form10-k2008.htm
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, 2008
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
NYSE
Amex
|
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 reports), 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 (229.405) is not contained herein, and will not be contained, to
the best of registrant’s 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.
Yes
/x/ No
/ /
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer /
/ Accelerated
filer / / Non-accelerated filer /
/ Smaller Reporting Company /x/
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of
1934). Yes /
/ No /x/
As of
June 30, 2008 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 (currently the NYSE Amex) on that day of $13.75, was
$30,330,121. As of March 1, 2009, 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 2009 Annual Meeting
of Shareholders, to be held on June 3, 2009, are incorporated by reference into
Part III of this report.
2008
Form 10-K Annual Report
TABLE
OF CONTENTS
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Page
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PART I
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Item
1.
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4
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Item
1A.
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18
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Item
1B.
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24
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Item
2.
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24
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Item
3.
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25
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Item
4.
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25
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Item
4A.
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25
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PART
II
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Item
5.
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26
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Item
6.
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27
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Item
7.
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29
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Item
8.
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43
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Item
9.
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78
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Item
9A(T).
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78
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Item
9B.
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78
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PART
III
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Item
10.
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79
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Item
11.
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79
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Item
12.
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79
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Item
13.
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79
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Item
14.
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80
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PART
IV
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Item
15.
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80
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Signatures
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Signatures |
84
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K
contains various “forward-looking statements.” Forward-looking
statements relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. In some cases, you can
identify forward-looking statements by the use of forward-looking terminology
such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,”
“seeks,” “intends,” “plans,” “projects,” “estimates” or anticipates” or the
negative of these words and phrases or similar words or
phrases. Statements regarding the following subjects may be impacted
by a number of risks and uncertainties:
·
|
our
business and investment strategy;
|
·
|
our
projected results of operations;
|
·
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our
ability to manage our anticipated
growth;
|
·
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our
ability to obtain future financing
arrangements;
|
·
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our
estimates relating to, and our ability to pay, future
distributions;
|
·
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our
understanding of our competition and our ability to compete
effectively;
|
·
|
real
estate market and industry trends in the United States, and particularly
in the St. Charles, Maryland marketplace and its surrounding areas, and
Puerto Rico;
|
·
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projected
capital and operating expenditures;
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·
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availability
and creditworthiness of current and prospective
tenants;
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The forward-looking statements are
based on our beliefs, assumptions and expectations of our future performance,
taking into account all information currently available to us. These
beliefs, assumptions and expectations are subject to risks and uncertainties and
can change as a result of many possible events or factors, not all of which are
known to us. If a change occurs, our business, financial condition,
liquidity and results of operations may vary materially from those expressed in
our forward-looking statements. You should carefully consider these
risks before you make an investment decision with respect to our common stock,
along with the following factors that could cause actual results to vary from
our forward-looking statements:
·
|
the
factors referenced in this Annual Report on Form 10-K, including those set
forth under the sections captioned “Risk Factors,” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations;”
|
·
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changes
in our business and investment
strategy;
|
·
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default
by our tenants;
|
·
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availability,
terms and deployment of capital;
|
·
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general
volatility of the capital markets;
|
·
|
availability
of qualified personnel;
|
·
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perception
of the real estate industry;
|
·
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changes
in supply and demand dynamics within the real estate
industry;
|
·
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changes
in interest rates;
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·
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the
degree and nature of our
competition;
|
·
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changes
in applicable laws and regulations;
and
|
·
|
state
of the general economy and the local economy in which our properties are
located.
|
We cannot guarantee future results,
levels of activity, performance or achievements. You should not place
undue reliance on these forward-looking statements, which apply only as of the
date of this report. We do not intend, and disclaim any duty or
obligation, to update or revise any industry information or forward-looking
statements set forth in this report to reflect new information, future events or
otherwise.
PART
I
References to “we”, “us”, “our”,
“ACPT” or the “Company” refer to American Community Properties Trust and our
business and operations conducted through our subsidiaries.
GENERAL
ACPT is a self-managed holding company
that is primarily engaged in the business of investing in and managing
multifamily rental properties as well as community development and
homebuilding. ACPT’s operations are primarily concentrated in the
Washington, D.C. metropolitan area and Puerto Rico and are carried out through
its U.S. subsidiaries, American Rental Properties Trust (“ARPT”), American
Rental Management Company (“ARMC”), American Land Development, Inc. (“ALD”) and
their subsidiaries and its Puerto Rican subsidiary, IGP Group Corp. (“IGP
Group”).
ACPT was
formed on March 17, 1997 as a Maryland real estate investment
trust. ACPT is taxed as a U.S. partnership and its taxable income
flows through to its shareholders. ACPT’s U.S. subsidiaries, ARPT, ARMC,
and ALD are taxed as U.S. corporations. ACPT is subject to Puerto
Rico income taxes on IGP Group’s taxable income, which generates foreign tax
credits that have been passed through to ACPT’s shareholders. A federal
tax regulation has been proposed that could eliminate ACPT’s ability to pass
through these foreign tax credits to its shareholders. Comments
on the proposed regulation are currently being evaluated, and the final
regulation will be effective for tax years beginning after the final regulation
is ultimately published in the Federal Register. ACPT’s income
consists of (i) certain passive income from IGP Group, (ii) additional
distributions from IGP Group including Puerto Rico taxes paid on behalf of ACPT
and (iii) dividends from ACPT’s U.S. subsidiaries. Other than Interstate
Commercial Properties (“ICP”), which is a subsidiary of IGP Group and is taxed
as a Puerto Rico corporation, the income from the remaining Puerto Rico
operating entities passes through to IGP Group or ALD. Of this income,
only the portion attributable to the profits, losses or gains on the residential
land sold in our Parque Escorial property passes through to
ALD.
ARPT
ARPT holds partnership interests in
entities that own 21 multifamily rental properties in Maryland and Virginia (the
“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 until March
1, 2009 performed property management services for one third-party owned
apartment community, Capital Park Apartments.
ALD
ALD owns interests in and operates
developments, including the following:
1.
|
a
100% ownership interest in St. Charles Community LLC ("SCC LLC"), which
holds approximately 3,790 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 the balance of the residential
land in our Parque Escorial property in Puerto Rico held by Land
Development Associates, S.E. ("LDA"), a wholly owned subsidiary of
IGP;
|
3.
|
through
November 19, 2008, a 50% interest, through SCC LLC, in a land
development joint venture, St. Charles Active Adult Community, LLC
(“Active Adult Community”). ACPT sold its interest in Active
Adult Community to Lennar Corporation (“Lennar”) in the fourth quarter of
2008; and
|
4.
|
effective
on October 28, 2008, a 50% interest in Surrey Homes, LLC (“Surrey Homes”),
which is a homebuilding company that was created to meet the needs of
developing communities in central Florida with a lot option, low overhead
model.
|
IGP
Group
IGP Group owns and operates the assets
of ACPT's Puerto Rico division indirectly through a 99% limited partner interest
and a 1% general partner interest in IGP (excluding the Class B interest in IGP
transferred to ALD). IGP's assets and operations include:
1.
|
a
100% ownership interest in LDA, a Puerto Rico special partnership which
holds 120 acres of land in the planned community of Parque Escorial in
Carolina, Puerto Rico (“Parque Escorial”) and 490 acres of land in
Canovanas, Puerto Rico;
|
2.
|
general
partner interests in nine partnerships, which collectively own and
operate a total of 12 multifamily rental facilities in Puerto Rico (the
“Puerto Rico Apartment Properties”), and a limited partner interest in two
of these partnerships;
|
3.
|
a
100% ownership interest in Escorial Office Building I, Inc. (“EOBI”), and
through LDA and IGP, a 100% ownership interest in a Puerto Rico
corporation that operates a three-story, 56,000 square foot office
building in Carolina, Puerto Rico;
|
4.
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a
100% ownership interest in ICP, an entity that holds the partnership
interest in El Monte Properties S.E. (“EMP”) which was sold and is
wrapping up operations in 2009;
|
5.
|
a
limited partner interest in ELI, S.E. ("ELI"), an entity 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 operated in two principal lines of
business in 2008: Operating Real Estate and Land Development. The
Operating Real Estate segment is comprised of ACPT’s investments in rental
properties and property management services; whereas, the Land Development
segment is comprised of ACPT’s community development and homebuilding services.
This represents a change from ACPT’s historical financial reporting practice of
evaluating the Company solely based on geographical location. During
the fourth quarter of 2008, the Company had a change in senior
management. With this change came a new perspective on evaluating the
Company’s performance, developing goals, and the use of various generally
accepted industry financial measures to assess the performance and financial
condition of the business, including net operating income
("NOI") (a supplemental measure to operating income) and Funds From Operations
(“FFO”) (a supplemental measure to net income).
NOI,
defined as real estate rental revenue less real estate operating expenses, is
the primary performance measure we use to assess the results of our
operations. When considered with the financial statements prepared in
accordance with principles of accounting generally accepted in the United States
(“GAAP”), it is helpful to investors in understanding our performance because it
captures the performance of our real estate operations in a measure that is
comparable with other entities that have a different
capitalization. We provide NOI as a supplement to operating income
calculated in accordance with GAAP. NOI is a non-GAAP financial
measure and does not represent operating income or net income calculated in
accordance with GAAP. As such, it should not be considered an alternative to
operating income or net income as an indication of our operating
performance.
FFO is a non-GAAP financial measure
that we believe, when considered with the financial statements prepared in
accordance with GAAP, is helpful to investors in understanding our performance
because it captures features particular to real estate
performance. Real estate generally appreciates over time or maintains
residual value to a much greater extent than do other depreciable assets such as
machinery, computers or other personal property. We compute FFO in
accordance with the Board of Governors of the National Association of Real
Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss),
computed in accordance with GAAP, excluding gains (or losses) from sales of
depreciable property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures.
While ACPT continues to report
operating results on a consolidated basis, it also now reports separately the
operating results of its two lines of business within the segment disclosures
and in the notes to the Company's consolidated financial
statements. The Company has reclassified its segment disclosures for
2007 to include the results of these segments. Please see Note 13 to
our consolidated financial statements in Item 8 of this Annual Report on Form
10-K for certain financial information related to these segments. Set
forth below is a brief description of these businesses within each of our
segments.
U.S.
OPERATING REAL ESTATE OPERATIONS – Ownership in Multifamily and Commercial
Properties and Property Management
Multifamily Rental
Properties
ACPT, indirectly through ARPT and AHP,
holds interests in the U.S. Apartment Properties. The U.S. Apartment
Properties include a total of 3,366 rental units and are 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 U.S. Apartment Properties 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.
During the first quarter of 2009, the Company executed purchase agreements
for the sale of three of five U.S. Apartment Properties in Baltimore, Maryland
for $29,200,000. The Company has received non-binding offers of $6,598,000
and is negotiating agreements for the remaining two properties. These
properties contain an aggregate of 642 apartment units. The primary
factor driving the decision to sell these properties was the strategic
disposition of underperforming assets. These contracts are subject to
certain customary closing conditions, including lender consent to allow the
purchaser to assume the loans. We anticipate closing on the sale of these
properties in the second quarter of 2009. There can be no assurance that
these transactions will occur.
The following table sets forth the name
of each U.S. Apartment Property, the number of rental units in each property,
the total portfolio percentage of each property, the project cost, the
percentage of units under lease, and the expiration date and maximum benefit for
any subsidy contract:
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|
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U.S.
