
Development
Agreement between St. Charles Community, LLC and Lennar Corporation
dated
March 4, 2004
|
Exhibit
10.41 to 2003 Form 10-K
|
10.26
|
Multifamily
Note dated October 29, 2004 in the amount of $3,640,000 from Prescott
Square, LLC to Prudential Multifamily Mortgage, Inc.
|
Exhibit
10.47 to Form 10-K for fiscal year ended December 31,
2004
|
10.27
|
Multifamily
Note dated October 29, 2004 in the amount of $12,550,000 from Owings
Chase, LLC to Prudential Multifamily Mortgage, Inc.
|
Exhibit
10.48 to Form 10-K for fiscal year ended December 31,
2004
|
10.28
|
Deed
of Trust Note for Sheffield Greens Apartments, LLC payable to GMAC
Commercial Mortgage Bank for principal sum of $27,008,400 dated August
11,
2005
|
Exhibit
10.1 to Form 10-Q for the quarter ended September 30,
2005
|
10.29
|
Deed
of Trust for Sheffield Greens Apartments, LLC payable to GMAC Commercial
Mortgage Bank for principal sum of $27,008,400 dated August 11,
2005
|
Exhibit
10.2 to Form 10-Q for quarter ended September 30, 2005
|
10.30
|
Security
Agreement signed on August 11, 2005 between Sheffield Greens Apartment,
LLC and GMAC Commercial Mortgage Bank
|
Exhibit
10.3 to Form 10-Q for quarter ended September 30, 2005
|
10.31
|
Legal
Description attached to the survey entitled “Plat of Survey, Sheffield
Greens Apartments” dated August 10, 2005
|
Exhibit
10.4 to Form 10-Q for quarter ended September 30, 2005
|
10.32
10.33
|
Lease,
dated as of September 1, 2006, by and between the Company and Caribe
Waste
Technologies, Inc.
Deed
of Trust Note for New Forest Apartments, LLC payable to Wells
Fargo Bank, N.A for
principal sum of $23,000,000 dated November 1, 2006
|
Exhibit
10.1 to Form 10-Q for quarter ended September 30, 2006
Filed
herewith
|
21
|
List
of Subsidiaries of American Community Properties Trust
|
Filed
herewith
|
23 |
Consent
of Independent Registered Public Accounting Firm
|
Filed
herewith |
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive
Officer
|
Filed
herewith
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
|
Filed
herewith
|
32.1
|
Section
1350 Certification of Chairman and Chief Executive Officer
|
Filed
herewith
|
32.2
|
Section
1350 Certification of Chief Financial Officer
|
Filed
herewith
|
99.1
|
Letter
to the Commission regarding Andersen
|
Exhibit
99.1 to 2001 Form 10-K
|
*Denotes
management agreement or compensatory plan or
arrangement.
|
(b)
|
Exhibits
See
15(a) 3, above.
|
|
|
|
|
(c)
|
Financial
Statement Schedules
See
15(a) 2, above.
|
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned thereunto duly authorized.
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
(Registrant)
|
|
|
Dated:
March 23, 2007
|
By:
/s/
J. Michael Wilson
|
|
J.
Michael Wilson
Chairman
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
Dated:
March 23, 2007
|
By:
/s/ Cynthia L. Hedrick
|
|
Cynthia
L. Hedrick
Executive
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
|
|
|
|
Dated:
March 23, 2007
|
By:
/s/ Matthew M. Martin
|
|
Martin
M. Martin
Vice
President and Chief Accounting Officer
(Principal
Accounting Officer)
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature
|
Title
|
Date
|
|
|
|
/s/
J. Michael Wilson
J.
Michael Wilson
|
Chairman,
Chief Executive Officer and Trustee,
Principal
Executive Officer
|
March
23, 2007
|
/s/
Edwin L. Kelly
Edwin
L. Kelly
|
President,
Chief Operating Officer and Trustee
|
March
23, 2007
|
/s/
Thomas J. Shafer
Thomas
J. Shafer
|
Trustee
|
March
23, 2007
|
/s/
T. Michael Scott
T.
Michael Scott
|
Trustee
|
March
23, 2007
|
/s/
Antonio Ginorio
Antonio
Ginorio
|
Trustee
|
March
23, 2007
|
/s/
Thomas S. Condit
Thomas
S. Condit
|
Trustee
|
March
23, 2007
|
-
95 -