APARTMENT PROPERTIES
|
|
Number
of
Apartment
Units
|
|
|
Percentage
of
Portfolio
|
|
|
12/31/2008
Project
Cost (A)
(in
thousands)
|
|
|
Occupancy
at
12/31/2008
|
|
|
Expiration
Of
Subsidy
Contract
|
Maximum
Subsidy
(in
thousands)
|
Consolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bannister
– Non-subsidized Apartments
|
|
|
167 |
|
|
|
5 |
% |
|
$ |
8,981 |
|
|
|
88 |
% |
|
|
N/A |
|
|
$ |
- |
|
Bannister
– Subsidized Apartments
|
|
|
41 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
536 |
|
Coachman's
|
|
|
104 |
|
|
|
3 |
% |
|
|
8,005 |
|
|
|
92 |
% |
|
|
N/A |
|
|
|
- |
|
Crossland
|
|
|
96 |
|
|
|
3 |
% |
|
|
3,483 |
|
|
|
95 |
% |
|
|
N/A |
|
|
|
- |
|
Essex
|
|
|
496 |
|
|
|
15 |
% |
|
|
21,220 |
|
|
|
97 |
% |
|
2009
|
|
|
|
4,672 |
|
Fox
Chase
|
|
|
176 |
|
|
|
5 |
% |
|
|
8,990 |
|
|
|
95 |
% |
|
|
N/A |
|
|
|
- |
|
Headen
House
|
|
|
136 |
|
|
|
4 |
% |
|
|
8,610 |
|
|
|
97 |
% |
|
2009
|
|
|
|
1,689 |
|
Huntington
|
|
|
204 |
|
|
|
6 |
% |
|
|
10,134 |
|
|
|
97 |
% |
|
2009
|
|
|
|
2,496 |
|
Lancaster
|
|
|
104 |
|
|
|
3 |
% |
|
|
6,042 |
|
|
|
87 |
% |
|
|
N/A |
|
|
(B)
|
|
Milford
Station I (D)
|
|
|
200 |
|
|
|
6 |
% |
|
|
13,271 |
|
|
|
90 |
% |
|
|
N/A |
|
|
|
- |
|
Milford
Station II (D)
|
|
|
50 |
|
|
|
1 |
% |
|
|
1,879 |
|
|
|
94 |
% |
|
|
N/A |
|
|
|
- |
|
New
Forest
|
|
|
256 |
|
|
|
8 |
% |
|
|
15,513 |
|
|
|
93 |
% |
|
|
N/A |
|
|
|
- |
|
Nottingham
South (D)
|
|
|
85 |
|
|
|
3 |
% |
|
|
3,070 |
|
|
|
94 |
% |
|
|
N/A |
|
|
|
- |
|
Owings
Chase (D)
|
|
|
234 |
|
|
|
7 |
% |
|
|
15,922 |
|
|
|
91 |
% |
|
|
N/A |
|
|
|
- |
|
Palmer
– Non-subsidized Apartments
|
|
|
96 |
|
|
|
3 |
% |
|
|
9,185 |
|
|
|
94 |
% |
|
|
N/A |
|
|
|
- |
|
Palmer
– Subsidized Apartments
|
|
|
56 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
732 |
|
Prescott
Square (D)
|
|
|
73 |
|
|
|
2 |
% |
|
|
4,788 |
|
|
|
88 |
% |
|
|
N/A |
|
|
|
- |
|
Sheffield
Greens
|
|
|
252 |
|
|
|
7 |
% |
|
|
25,999 |
|
|
|
93 |
% |
|
|
N/A |
|
|
|
- |
|
Village
Lake
|
|
|
122 |
|
|
|
3 |
% |
|
|
7,994 |
|
|
|
96 |
% |
|
|
N/A |
|
|
|
- |
|
Wakefield
Terrace – Non-subsidized Apartments
|
|
|
164 |
|
|
|
5 |
% |
|
|
11,301 |
|
|
|
90 |
% |
|
|
N/A |
|
|
|
- |
|
Wakefield
Terrace – Subsidized Apartments
|
|
|
40 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
541 |
|
Wakefield
Third Age (Brookmont)
|
|
|
104 |
|
|
|
3 |
% |
|
|
5,572 |
|
|
|
96 |
% |
|
|
N/A |
|
|
|
- |
|
Total
Consolidated
|
|
|
3,256 |
|
|
|
96 |
% |
|
|
189,959 |
|
|
|
|
|
|
|
|
|
|
|
10,666 |
|
Unconsolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookside
Gardens
|
|
|
56 |
|
|
|
2 |
% |
|
|
2,696 |
|
|
|
96 |
% |
|
|
N/A |
|
|
(C)
|
|
Lakeside
Apartments
|
|
|
54 |
|
|
|
2 |
% |
|
|
4,131 |
|
|
|
100 |
% |
|
|
N/A |
|
|
(C)
|
|
Total
Unconsolidated
|
|
|
110 |
|
|
|
4 |
% |
|
|
6,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,366 |
|
|
|
100 |
% |
|
$ |
196,786 |
|
|
|
|
|
|
|
|
|
|
$ |
10,666 |
|
(A)
|
Project
costs represent inception-to-date capitalized costs for each respective
property as per Schedule III “Real Estate and Accumulated Depreciation” in
Item 8 of this Annual Report on Form
10-K.
|
(B)
|
Not
subsidized, however, 54 units are subject to household income restrictions
set by the Maryland Community Development Administration
(“MCDA”).
|
(C)
|
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.
|
(D)
|
During the first quarter of 2009,
the Company executed purchase agreements for the sale of three of the five
U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.
The Company has received non-binding offers of $6,598,000 and is
negotiating agreements for the remaining two
properties.
|
The following
table sets forth the operating results, mortgage balances and our economic
interest in the U.S. Apartment Properties by location ($ amounts in thousands,
all other figures are actual):
U.S.
APARTMENT PROPERTIES
|
|
Number
of Apartment Units
|
|
|
Operating
Revenues
|
|
|
Operating
Expenses (a)
|
|
|
Net
Operating Income
|
|
|
Non-Recourse
Mortgage Outstanding
|
|
|
Economic
Interest Upon Liquidation (b)
|
|
|
Consolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
County, Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bannister
|
|
|
208 |
|
|
$ |
2,587 |
|
|
$ |
1,201 |
|
|
$ |
1,386 |
|
|
$ |
12,301 |
|
|
|
100.0 |
% |
|
Coachman's
|
|
|
104 |
|
|
|
1,718 |
|
|
|
665 |
|
|
|
1,053 |
|
|
|
10,740 |
|
|
|
95.0 |
% |
|
Crossland
|
|
|
96 |
|
|
|
1,205 |
|
|
|
598 |
|
|
|
607 |
|
|
|
4,034 |
|
|
|
60.0 |
% |
|
Fox
Chase
|
|
|
176 |
|
|
|
2,286 |
|
|
|
876 |
|
|
|
1,410 |
|
|
|
12,685 |
|
|
|
99.9 |
% |
|
Headen
House
|
|
|
136 |
|
|
|
1,641 |
|
|
|
659 |
|
|
|
982 |
|
|
|
6,828 |
|
|
|
75.5 |
% |
|
Huntington
|
|
|
204 |
|
|
|
2,397 |
|
|
|
1,368 |
|
|
|
1,029 |
|
|
|
9,104 |
|
|
|
50.0 |
% |
|
Lancaster
|
|
|
104 |
|
|
|
1,541 |
|
|
|
671 |
|
|
|
870 |
|
|
|
8,355 |
|
|
|
100.0 |
% |
|
New
Forest
|
|
|
256 |
|
|
|
4,082 |
|
|
|
1,506 |
|
|
|
2,576 |
|
|
|
22,445 |
|
|
|
99.9 |
% |
|
Palmer
|
|
|
152 |
|
|
|
1,912 |
|
|
|
802 |
|
|
|
1,110 |
|
|
|
6,649 |
|
|
|
75.5 |
% |
|
Sheffield
Greens
|
|
|
252 |
|
|
|
4,346 |
|
|
|
1,882 |
|
|
|
2,464 |
|
|
|
26,749 |
|
|
|
100.0 |
% |
|
Village
Lake
|
|
|
122 |
|
|
|
1,589 |
|
|
|
671 |
|
|
|
918 |
|
|
|
9,088 |
|
|
|
95.0 |
% |
|
Wakefield
Terrace
|
|
|
204 |
|
|
|
2,292 |
|
|
|
1,110 |
|
|
|
1,182 |
|
|
|
9,897 |
|
|
|
75.5 |
% |
|
Wakefield
Third Age (Brookmont)
|
|
|
104 |
|
|
|
1,332 |
|
|
|
528 |
|
|
|
804 |
|
|
|
7,180 |
|
|
|
75.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore
County, Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milford
Station I (f)
|
|
|
200 |
|
|
|
1,911 |
|
|
|
1,005 |
|
|
|
906 |
|
|
|
10,491 |
|
|
|
100.0 |
% |
|
Milford
Station II (f)
|
|
|
50 |
|
|
|
410 |
|
|
|
271 |
|
|
|
139 |
|
|
|
1,345 |
|
|
|
100.0 |
% |
|
Nottingham
South (f)
|
|
|
85 |
|
|
|
638 |
|
|
|
468 |
|
|
|
170 |
|
|
|
2,543 |
|
|
|
100.0 |
% |
|
Owings
Chase (f)
|
|
|
234 |
|
|
|
2,408 |
|
|
|
1,238 |
|
|
|
1,170 |
|
|
|
12,208 |
|
|
|
100.0 |
% |
|
Prescott
Square (f)
|
|
|
73 |
|
|
|
738 |
|
|
|
431 |
|
|
|
307 |
|
|
|
3,541 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henrico
County, Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Essex
|
|
|
496 |
|
|
|
4,482 |
|
|
|
2,239 |
|
|
|
2,243 |
|
|
|
13,766 |
|
|
|
50.0 |
% |
(c)
|
Total
Consolidated
|
|
|
3,256 |
|
|
|
39,515 |
|
|
|
18,189 |
|
|
|
21,326 |
|
|
|
189,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
County, Maryland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookside
Gardens
|
|
|
56 |
|
|
|
325 |
|
|
|
282 |
|
|
|
43 |
|
|
|
1,202 |
|
|
|
|
|
(d)
|
Lakeside
|
|
|
54 |
|
|
|
502 |
|
|
|
284 |
|
|
|
218 |
|
|
|
1,921 |
|
|
|
|
|
(e)
|
Total
Unconsolidated
|
|
|
110 |
|
|
|
827 |
|
|
|
566 |
|
|
|
261 |
|
|
|
3,123 |
|
|
|
|
|
|
Grand
Total
|
|
|
3,366 |
|
|
$ |
40,342 |
|
|
$ |
18,755 |
|
|
$ |
21,587 |
|
|
$ |
193,072 |
|
|
|
|
|
|
(a)
|
Amounts
exclude management fees eliminated in
consolidation.
|
(b)
|
Unless
stated otherwise, surplus cash from operations and proceeds from sale or
liquidation are allocated based on the economic
interest.
|
(c)
|
Upon
liquidation, the limited partners have a priority distribution equal to
their unrecovered capital. As of December 31, 2008, 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.
|
(d)
|
The
Company’s share of the economic ownership is
immaterial.
|
(e)
|
The
Company is currently eligible to receive $363,000 in distributions related
to the payment of a development fee. This amount receives
priority over return of equity to the partners but is subordinate to a
$3,000 per year preferred return to the minority partners. Upon
settlement of all priority items, balance is split 70% to the Company and
30% to the minority partners.
|
(f)
|
During the first quarter of 2009,
the Company executed purchase agreements for the sale of three of the five
U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.
The Company has received non-binding offers of $6,598,000 and is
negotiating agreements for the remaining two
properties.
|
New Multifamily Rental
Property Construction
In 2008, ACPT commenced the
construction of a 184 unit luxury apartment complex within St. Charles, Maryland
called Gleneagles Apartments. Gleneagles Apartments is expected to
consist of one, two and three bedroom units ranging in size from 905 to 1,840
square feet. ACPT currently anticipates average monthly rents of
approximately $1,625 per unit. Pre-leasing efforts are currently
scheduled to commence during the third quarter of 2009, and delivery of the
initial units is expected to occur during the fourth quarter of
2009. ACPT has received all county permits, and the HUD insured loan,
totaling $25,045,200, closed on January 22, 2009.
Property
Management
ACPT, indirectly through ARMC, operates
a property management business that manages 3,654 rental apartment units located
in the Washington, D.C. metropolitan area, Baltimore, Maryland and Richmond,
Virginia, 3,366 of which ACPT holds an ownership interest. Management
fees for the 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. However, 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. As of December 31, 2008, management fees from
third-party owned apartment properties equaled 3% of rents. Effective
March 1, 2008, the Company’s management agreement with one of the third-party
owned apartment properties, G.L. Limited Partnership, was
terminated. Effective March 1, 2009, the Company’s management
agreement with the final third-party owned rental property, Capital Park Towers
Apartments, was terminated.
Competition
ACPT's investment properties that
receive rent subsidies are not subject to the same market conditions as
properties charging market rents. The U.S. Apartment Properties
located in St. Charles, Maryland have market rents that are impacted by the
supply and demand for competing rental apartments in the area, as well as the
local housing market. When housing becomes more affordable due to lower
mortgage interest rates or softening home prices, the performance of our rental
apartments can be adversely impacted. Conversely, the performance of the rental
apartment market typically improves when mortgage interest rates rise, home
prices increase, or economic conditions and the credit markets become
depressed.
ACPT has
historically been the only source for multifamily apartment living in St.
Charles, Maryland and its surrounding areas. In the winter of 2008,
Archstone-Smith opened “Westchester at the Pavilions,” a luxury apartment
community in St. Charles, Maryland. Currently, the rents within this
new facility are higher than those charged for ACPT’s apartments. It
is currently unclear to what extent occupancy levels at our higher end fair
market properties will be impacted by the addition of these units into the St.
Charles market.
PUERTO
RICAN OPERATING REAL ESTATE OPERATIONS – Ownership in Multifamily and Commercial
Properties and Property Management
Multifamily Rental
Properties
ACPT, indirectly through
IGP, holds interests in the Puerto Rico Apartment Properties. The Puerto
Rico Apartment Properties comprise a total of 2,653 rental units, all of which
receive rent subsidies from HUD and are financed by non-recourse
mortgages. During
the first quarter of 2009, the Company executed a non-binding letter of intent
to sell the Puerto Rico Apartment Properties. The letter of intent is
subject to customary closing conditions, including the ability of the purchaser
to obtain financing, and we anticipate closing on the sale of these properties
in the second quarter of 2009.
The
table below sets forth the name of each Puerto Rico Apartment Property, the
number of rental units in each property, the percentage of total Puerto Rico
Apartment Property units held by each property, the project cost, the percentage
of such units under lease, and the expiration date and maximum benefit for any
subsidy contract:
|
|
|
12/31/2008
|
|
|
|
|
Number
of
|
Percentage
|
Project
Cost
|
Occupancy
|
Expiration
|
Maximum
|
|
Apartment
|
of
|
(B)
(in
|
at
|
of
Subsidy
|
Subsidy
|
|
Units
|
Portfolio
|
thousands)
|
12/31/2008
|
Contract
|
(in
thousands)
|
Consolidated
Partnerships
|
|
|
|
|
|
|
San
Anton
|
184
|
7%
|
$ 5,643
|
100%
|
2010
|
$ 1,342
|
Monserrate
Associates
|
304
|
11%
|
12,944
|
99%
|
2009
|
2,700
|
Alturas
del Senorial
|
124
|
5%
|
5,191
|
99%
|
2009
|
1,096
|
Jardines
de Caparra
|
198
|
7%
|
8,157
|
99%
|
2010
|
1,662
|
Colinas
de San Juan
|
300
|
11%
|
12,702
|
100%
|
2011
|
2,144
|
Bayamon
Garden
|
280
|
11%
|
14,311
|
100%
|
2011
|
2,085
|
Vistas
del Turabo
|
96
|
4%
|
3,589
|
100%
|
2021
|
726
|
Monserrate
Tower II (A)
|
304
|
11%
|
13,666
|
100%
|
2020
|
2,554
|
Santa
Juana (A)
|
198
|
7%
|
8,230
|
99%
|
2020
|
1,685
|
Torre
De Las Cumbres (A)
|
155
|
6%
|
7,155
|
100%
|
2020
|
1,350
|
De
Diego (A)
|
198
|
8%
|
8,222
|
100%
|
2020
|
1,670
|
Valle
del Sol
|
312
|
12%
|
15,885
|
100%
|
2013
|
2,491
|
Total
|
2,653
|
100%
|
$ 115,695
|
|
|
$ 21,505
|
(A) This property
is owned by Caroline 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 Annual Report on Form
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):
P.R.
APARTMENT PROPERTIES
|
|
Number
of Apartment Units
|
|
|
Operating
Revenues
|
|
|
Operating
Expenses (a)
|
|
|
Net
Operating Income
|
|
|
Non-Recourse
Mortgage Outstanding
|
|
|
Economic
Interest Upon Liquidation (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carolina,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
Associates
|
|
|
304 |
|
|
$ |
2,785 |
|
|
$ |
1,472 |
|
|
$ |
1,313 |
|
|
$ |
6,816 |
|
|
|
52.50 |
% |
|
|
|
Monserrate
Tower II (c)
|
|
|
304 |
|
|
|
2,637 |
|
|
|
1,420 |
|
|
|
1,217 |
|
|
|
9,861 |
|
|
|
50.00 |
% |
|
(e)
|
|
San
Anton
|
|
|
184 |
|
|
|
1,492 |
|
|
|
961 |
|
|
|
531 |
|
|
|
4,091 |
|
|
|
49.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Juan, Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alturas
Del Senorial
|
|
|
124 |
|
|
|
1,120 |
|
|
|
643 |
|
|
|
477 |
|
|
|
3,449 |
|
|
|
50.00 |
% |
|
|
|
Colinas
San Juan
|
|
|
300 |
|
|
|
2,164 |
|
|
|
1,072 |
|
|
|
1,092 |
|
|
|
9,380 |
|
|
|
50.00 |
% |
|
|
|
De
Diego (c)
|
|
|
198 |
|
|
|
1,748 |
|
|
|
995 |
|
|
|
753 |
|
|
|
5,457 |
|
|
|
50.00 |
% |
|
(e)
|
|
Torre
de Las Cumbres (c)
|
|
|
155 |
|
|
|
1,425 |
|
|
|
777 |
|
|
|
648 |
|
|
|
5,067 |
|
|
|
50.00 |
% |
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caguas,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Santa
Juana (c)
|
|
|
198 |
|
|
|
1,832 |
|
|
|
1,042 |
|
|
|
790 |
|
|
|
7,036 |
|
|
|
50.00 |
% |
|
(e)
|
|
Vistas
Del Turabo (f) (g)
|
|
|
96 |
|
|
|
715 |
|
|
|
398 |
|
|
|
317 |
|
|
|
798 |
|
|
|
52.45 |
% |
|
(d,e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon,
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon
Garden (f) (g)
|
|
|
280 |
|
|
|
2,113 |
|
|
|
1,064 |
|
|
|
1,049 |
|
|
|
9,151 |
|
|
|
50.00 |
% |
|
(d,e) |
Jardines
De Caparra
|
|
|
198 |
|
|
|
1,756 |
|
|
|
964 |
|
|
|
792 |
|
|
|
6,233 |
|
|
|
50.00 |
% |
|
(e)
|
|
Valle
Del Sol (f) (g)
|
|
|
312 |
|
|
|
2,522 |
|
|
|
1,052 |
|
|
|
1,470 |
|
|
|
10,430 |
|
|
|
50.00 |
% |
|
(d)
|
|
Total
|
|
|
2,653 |
|
|
$ |
22,309 |
|
|
$ |
11,860 |
|
|
$ |
10,449 |
|
|
$ |
77,769 |
|
|
|
|
|
|
|
|
|
(a)
|
Amounts
exclude management fees eliminated in
consolidation.
|
(b)
|
Surplus
cash from operations and proceeds from sale or liquidation are allocated
based on the economic interest except those identified by additional
description.
|
(c)
|
Owned
by Carolina Associates
|
(d)
|
Upon
liquidation, the limited partners have a priority distribution equal to
their unrecovered capital. As of December 31, 2008, the
unrecovered limited partner capital in Bayamon Garden, Valle Del Sol and
Vistas Del Turabo were $918,000, $445,000, and $618,000,
respectively.
|
(e)
|
In
addition to normal operating receivables between the Company and the
Puerto Rico Apartment Properties, the Company has a receivable for
incentive management fees of $59,000 for Bayamon Gardens, $12,000 for
Jardines de Caparra, $47,000 for Torre de Las Cumbres, $60,000 for De
Diego Apartments, $60,000 for Santa Juana Apartments and $90,000 for
Monserrate Towers II.
|
(f)
|
In
addition to the receivable noted in (e) above, the Company has a notes
receivable from Valle del Sol and Vistas del Turabo amounting to $928,000
and $46,000, respectively. These receivables are the result of
unsecured development cost loans made to the Partnership to cover
acquisition and construction costs of the rental property in excess of the
permanent financing. Pursuant to the terms of the Partnership
agreement, the notes are non-interest bearing and are payable only by
proceeds from mortgage refinancing, partial condemnations, sales of
easements or similar interests or proceeds from sale of the properties,
but only after the payment of the debt and liabilities due to outsiders
and expenses of liquidation.
|
(g)
|
Distributions
from these partnerships are limited to an annual amount of $10,000,
$118,000 and $146,000 for Vistas Del Turabo, and Bayamon Gardens and Valle
del Sol, respectively.
|
Commercial Rental
Properties
In
September 2005, the Company commenced the operations of its first Puerto
Rico 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 leasable office space. The
Company moved its Puerto Rico corporate office to the new facility in the third
quarter of 2005. As of December 31, 2008, approximately 76% of the
building was leased, of which 43% of the office space was occupied. The
University of Phoenix will occupy the other 33% once tenant improvements
are completed, which is expected to occur during April 2009. The
Company signed an agreement with the University of Phoenix pursuant to
which it has agreed to pay up to $20 per square foot for improvements, or
an aggregate of $368,000. Any additional costs of improvements will
be picked up by the lessee. The Company continues to focus on leasing the
balance of available space in Escorial 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 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 and such lease will terminate on June 30, 2030 at
which point the lessee has the right to acquire it for one
dollar. ELI accounted for the transaction as a sales type lease, and
a significant portion of the lease payments consist of tax-free interest due
from a government agency. The tax-free status stays intact when ELI
distributes its income to LDA.
Property
Management
IGP operates a property management
business whereby it earns fees from the management of 2,653 of 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 of the Puerto Rico Apartment
Properties. IGP is also entitled to receive an additional incentive
management fee from available net income on four of these properties, up to the
maximum total management fee of 6.5% of gross income of these
projects. For 2008, the additional incentive fees amounted to
$156,000, which will be paid during the first quarter of 2009. 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 third-party, 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 fees from these apartments are based on a
percentage of rents ranging from 8.0% to 9.25%. The management
agreements for these properties expire March 15, 2010.
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. Our competition
is within the subsidized markets. We have been able to maintain an
average annual occupancy of approximately 99.5%.
U.S. and Puerto Rico
Operating Real Estate Government
Regulation
HUD subsidies are provided principally
under Section 8 of the National Housing Act (“Section 8”). Under
Section 8, the U.S. Government pays to the applicable apartment partnership the
difference between market rental rates (determined in accordance with U.S.
Government procedures) and the rate the U.S. Government deems residents can
afford. In compliance with the requirements of Section 8, we screen
residents for eligibility under HUD guidelines. Subsidies are
provided under contracts between the U.S. Government and the owners of the
apartment properties.
Subsidy contracts for the U.S. and
Puerto Rico Apartment Properties are scheduled to expire between 2009 and 2011.
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 on page 6 of this
Annual Report on Form 10-K 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.
Some of the U.S. Apartment Properties
and Puerto Rican Apartment Properties have mortgage loans that are insured by
the Federal Housing Authority (“FHA”), or financed through the housing agencies
in Maryland, Virginia (the “State Financing Agencies”), or Puerto Rico (the
“Puerto Rico Financing Agency”). These properties are subject to guidelines
and limits established by the U.S. and Puerto Rico Apartment Properties’
regulatory agreements with HUD and the State Financing Agencies or the Puerto
Rico Financing Agency. Three of the regulatory agreements in Puerto
Rico 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.
Three of our partnerships are limited
distribution partnerships in that annual distributions cannot exceed certain
pre-determined amounts. For Vistas Del Turabo, distributions are
limited to $10,000 per year. For Bayamon Gardens, distributions are
limited to $118,000 per year. For Valle del Sol distributions are
limited to $146,000 per year. Any surplus cash generated by these
properties must be deposited in a residual receipts account that with HUD
approval, can be used for repairs to the property.
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 is available to fund capital improvements as approved by HUD or the
mortgage lender. As of December 31, 2008, a total of $7.7 million was
designated as replacement reserves for the U.S. and Puerto Rico Apartment
Properties and $3.4 million as debt service reserves for the Puerto Rico
Apartment Properties.
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 U.S. 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 and no new construction of multifamily rental properties
is expected in Puerto Rico.
U.S.
LAND DEVELOPMENT OPERATIONS
Community
Development
ACPT, indirectly through ALD, owns
approximately 3,950 undeveloped acres of land in the planned community of St.
Charles, Maryland (“St. Charles”), which is comprised of a total of
approximately 9,100 acres (approximately 14 square miles) located in Charles
County, Maryland, and is located approximately 23 miles southeast of Washington,
D.C. The land in St. Charles is being developed by ACPT for a variety
of residential uses, including single-family homes, town homes, 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 (undeveloped except for certain infrastructure improvements) and Wooded
Glen (undeveloped except for certain infrastructure improvements). 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, town homes,
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 the Charles County
government (the “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, 2008, there were 11,900 housing units remaining in St.
Charles. In addition, St. Charles has schools, recreation facilities,
commercial, office and retail space occupying in excess of 4.4 million
square feet. 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. In St. Charles, ACPT currently
develops lots for sale for detached single-family homes, town homes, apartment
complexes, and commercial and industrial development.
Fairway Village, named for the existing
18-hole public golf course it surrounds, is currently under development.
The master plan for Fairway Village provides for 3,346 dwelling units on
1,645 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 119 lots settled in 2008 and the 158 completed lots in
inventory as of December 31, 2008. All settlements made in 2008 were
the result of our March 2004 agreement with Lennar discussed below under
“Customer Dependence”. Since inception of Fairway Village, builders
have settled 878 fully developed lots. In addition to lots in
inventory, infrastructure construction is nearly complete on the next 68 single
family lots with completion expected in May 2009. Development is
complete for the Company to have access to the parcel designated for our
Gleneagles Apartment complex. Additional parcels are in the engineering
phase.
Wooded Glen and Piney Reach comprise
approximately 3,180 acres, and are planned for development near the completion
date of Fairway Village. The County must approve the total number and mix of
residential units before development can begin. There can be no
assurances that the remaining 11,900 units in St. Charles' master plan can
be attained within the remaining acreage currently owned.
In 2008,
the Company constructed a two story, 23,000 square foot commercial building
located in the O’Donnell Lake Restaurant Park within St. Charles’ Westlake
Village. This commercial building has 20,000 square feet of net
rentable space, 10,000 square feet on the first floor designated for two
restaurant or retail tenants and 10,000 square feet on the second floor
designated as office space. We believe that the restaurant and retail
space on the first floor is considered a prime location as it is adjacent to the
promenade and board walk, two of the unique amenities of the restaurant
park. In addition, we expect that the inclusion of a hotel and
another office building on adjacent lots will offer potential tenants
opportunities for significant pedestrian traffic at the site. As of
December 31, 2008, none of the building was sold or leased. The
Company listed the building with a brokerage firm for sale or lease in early
2009. The Company has experienced favorable traffic at the site
considering the difficult commercial real estate market. The Company
is pursuing potential buyers or tenants aggressively. However, there
can be no assurance that the Company will be able to locate a buyer or lease the
facility during 2009.
As of December 31, 2008, the Company
owned 31.1 acres of developed commercial land and 158 residential lots were
available for delivery. The following table is a more detailed
summary of the land inventory available in St. Charles as of December 31,
2008:
|
|
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
|
6
|
6.86
|
A
|
2010
- 2011
|
$1.2
- $1.4 million
|
|
Industrial:
|
|
|
|
|
|
|
|
Industrial
Park North Tract 21, Parcel F
|
Light
Industrial
|
1
|
7.67
|
A
|
TBD
|
408K
|
|
Industrial
Park North Tract 23, Parcel A
|
Light
Industrial
|
1
|
2.27
|
A
|
TBD
|
229K
|
WESTLAKE
VILLAGE
|
|
|
|
|
|
|
|
Commercial,
Retail, Office:
|
|
|
|
|
|
|
|
Town
Center Parcel A3
|
Restaurant,
Office, Retail
|
3
|
4.37
|
A
|
2009
- 2012
|
$3.6
million
|
|
Parcel
M
|
Office,
Retail
|
1
|
2.61
|
A
|
2009
|
$450,000
|
|
Hampshire
Commercial Parcel Q
|
Commercial
|
1
|
9.94
|
C
|
TBD
|
$1.6
million
|
FAIRWAY
VILLAGE
|
|
|
|
|
|
|
|
Residential
Lots:
|
|
|
|
|
|
|
|
Sheffield
Parcel G/M1
|
SF
Detached
|
57
|
15.41
|
A
|
2009
– 2010
|
*
|
|
Sheffield
Parcel J
|
SF
Attached
|
98
|
22.71
|
B
|
2009
|
*
|
|
Gleneagles
Parcel A
|
Multi-Family
|
120
|
12.40
|
B
|
Internal
Use
|
N/A
|
|
Gleneagles
Parcel B
|
Multi-Family
|
184
|
13.00
|
B
|
Internal
Use
|
N/A
|
|
Gleneagles
Parcel D
|
SF
Detached
|
68
|
28.40
|
B
|
2009
- 2011
|
*
|
|
Gleneagles
Parcel E
|
SF
Detached
|
117
|
53.70
|
B
|
2009
- 2011
|
*
|
|
Gleneagles
Parcel C
|
SF
Attached
|
128
|
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
|
Internal
Use
|
N/A
|
|
Commercial,
Retail, Office:
|
|
|
|
|
|
|
|
Middle
Business Park Parcel D
|
Office,
Commercial
|
14
|
22.5
|
B
|
TBD
|
TBD
|
|
Fairway
Village Center
|
Retail,
Commercial
|
1
|
93.90
|
B
|
TBD
|
TBD
|
|
Middle
Business Park Parcel B
|
Office,
Commercial
|
4
|
31.84
|
B
|
TBD
|
TBD
|
|
Middle
Business Park Parcel C
|
Office,
Commercial
|
3
|
15.48
|
B
|
TBD
|
TBD
|
VILLAGE
OF WOODED GLEN
|
|
|
|
|
|
|
|
Residential
Parcels
|
TBD
|
7,155
|
1810.40
|
D
|
TBD
|
TBD
|
|
Wooded
Glen Village Center
|
Retail,
Commercial
|
1
|
30.00
|
C
|
TBD
|
TBD
|
VILLAGE
OF PINEY REACH
|
|
|
|
|
|
|
|
Residential
Parcels
|
TBD
|
2,921
|
666.60
|
D
|
TBD
|
TBD
|
|
Piney
Reach Village Center
|
Retail,
Commercial
|
1
|
37.30
|
C
|
TBD
|
TBD
|
|
Piney
Reach Industrial Park
|
Industrial
|
1
|
76.18
|
C
|
2010
|
$13.0
million
|
|
Piney
Reach Industrial Park
|
Industrial
|
66
|
506.59
|
C
|
TBD
|
TBD
|
TOTAL
|
|
|
12,037
|
3,785.73
|
|
|
|
(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 a percentage 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.
|
Homebuilding
In October 2008, the Company entered
into an agreement with Surrey Homes in central Florida to contribute $2,000,000
to Surrey Homes over the next year in exchange for a 50% ownership interest in
Surrey Homes. During the fourth quarter of 2008, ACPT contributed
$500,000 to Surrey Homes with the remainder to be contributed during the first
three quarters of 2009. Surrey Homes’ business model is focused on
providing affordable quality homes with the lowest ongoing cost of ownership
through a maintenance program of energy efficiency and other green
initiatives. Surrey Homes is establishing itself as a low overhead,
lot option home builder and has obtained lot option contracts in certain
developments within central Florida that we believe are currently experiencing
good sales activity. Early operations of Surrey Homes are designed to
create a scalable, low overhead business that can quickly expand when the
central Florida market turns around. Surrey Homes is led by Jay Lewis
who has 23 years of experience in the home building and residential development
industries. Mr. Lewis was previously a Vice-President and Division
Manager for a publicly traded homebuilder.
Customer
Dependence
In March 2004, the Company executed
development and purchase agreements with Lennar’s homebuilding subsidiary to
develop and sell approximately 1,950 residential lots, consisting of
approximately 1,359 single-family lots and 591 town home lots in Fairway Village
(the “Lennar Agreements”). The Lennar Agreements require Lennar’s
homebuilding subsidiary 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 County of up to $20,000,000
and will be reduced as the Company repays the principal of these
loans. As security for the Company’s obligations to Lennar, a junior
lien was placed on the residential portion of Fairway Village. 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 County at which time the lot
is released from the junior lien. Under the Lennar Agreements, 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
a minimum of 200 residential lots developed by the Company per
year. However, the continued slowing of the new homes sales market in
the United States, and more specifically in the Washington D.C. suburban area,
has adversely impacted Lennar’s willingness or ability to purchase the
required lots. Consequently, amendments to the Lennar Agreement
have been agreed to as follows:
·
|
In
December 2007, the Company executed the second amendment to the Lennar
Agreements (the “December Amendment”) whereby the Company agreed to accept
51 lot settlements in December 2007 in satisfaction of Lennar’s lot
purchase requirement for 2007, resulting in 78 total lots purchased by
Lennar during 2007. In addition, the Company agreed to
temporarily reduce the final lot price for 100 lots (51 purchased in
December 2007 and 49 purchased during the first six months of 2008)
from 30% to 22.5% of the base price of the home sold on the lot, with
guaranteed minimum prices of $78,000 per single family lot and $68,000 per
town home lot.
|
·
|
In
November 2008, the Company entered into the third amendment to the Lennar
Agreements modifying the minimum number of lots that Lennar is required to
purchase annually to 100 units, and increasing the minimum purchase price
for such lots from 22.5% to 25% from January 2009 until December 31,
2011. The amendment ended the exclusive relationship between
Lennar and the Company. With the termination of the exclusive
relationship between Lennar and the Company in November, 2008, we have
executed sales agreements with NVR, Inc., Richmond American Homes of
Maryland, Inc., and Riverview Builders, LLC for the sale of additional
lots in the first quarter of 2009. During 2008, 119 lots were
purchased by Lennar, which comprised 61 single-family lots and 58 town
home lots. All of the 2008 lot purchases were under the
terms of the December Amendment.
|
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 in it and $4,277,000 in cash. Lennar and the
Company each had an equal interest in the joint venture. The joint
venture's operating agreement called for the development of 352 lots and
delivery of these lots began in the fourth quarter of 2005. The
Company also managed the project's development for a market rate fee pursuant to
a management agreement. On November 19, 2008, the Company sold to
Lennar the Company’s 50% interest in the joint venture and its property
management rights for $3,467,000 in cash.
Revenues from Lennar include
residential land sales as well as certain management fees. Total
revenues from Lennar for our U.S. Land Development segment were $12,438,000 for
the year ended December 31, 2008, which represented 84% of the U.S. Land
Development segment's total revenue and 15% of our consolidated revenue for the
year ended December 31, 2008. No other customers accounted for more
than 10% of our consolidated revenue for the year ended December 31,
2008.
Government
Approvals
The St. Charles master plan has been
incorporated into the County's comprehensive zoning plan. In addition, 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, Wooded Glen and Piney Reach. In 2001, the
County enacted the Adequate Public Facilities Policy, which limits the number of
residential building permits issued to the amount of school allocations
calculated in a given period.
Under a
settlement agreement reached with the County in 2001, 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. The County provided guaranteed school allocations to St. Charles
for 898 new dwelling units. The County subsequently granted allocations
for an additional 200 dwelling units in 2005, 300 for 2006, 300 for 2007 and 300
units for 2008. As of December 31, 2008, we have recorded 1,230
dwelling units with the County leaving us with a balance of 764 school
allocations available for new dwelling units. School allocations are
used when the Company records the subdivision plats with the
County. The Company anticipates using 302 allocations in 2009 related
to additional lot development in the Gleneagles Neighborhood.
As
further stipulated in 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, 2008, approximately 1,350 of the sewer
connections were available for use. Our agreement reached with
the County also provides for the possibility that we will be allowed to annex
additional contiguous land to St. Charles.
Also
pursuant to the settlement agreement, the Company agreed to accelerate the
construction of two major roadway links to the County’s road
system. In return, 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, 2008, the
County 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 was approximately $31,138,000.
In August
2005, the Company signed a memorandum of understanding (“MOU”) with the Charles
County Commissioners regarding a land donation that, as of 2008, houses a minor
league baseball stadium and an 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 and 2007,
$4,000,000 and $3,000,000 of bonds were issued for this project,
respectively. In March 2008, an additional $3,000,000 of bonds were
issued for completion of required stadium improvements. 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. The price of a school
allocation is based on negotiations with the County; however, historically, the
price has been approximately $16,500 per allocation for the
Company.
Competition
Competition among residential
communities in Charles County, Maryland 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;
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 what it believes to be affordable building lots
and homes while offering more amenities than the competition. The
overall market conditions have slowed the growth of new residential construction
and we believe the guaranteed school allocations discussed above provide the
Company with a competitive advantage.
Environmental
Impact
Management believes that the St.
Charles master plan can be completed without material adverse environmental
impact and in compliance with U.S. 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. The Company has developed an Environmental Policy Manual
and has established an Environmental Review Committee and appointed 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, soil erosion, and duration of
construction. In 2008, we spent nearly $80,000 for these
costs. As land development continues, an annual cost of approximately
$100,000 can be expected.
PUERTO
RICAN LAND DEVELOPMENT OPERATIONS
Community
Development
The Puerto Rican Land Development
Operation’s 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 (“Parque El
Comandante”). The land in Parque Escorial is being developed by the
Company 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. Parque Escorial is located approximately six miles from
the central business district in San Juan, Puerto Rico. It includes the
construction of 2,700 dwelling units of various types on 282 acres of land and
the development of 145 acres of land for commercial, office and light industrial
uses. The commercial site is anchored by a Wal-Mart and Sam's Club, each
consisting of approximately 125,000 square feet. LDA has developed
and sold 255 acres of land in this community, and continues to own 120 acres of
developed and undeveloped land. Currently, LDA is developing the
infrastructure of the fourth residential phase in Parque Escorial which will be
developed in two phases.
As of December 31, 2008, site
improvements for the first three residential phases of Parque Escorial,
comprising 2,252 units, were completed and either sold to third party
homebuilders or used by the Company’s homebuilding operations for the
construction of condominiums. The next residential phase in Parque
Escorial, comprising approximately 220 units, is in the beginning stage of
infrastructure development, and we expect to develop the last phase, comprising
approximately 228 units, in the future. There were no commercial land
sales in backlog as of December 31, 2008.
In 1989,
LDA acquired the 427-acre site of the former El Comandante Race Track in
Carolina, Puerto Rico. LDA also owns approximately 490 acres of land
adjacent to the new El Comandante Race Track in Canovanas, Puerto
Rico. As of December 31, 2008, this land is the collateral supporting
Puerto Rico's $10,000,000 credit facility, which matures in August 2009.
(While the Company will seek to refinance the line into a construction loan for
the development of residential condominiums or extend the term of the facility,
the current state of the credit market may prevent these plans
from occurring.) Currently, LDA is in the process of obtaining zoning
approvals to convert the property into a master plan mixed-use community, Parque
El Comandante, similar to Parque Escorial. As part of the rezoning process
in Parque El Commandante, in December 2007, a government agency requested the
preparation of an Environmental Impact Statement which was submitted during the
first quarter of 2008. In March 2009, a public hearing was conducted
with responses anticipated from the government agency during the second quarter
of 2009.
Condominium
pricing in Puerto Rico has declined similar to the United States’
market. However, construction pricing has not declined in a similar
manner as we are experiencing in the United States market. The
Company has considered the Hilltop project in the Parque Escorial property
(“Hilltop”) to be the premier parcel in the portfolio due to the views of the
island that will be enjoyed by future residents. Accordingly, the
Company had previously intended to build condominiums with expected
selling ranging from $350,000 to $400,000. However, sales
of condominiums in excess of $350,000 are not occurring in the areas immediately
surrounding Parque Escorial. The Company believes that construction
of a $350,000 product is no longer prudent and believes that construction
financing could not be obtained at that level. The Company is
now anticipating construction of a product similar to Torres. Due to
increased cost of construction, decline in sales prices and the per unit land
basis, the Company noted that the expected total costs of the project exceeded
the expected sales proceeds. The Company has recorded an impairment
charge of $6,200,000 in the fourth quarter of 2008 based on an assessment of
discounted cash flows assuming that the Company will build and sell condominium
units at Hilltop similar to those built at Torres.
The following
table is a summary of the land inventory available in Puerto Rico as of December
31, 2008:
|
|
Current
Zoning
|
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
|
Office
|
1
|
2.7
|
A
|
TBD
|
$3.5
million
|
|
Residential:
|
|
|
|
|
|
|
|
|
Hilltop
Phase I - 220 units
|
Residential
|
Residential
|
220
|
21.19
|
B
|
TBD
|
N/A
|
|
Hilltop
Phase II - 228 units
|
Residential
|
Residential
|
228
|
95.81
|
B
|
TBD
|
N/A
|
|
|
|
|
|
|
|
|
|
PARQUE
EL COMANDANTE
|
|
|
|
|
|
|
|
|
Mixed-use
Lots:
|
|
|
|
|
|
|
|
|
Phase
I - Quarry Site
|
Residential
|
Mixed-use
commercial
|
TBD
|
50.79
|
C
|
TBD
|
TBD
|
|
Phase
II - Route 66 North
|
Agricultural
|
Mixed-use
|
TBD
|
165.83
|
C
|
TBD
|
TBD
|
|
Residential
Lots:
|
|
|
|
|
|
|
|
|
Phase
I - Quarry Site
|
Commercial
|
Residential
|
TBD
|
26.11
|
C
|
TBD
|
TBD
|
|
Phase
III - Route 66 South
|
Agricultural
|
Residential
|
TBD
|
209.14
|
C
|
TBD
|
TBD
|
|
Phase
IV - Out-Parcel
|
Agricultural
|
Residential
|
TBD
|
38.85
|
C
|
TBD
|
TBD
|
|
Total
|
|
|
|
610.42
|
|
|
|
|
|
|
|
|
|
|
(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
Homebuilding
During the first quarter of 2004, IGP
formed Torres to construct and sell a 160-unit residential project within Parque
Escorial. The project consists of a four tower condominium with 40
units in each tower (160 total units). The construction of the
four-tower condominium was completed in December 2006. As of December
31, 2008, 154 units were sold. However, sales of the remaining units
have slowed substantially, and the Company sold three units during the last six
months of 2008. Of the remaining six unsold units, one unit was under
contract as of December 31, 2008. In 2008, the Puerto Rico real
estate market suffered its worst year in the last three decades; however, we
continued to sell units in our condominium complex at favorable prices, but at a
slower pace than anticipated. Assisting with these sales, the Puerto
Rican government offered homebuyers a $25,000 incentive from the fourth quarter
of 2007 through the fourth quarter of 2008. This incentive is no
longer available to homebuyers but the U.S. Government has offered first time
homebuyers an $8,000 income tax credit, and the Company intends to offer certain
incentives to homebuyers in order to sell the remaining six units, three of
which are penthouse units.
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 Puerto
Rico Department of Natural and Environmental Resources (the “DNER”) for the
infrastructure development of 220 residential units in Parque
Escorial.
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. 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. Significant
progress was made with the re-zoning application of the first phase of
approximately 80 acres in El Comandante in 2008. In March
2009, a public hearing was conducted with responses anticipated from the
government agency during the second quarter of
2009.
Competition
The Company believes that the scarcity
of developable land in the San Juan, Puerto Rico metropolitan area creates a
favorable market for condominium unit sales at Parque Escorial.
Competition for condominium unit sales is expected to come 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 other
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
We
believe 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 2008, 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 DNER
has enacted Regulation #25 whereby it requires the replacement of trees removed
during land development of the proposed 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, in September 2007,
the Company signed a Mitigation Agreement with DNER which requires the Company
to plant 10,900 trees in the Parque Escorial community over the next three
years. In addition, the Company segregated and donated 44 acres of
land to the Municipality of Carolina, Puerto Rico to get the final approval to
begin the land development at the Hilltop. In addition, the Company
paid $275,000 to the Municipality of Carolina, Puerto Rico for future
maintenance costs of the urban forest. These parcels of land will be
a conservation area for an urban forest.
GENERAL
Employees
ACPT had 217 full-time employees as of
December 31, 2008, 104 in the United States and 113 in Puerto Rico.
In Puerto Rico, 26 employees, or 11.9%, of the Company’s total workforce,
were subject to a Collective Bargaining Agreement which expired in February
2007, and was currently under negotiations as of December 31, 2008.
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 or Code of Ethics for
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
You should
carefully consider the risks described below and all of the other information
contained in this Annual Report on Form 10-K, including the financial statements
and the notes thereto included in Part II, Item 8, of the Annual Report on Form
10-K. If any of the following risks occurs, our business, financial
condition or results of operations could be materially and adversely
affected.
If
current adverse global market and economic conditions continue or worsen, our
business, results of operations, cash flows and financial condition may be
adversely affected.
Recent market and economic conditions
have been unprecedented and challenging, with significantly tighter credit
markets and a recession that is expected to continue into the second half of
2009. These conditions, combined with the deteriorating financial
conditions of numerous financial institutions, rising unemployment and declining
residential and commercial real estate markets, among other things, have
contributed to increased market volatility and diminished expectations for the
U.S. and other economies.
As a result of these conditions, the
cost and availability of credit has been and may continue to be adversely
affected in the markets in which we own properties and we and our tenants
conduct operations. Concern about the stability of the markets
generally and the strength of numerous financial institutions specifically has
led many lenders and institutional investors to reduce, and in some cases,
cease, to provide funding to borrowers. Continued turbulence in the
U.S. and international markets and economies may adversely affect our liquidity
and financial condition, and the liquidity and financial condition of our
tenants and our lenders. If these market and economic conditions
continue, they may limit our ability, and the ability of our tenants, to replace
or renew maturing liabilities on a timely basis, access the capital markets to
meet liquidity and capital expenditure requirements and may result in adverse
effects on our and our tenants’ financial condition and results of
operations. If our tenants’ businesses or ability to obtain financing
deteriorates further, they may be unable to pay rent to us, which could have a
material adverse effect on our cash flows.
We cannot assure you that continuing
long-term disruptions in the global economy and the continuation of tighter
credit conditions among, and potential failures of, third party financial
institutions as a result of such disruptions, will not have an adverse effect on
our lenders. If our lenders are not able to meet their funding
commitment to us, our business, results of operation, cash flows and financial
condition could be adversely affected.
In response to the deteriorating market
and economic conditions in the U.S. and international markets, U.S. and foreign
governments, central banks and other governmental and regulatory bodies have
taken or are considering taking other actions to help stabilize the banking
system and financial markets and to reduce the severity and length of the
recession. We cannot predict the duration or severity of the current
economic challenges, nor can we provide assurance that our responses to the
current economic downturn, or the U.S. and foreign governments, central banks
and other governmental and regulatory bodies attempts to stabilize the banking
system and financial markets and to stimulate the economy, will be
successful.
The
recent downturn in the commercial and residential real estate market has
substantially reduced real estate values, which may cause us to not be able to
sell developed property or cause us to sell such property at a
loss.
The real estate business is a cyclical
business. Currently, weak economic conditions in the United States
and Puerto Rico have substantially slowed residential and commercial property
sales, which have caused a reduction in property values. Continued
significant declines in the prices for real estate could cause us not to be able
to sell developed property or to have to sell such property at a
loss, which could adversely affect our business and operations and our
ability to make distributions to our shareholders.
We
depend on our tenants to pay rents, and their inability to pay rents may
substantially reduce our revenues and cash available for distributions to our
shareholders.
Our investments in residential
apartment properties are subject to varying degrees of risk that generally arise
from the ownership of real estate. The underlying value of our properties and
the ability to make distributions to our shareholders depend upon the ability of
the tenants of our properties to generate enough income to pay their rents in a
timely manner. Their inability to do so may be impacted by employment and other
constraints on their personal finances, including debts, purchases and other
factors. Changes beyond our control may adversely affect our tenants’ ability to
make lease payments and consequently would substantially reduce both our income
from operations and our ability to make distributions to our shareholders. These
changes include, among others, the following:
● changes in
national, regional or local economic conditions;
● changes in
local market conditions; and
● changes in
federal, state or local regulations and controls affecting rents, prices of
goods, interest rates, fuel and
energy consumption.
Due to these changes or others,
tenants and lease guarantors, if any, may be unable to make their lease
payments. A default by a tenant, the failure of a tenant’s guarantor to fulfill
its obligations or other premature termination of a lease could, depending upon
the size of the leased premises and our advisor’s ability to successfully find a
substitute tenant, have a materially adverse effect on our revenues and the
value of our common shares or our cash available for distribution to our
shareholders.
If we are unable to find tenants for
our properties, or find replacement tenants when leases expire and are not
renewed by the tenants, our revenues and cash available for distribution to our
shareholders will be substantially reduced.
Our
revenue and cash available for distributions to shareholders could be
materially adversely affected if any significant tenant or tenants were to
become bankrupt or insolvent, or suffer a material adverse event or a downturn
in their business.
The
bankruptcy or insolvency of a major tenant may adversely affect the income
produced by our properties. If any tenant becomes a debtor in a case under
the Bankruptcy Code, we cannot evict the tenant solely because of the
bankruptcy. In addition, the bankruptcy court might authorize the tenant
to reject and terminate its lease with us. Our claim against the tenant
for unpaid and/or future rent would be subject to a statutory cap that might be
substantially less than the remaining rent actually owed under the lease, and
our claim for unpaid rent would likely not be paid in full. Our revenue
and cash available for distributions to our shareholders could be materially
adversely affected if our significant tenants were to become bankrupt or
insolvent or suffer a downturn in their business.
We
may be unable to renew expiring leases or re-lease vacant space on a timely
basis or on attractive terms, which could significantly decrease our cash
flow.
Current tenants may not renew their
leases upon the expiration of their terms. Alternatively, current
tenants may attempt to terminate their leases prior to the expiration of their
current terms. If non-renewals or terminations occur, we may not be
able to locate qualified replacement tenants and, as a result, we could lose a
significant source of revenue while remaining responsible for the payment of our
obligations. Moreover, the terms of a renewal or new lease may be
less favorable than the current lease terms. Any of these factors
could cause a decline in lease revenue, which would have a negative impact on
our profitability.
We
may be subject to risks with respect to our acquisition and development
activities.
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.
We engage in development of certain
types of properties for lease or sale. Development involves many risks,
including the following:
● we may be
unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use,
building, occupancy and other
required governmental permits and authorizations, which could result in
increased costs, modification or
abandonment of these projects;
● we may incur
construction costs for property which exceed our original estimates due to
increased costs for materials or labor or
other
costs that we did not anticipate;
● we may not
be able to obtain financing on favorable terms or at all, which may render us
unable to proceed with our development
activities;
● we may be
unable to complete construction and lease-up of a property on schedule, which
could result in increased debt service
expense or construction costs; and
● 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 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.
Additionally, the time
frame required for development, construction and lease-up of these properties
means that we may have to wait years for significant cash returns and may never
realize cash returns. Because we anticipate paying cash distributions to
our shareholders, if the cash flow from operations or refinancing is not
sufficient, we may be forced to borrow additional money to fund such
distributions.
Newly
developed and acquired properties may not produce the returns that we expect,
particularly in the current global economic environment, which could adversely
affect our overall financial performance.
In deciding whether to acquire or
develop a particular property, we make assumptions regarding the expected future
performance of that property. In particular, we estimate the return
on our investment based on expected occupancy and rental rates. Some of these
estimates were made in advance of the recent economic downturn, and we cannot
assure you that our operations at these properties will not be adversely
affected by the current global economic environment relative to our original
estimates. Additionally, we have acquired, and may continue to
acquire, properties not fully leased, and the cash flow from existing operations
may be insufficient to pay the operating expenses and debt service associated
with that property until the property is more fully leased at favorable rental
rates. If our estimated return on investment for the property proves
to be inaccurate and the property is unable to achieve the expected occupancy
and rental rates, it may fail to perform as we expected in analyzing the
investment.
The
recent credit crisis may adversely affect potential homebuyers’ ability to
obtain financing and our ability to obtain development financing or refinance
current mortgage loans.
Our
business is substantially dependent on the ability of our customers to finance
the purchase of our land or homes. The current credit crisis has
increased lender scrutiny of potential borrowers and has made it difficult for
some potential homebuyers to obtain financing. Continued or
increasing limitations on the availability of financing or increases in the cost
of such financing could adversely affect our operations. Our business
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 credit
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 also impact our ability to
obtain loans to finance the development of our future communities.
The
Company has two lines of credit and one non-recourse mortgage that mature in
2009. In the United States, a $14,000,000 revolving line of credit
loan that was set to mature on April 14, 2009 has been extended to March 31,
2010 with quarterly scheduled payments as follows: first quarter
payment of $2,200,000 on March 31, 2009; second quarter payment of $1,300,000 on
June 30, 2009; third quarter payment of $300,000 on September 30, 2009; fourth
quarter payment of $2,200,000 on December 31, 2009; and the remaining balance of
approximately $571,000 in the first quarter of 2010. Although the Company
has extended this line of credit, the Company continues to work with
other lenders to replace this facility entirely. The Company
has certain financial covenants related to this revolving line of
credit. As of December 31, 2008, the Company failed to meet the
Minimum Net Worth covenant at the ACPT level as tangible net worth was
$1,341,000. The Company has received a waiver of this covenant
requirement through March 31, 2010. The failure to meet this covenant
did not impact any other debt agreements.
In Puerto
Rico, a $10,000,000 credit facility, with an outstanding balance of $4,327,000
as of December 31, 2008, matures on August 31, 2009. The Company
anticipates that the balance outstanding on this facility will be approximately
$8,300,000 as of August 31, 2009. While the Company will seek to
refinance the line into a construction loan for the development of
residential condominiums or extending the term of the facility, the current
state of the credit market may prevent these plans from
occurring. IGP provided a guarantee on this credit facility; however,
the lender's recourse under this guarantee is limited to the collateral,
except in the case
of fraud, intentional misrepresentation, or misappropriation of income
associated with the collateral. In the event of a default, the
lender's sole recourse is to foreclose on the property. An event of
default on this facility will not affect any other debt facility held by the
Company. The collateral to support the line of credit consists of 427
acres of land, which has a cost basis of $11,500,000 at December 31,
2008. There is no income generated from this property as it is in the
planning stages for the development of the Company’s second planned community in
Puerto Rico.
Also in
Puerto Rico, the Company has a mortgage balance maturing on April 30,
2009. As of December 31, 2008, the balance due was
$6,816,000. The Company is in the process of refinancing this
mortgage. However, should the Company be unable to negotiate or
refinance with acceptable terms, the sole collateral for this mortgage is the
Monserrate Associates apartment property, which has a cost basis of $3,785,000
at December 31, 2008. This property generated approximately
$2,700,000 of revenue and $400,000 of pre-tax income in 2008.
Borrowing
increases our business risks.
Debt service increases the expense of
operations since we are responsible for retiring the debt and paying the
attendant interest, which may result in decreased cash available for
distribution to our shareholders. In the event the fair market value of our
properties was to increase, we could incur more debt without a commensurate
increase in cash flow to service the debt. In addition, our trustees can change
our policy relating to the incurrence of debt at any time without shareholder
approval.
We
may incur indebtedness secured by our properties, which subjects those
properties to foreclosure.
Incurring mortgage
indebtedness increases the risk of possible loss. Most of our borrowings
to acquire properties are secured by mortgages on our properties. If we
default on our secured indebtedness, the lender may foreclose and we could lose
our entire investment in the properties securing such loan which could adversely
affect distributions to shareholders. For federal tax purposes, any such
foreclosure would be treated as a sale of the property for a purchase price
equal to the outstanding balance of the debt secured by the mortgage and, if the
outstanding balance of the debt secured by the mortgage exceeds our basis of the
property, there could be taxable income upon a foreclosure. To the extent
lenders require us to cross-collateralize our properties, or our loan agreements
contain cross-default provisions, a default under a single loan agreement could
subject multiple properties to foreclosure.
Increases
in interest rates could increase the amount of our debt payments and adversely
affect our results of operations and our ability to make cash distributions to
our shareholders.
Higher
interest rates could increase debt service requirements on variable rate debt
and could adversely affect our results of operations and reduce the amounts
available for distribution to our shareholders. Additionally, such change
in economic conditions could cause the terms on which borrowings become
available to be unfavorable. In such circumstances, if we are in need of
capital to repay indebtedness in accordance with its terms or otherwise, we
could be required to liquidate one or more of our investments in properties at
times which may not permit realization of the maximum return on such
investments.
Increased
construction of similar properties that compete with our properties in any
particular location could adversely affect the operating results of our
properties and our cash available for distribution to our
stockholders.
We may acquire properties in locations
which experience increases in construction of properties that compete with our
properties. This increased competition and construction
could:
● make it
more difficult for us to find tenants to lease units in our apartment
communities;
● force us to
lower our rental prices in order to lease units in our apartment communities;
and
●
substantially reduce our revenues and cash available for distribution to our
shareholders.
Illiquidity of
real estate investments could significantly impede our ability to respond to
adverse changes in the performance of our
properties and
harm our financial condition.
Because real estate investments are
relatively illiquid, our ability to promptly sell one or more properties in our
portfolio in response to adverse changes in the performance of such properties
may be limited, thus harming our financial condition. The real estate
market is affected by many factors that are beyond our control,
including:
● adverse
changes in national and local economic and market conditions;
● changes in
interest rates and in the availability, cost and terms of debt financing;
● changes in
governmental laws and regulations, fiscal policies and zoning ordinances and
costs of compliance with laws and
regulations, fiscal policies and ordinances;
● the ongoing
need for capital improvements, particularly in older buildings;
● changes in
operating expenses; and
● civil
unrest, acts of war and natural disasters, including earthquakes and floods,
which may result in uninsured and
underinsured losses.
We cannot
predict whether we will be able to sell any property for the price or on the
terms set by us, or whether any price or other terms offered by a prospective
purchaser would be acceptable to us. We also cannot predict the
length of time needed to find a willing purchaser and to close the sale of a
property.
We may be required to expend funds to correct defects or to make improvements
before a property can be sold. We cannot assure you that we will have
funds available to correct those defects or to make those
improvements. In acquiring a property, we may agree to lock-out
provisions that materially restrict us from selling that property for a period
of time or impose other restrictions, such as a limitation on the amount of debt
that can be placed or repaid on that property. We may also acquire
properties that are subject to a mortgage loan that may limit our ability to
sell the properties prior to the loan’s maturity. These factors and
any others that would impede our ability to respond to adverse changes in the
performance of our properties could have a material adverse effect on our
operating results and financial condition, as well as our ability to make
distributions to our security holders.
Lack
of geographic diversity may expose us to regional economic downturns that could
adversely impact our operations or our ability to recover our investment in one
or more properties.
Geographic concentration of properties exposes us to economic downturns in the
areas where our properties are located. Because we mainly operate in the
suburban areas surrounding Washington D.C. and Puerto Rico, our portfolio of
properties may not be geographically diversified. A regional
recession in any of these areas could adversely affect our ability to generate
or increase operating revenues, attract new tenants or dispose of unproductive
properties.
Competition
with entities that have greater financial resources could make it more difficult
for us to acquire attractive properties and achieve our investment
objectives.
We compete for investment opportunities with entities with
substantially greater financial resources. These entities may be able to
accept more risk than our board of trustees believes is in our best
interests. This competition may limit the number of suitable investment
opportunities offered to us. This competition also may increase the
bargaining power of property owners seeking to sell to us, making it more
difficult for us to acquire properties. In addition, we believe that
competition from entities organized for purposes similar to ours may increase in
the future.
Our
revenue and cash available for distributions to shareholders could be materially
adversely affected if Lennar or any other significant customer were to become
bankrupt or insolvent, or suffer a material adverse event or a downturn in their
business.
Revenues from
Lennar include residential land sales as well as certain management
fees. Total revenues from Lennar within our U.S. Land Development
segment were $12,438,000 for the year ended December 31, 2008 which represented
84% of the U.S. Land Development segment’s revenue and 15% of our consolidated
revenue for the year ended December 31, 2008. No other customers
accounted for more than 10% of our consolidated revenue for the year ended
December 31, 2008. Loss of all or a substantial portion of our land
sales, as well as our joint venture’s land sales, to Lennar would have a
significant adverse effect on our financial results.
Although Lennar was contractually obligated to purchase 200 lots per year,
the market is not currently sufficient to absorb this sales
pace. Accordingly, Lennar’s management requested and the Company
granted a reduction of the 200 lot requirement for 2008 through
2011. Management agreed to accept a total of 119 lots as satisfaction
of their lot takedown requirement for 2008 and 100 lots per year for 2009
through 2011. In addition, the Company agreed to a temporary price
reduction to 25% of the selling price of the home for 2009 through 2011.
Should Lennar not comply with their obligations pursuant our amended
contract or there be a reduced demand for our commercial property our revenue
and cash available for distributions to our shareholders would be adversely
impacted.
We
may be unable to renew our HUD subsidy contracts and may lose federal funding to
service these contracts.
As of December 31, 2008, we
owned equity interests in 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 HUD properties held in 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.
An
uninsured loss or a loss that exceeds the insurance policies on our properties
could subject us to lost capital or revenue on those properties.
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. We would nevertheless remain obligated on any mortgage indebtedness or
other obligations related to the property. If an uninsured loss or a
loss in excess of insured limits should occur, we could lose all or part of our
capital invested in a property, as well as any future revenue from the property,
which could adversely affect our results of operations and financial condition,
and our ability to pay distributions to our shareholders.
The
costs of compliance with, or liabilities under, environmental laws may adversely
affect our operating results.
Our
operating expenses could be higher than anticipated due to the cost of complying
with existing or future environmental laws and regulations. An owner of
real property can face liability for environmental contamination created by the
presence, release or discharge of hazardous substances on the property. We
may face liability regardless of:
● our lack of
knowledge of the contamination;
● the timing
of the contamination;
● the cause
of the contamination; or
● the party
responsible for the contamination of the property.
There
may be environmental problems associated with our properties of which we are
unaware. If environmental contamination exists on our properties, we
could become subject to strict, joint and several liability for the
contamination by virtue of our ownership interest.
The presence of hazardous substances on a property may adversely affect our
ability to sell the property, and we may incur substantial remediation costs,
thus harming our financial condition. In addition, although many of our leases
generally require our tenants to operate in compliance with all applicable laws
and to indemnify us against any environmental liabilities arising from a
tenant’s activities on the property, we could nonetheless be subject to strict
liability by virtue of our ownership interest for environmental liabilities
created by our tenants, and we cannot be sure that our tenants would satisfy
their indemnification obligations under the applicable sales agreement or
lease. Certain leases with significant tenants do not indemnify us
against environmental liabilities arising from these tenants’ activities on the
property. The discovery of material environmental liabilities
attached to our properties could have a material adverse effect on our results
of operations, financial condition and ability to pay distributions to our
shareholders.
Our
properties may contain or develop harmful mold, which could lead to liability
for adverse health effects and costs of remediating the problem.
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.
Compliance
with the Americans with Disabilities Act and fire, safety and other regulations
may require us to make unintended expenditures that adversely impact our ability
to pay distributions to our shareholders.
Under the Americans
with Disabilities Act of 1990, or ADA, all places of public accommodation are
required to meet certain federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. A
number of additional U.S. federal, state and local laws may also require
modifications to our properties or restrict certain further renovations of the
properties, with respect to access thereto by disabled persons.
Noncompliance with the ADA could result in the imposition of fines or an award
of damages to private litigants and an order to correct any non-complying
feature, which may require substantial capital expenditures. We have not
conducted an audit or investigation of all of our properties to determine our
compliance, and we cannot predict the ultimate cost of compliance with the ADA
or other legislation. If one or more of our properties is not in
compliance with the ADA or other legislation, then we would be required to incur
additional costs to bring the property into compliance.
In addition, our
properties are subject to various other federal, state and local regulatory
requirements, such as state and local fire and life safety requirements.
If we fail to comply with various requirements, we might incur governmental
fines or private damage awards. In addition, we do not know whether
existing requirements will change or whether future requirements will require us
to make significant unanticipated expenditures.
If we incur substantial costs to comply with
the ADA or any other legislative or regulatory requirements, our financial
condition, results of operations, cash flow, market price of our common stock
and our ability to satisfy our debt service obligations and to pay distributions
to our shareholders could be adversely affected.
Our
business could be harmed if key personnel terminate their employment with
us.
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.
Terrorist
attacks and other acts of violence or war may affect any market on which our
securities trade, the markets in which we operate, our operations and our
profitability.
Terrorist attacks
may negatively affect our operation and profitability. These attacks
or armed conflicts may directly impact the value of our properties through
damage, destruction, loss or increased security costs. The terrorism
insurance that we obtain may not be sufficient to cover loss for damages to our
properties as a result of terrorist attacks. In addition, certain
losses resulting from these types of events are uninsurable and others would not
be covered by our current terrorism insurance. Additional terrorism
insurance may not be available at a reasonable price or at all. If
the properties in which we invest are unable to obtain sufficient and affordable
insurance coverage, the value of these investments could decline, and in the
event of an uninsured loss, we could lose all or a portion of an
investment.
The United States may enter into armed conflicts in
the future. The consequences of any armed conflicts are
unpredictable, and we may not be able to foresee events that could have an
adverse effect on our business.
Any of these
events could result in increased volatility in or damage to the United States
and worldwide financial markets and economy. They also could result
in a continuation of the current economic uncertainty in the United States or
abroad. Adverse economic conditions could affect the ability of our
tenants to pay rent, which could have a material adverse effect on our operating
results and financial condition, as well as our ability to make distributions to
our security holders, and may adversely affect and/or result in volatility in
the market price for our securities.
If
we were to be taxed as a corporation rather than a partnership, we would
experience adverse tax consequences with respect to the income earned from our
Puerto Rico operations.
The
Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”),
provides that publicly traded partnerships such as 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 are otherwise 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. federal income tax purposes because our U.S. operations are
conducted through U.S. corporations that are subject to U.S. federal income
tax. However, our classification as a partnership does permit us to
reduce the overall taxes that the Company pays on the operations of our Puerto
Rican 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 able to qualify as a partnership for U.S.
federal income 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. In addition, if we
were not to qualify as a partnership for U.S. federal income tax purposes, any
foreign tax credits generated by our Puerto Rico operations would be used by us
and would no longer be passed through to our shareholders.
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 the shareholders. 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. However,
there is a proposed Treasury regulation that may affect the ability of our
shareholders to claim foreign tax credits attributable to their investment in us
under Section 901 of the Internal Revenue Code. On November 19, 2007,
IRS Notice 2007-95 provided a delay of the effective date of proposed amendments
to the foreign tax credit regulations. The regulations, with or
without changes, will be effective for tax years beginning after the final
regulations are published in the Federal Register.
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 a
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 Rican
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 Internal Revenue
Code. The amount of ordinary income attributable to “unrealized
receivables” related to stock in our Puerto Rican subsidiary will be determined
based on the amount of earnings and profits accumulated by our Puerto Rican
subsidiary. We will provide to each selling shareholder, at the time
we send the IRS Schedule K-1 materials, a table showing the earnings and profits
accumulated by our Puerto Rican 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 1099-B with respect to the sale transaction.
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 purchases and sales of our shares in separate
transactions.
The
Internal Revenue Service (“IRS”) has ruled that an investor who acquires
interests in an entity taxed as a partnership, such as 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
Internal Revenue 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 all of the shareholder’s shares were transferred in
a fully taxable transaction immediately before the actual
transfer. The Treasury 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 U.S. federal income tax purposes, but, according to
the Treasury 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 or her tax advisor as to the possible consequences of the
ruling and the application of these Treasury regulations.
We
would experience adverse tax consequences with respect to the income earned from
our Puerto Rico operations if the IRS successfully asserts that the
“anti-stapling” rules apply to our investments in IGP Group and our U.S.
corporate subsidiaries.
If we were subject to the “anti-stapling” rules of Section 269B of the Internal
Revenue Code, we would experience adverse tax consequences as a result of owning
more than 50% of the value of both a domestic corporate subsidiary and a foreign
corporate subsidiary, such as IGP Group. If the “anti-stapling” rules
applied, IGP Group would be treated as a domestic corporation, which would cause
IGP Group to be subject to U.S. federal income tax. 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. In addition, if the anti-stapling rules applied, we
would no longer have foreign tax credits attributable to our Puerto Rico
operations to pass through to our shareholders.
None
ACPT owns real property
located in the United States and Puerto Rico. As of December 31,
2008, 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 of
this Annual Report on Form 10-K for additional information.
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 the trial court’s decision and
Integrand was 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. The trial began in 2007 and continued throughout
2008. A judgment is expected to be entered near the end of
2009.
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.
Arlena Chanye et al. vs.
American Rental Management Company Case No.s
RH-TP-06-28366/RH-TP-06-28577. In 2006, a group of approximately 60
tenants of Capital Park Towers Apartments (“Capital Park”) a property managed,
but not owned by ARMC and located at 301 G Street, S.W., Washington, D.C. filed
a tenant petition with the Rent Administrator for the District of Columbia
challenging increases in rent implemented with respect to said tenants units
during the previous three year period (“Initial Case”). Following the
initial petition, a group of 60 additional tenants filed a similar petition in
May of 2008. While the Company has numerous defenses to the claims
asserted in both cases, at this time management believes that potential exposure
to damages in these cases is probable and estimates the loss at approximately
$230,000. Generally, these types of losses are covered by our
insurance policies. However, the Company has recently been informed
that our insurance carrier intends to deny these claims. We intend to
vigorously defend against the claims asserted and will continue to pursue
coverage under our insurance policies. Given the current
circumstances, the Company accrued $230,000 in the third quarter 2008 related to
the potential losses. However, absent a settlement of the case, it
will likely take a number of years before the case is concluded and a final
determination rendered. The Company's Chairman has an economic
interest in the property related to a note receivable from Capital
Park.
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.
No matters were
submitted to a vote of the shareholders during the fourth quarter of the fiscal
year ended December 31, 2008.
The executive officers of
the Company are as follows:
Name
|
Age
|
Position
|
|
|
|
J.
Michael Wilson
|
43
|
Chairman
|
Stephen
K. Griessel
|
49
|
Chief
Executive Officer
|
Matthew
M. Martin
|
33
|
Chief
Financial Officer and Secretary
|
Eduardo
Cruz Ocasio
|
62
|
Senior
Vice President and Assistant Secretary
|
Jorge
Garcia Massuet
|
70
|
Vice
President
|
Harry
Chalstrom
|
48
|
Vice
President
|
Mark
L. MacFarland
|
39
|
Vice
President
|
Rafael
Velez
|
52
|
Vice
President
|
Messrs. Wilson and Griessel are also members of our Board of
Trustees. Brief biographies of Messrs. Wilson and Griessel are
incorporated by reference to the Company’s Proxy Statement to be filed with the
SEC for its Annual Shareholder’s Meeting to be held in June
2009. Biographical information for our other executive officers is as
follows:
Matthew M. Martin was appointed Chief Financial Officer of the Company effective
October 1, 2008. Mr. Martin has been employed with the Company since
2005 as Chief Accounting Officer, and has been serving as the Company’s
Principal Financial Officer since August 2008. Prior to joining the
Company, he worked for FTI Consulting serving as a Manager in the Forensic and
Litigation Consulting practice from 2002 to 2005. Prior to joining
FTI Consulting, he managed audits for Arthur Andersen. Mr. Martin is
a Certified Public Accountant in the State of Maryland and is a Certified Fraud
Examiner.
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.
Jorge Garcia Massuet was
appointed Vice President of the Company in June 2002. Mr. Massuet has
been Vice President of IGP since January 1999. Mr. Masuet 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
The
principal market for our Company’s common shares is the NYSE Amex (formerly the
American Stock Exchange), where the Company’s common shares are listed under the
symbol "APO”. As of the close of business on March 3, 2009, there
were 129 shareholders of record of ACPT’s common shares. On March 3, 2009
the closing price reported by the NYSE Amex was $3.50.
The
table below sets forth, for the periods indicated, the high and low closing
prices of the Company’s shares as reported on the NYSE Amex, and the dividends
declared per common share for such calendar quarter.
|
|
|
|
Price
Range of ACPT Shares
|
|
Dividends
|
|
|
|
|
High
|
|
Low
|
|
Declared
|
|
|
|
|
|
|
|
|
|
2008
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fourth
|
|
$ 10.20
|
|
$ 3.10
|
|
$ 0.10
|
|
|
Third
|
|
14.25
|
|
10.20
|
|
-
|
|
|
Second
|
|
19.01
|
|
13.45
|
|
-
|
|
|
First
|
|
20.00
|
|
14.50
|
|
-
|
|
|
|
|
|
|
|
|
|
2007
|
|
Quarter
|
|
|
|
|
|
|
|
|
Fourth
|
|
$ 25.75
|
|
$ 17.50
|
|
$ -
|
|
|
Third
|
|
27.59
|
|
19.22
|
|
0.10
|
|
|
Second
|
|
20.33
|
|
18.58
|
|
0.10
|
|
|
First
|
|
19.47
|
|
17.64
|
|
0.10
|
Minimum
annual distributions
Under the terms of the Declaration of Trust of ACPT, the Board of Trustees is
required to 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
requirements.
Unregistered
equity securities
The Company has not sold any
unregistered equity securities or purchased any of its registered equity
securities during the twelve months ended December 31,
2008.
The following table sets forth selected consolidated financial and operating
data of the Company as of and for each of the five years ended December 31,
2008. 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,
|
|
|
|
2008
|
|
|
2007
(1)
|
|
|
2006
(2)
|
|
|
2005
|
|
|
2004
|
|
|
|
(In
thousands, except per share and operating data)
|
|
Income
Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenues
|
|
$ |
82,914 |
|
|
$ |
85,376 |
|
|
$ |
98,163 |
|
|
$ |
62,313 |
|
|
$ |
49,011 |
|
Total
operating expenses
|
|
|
75,558 |
|
|
|
69,294 |
|
|
|
73,168 |
|
|
|
51,207 |
|
|
|
40,932 |
|
Operating
income
|
|
|
7,356 |
|
|
|
16,082 |
|
|
|
24,995 |
|
|
|
11,106 |
|
|
|
8,079 |
|
(Loss)
income before provision (benefit) for income taxes
|
|
|
(10,503 |
) |
|
|
(848 |
) |
|
|
7,485 |
|
|
|
6,855 |
|
|
|
4,331 |
|
Income
tax provision (benefit)
|
|
|
853 |
|
|
|
(307 |
) |
|
|
2,894 |
|
|
|
(690 |
) |
|
|
1,500 |
|
Net
(loss) income
|
|
|
(11,356 |
) |
|
|
(541 |
) |
|
|
4,591 |
|
|
|
7,545 |
|
|
|
2,831 |
|
Earnings
(loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(2.18 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.88 |
|
|
$ |
1.45 |
|
|
$ |
0.55 |
|
Diluted
|
|
$ |
(2.18 |
) |
|
$ |
(0.10 |
) |
|
$ |
0.88 |
|
|
$ |
1.45 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
355,193 |
|
|
$ |
360,724 |
|
|
$ |
346,699 |
|
|
$ |
217,085 |
|
|
$ |
184,027 |
|
Recourse
debt
|
|
|
39,416 |
|
|
|
25,589 |
|
|
|
29,351 |
|
|
|
32,818 |
|
|
|
27,192 |
|
Non-recourse
debt
|
|
|
276,120 |
|
|
|
279,981 |
|
|
|
270,720 |
|
|
|
119,865 |
|
|
|
98,879 |
|
Other
liabilities
|
|
|
38,316 |
|
|
|
42,708 |
|
|
|
30,774 |
|
|
|
29,912 |
|
|
|
29,065 |
|
Total
liabilities
|
|
|
353,852 |
|
|
|
348,278 |
|
|
|
330,845 |
|
|
|
182,595 |
|
|
|
155,136 |
|
Shareholders'
equity
|
|
|
1,341 |
|
|
|
12,446 |
|
|
|
15,854 |
|
|
|
34,490 |
|
|
|
28,891 |
|
Cash
dividends declared and paid per common share
|
|
$ |
0.10 |
|
|
$ |
0.30 |
|
|
$ |
0.83 |
|
|
$ |
0.40 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
apartment units managed at end of period
|
|
|
7,225 |
|
|
|
7,225 |
|
|
|
7,693 |
|
|
|
7,491 |
|
|
|
7,406 |
|
Residential
lots sold
|
|
|
119 |
|
|
|
78 |
|
|
|
135 |
|
|
|
94 |
|
|
|
70 |
|
Residential
lots transferred to homebuilding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
Residential
lots transferred to joint venture
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
352 |
|
Joint
venture lots delivered
|
|
|
- |
|
|
|
48 |
|
|
|
61 |
|
|
|
25 |
|
|
|
- |
|
Residential
lots transferred to investment property division
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
252 |
|
|
|
- |
|
Commercial
and business park acres sold
|
|
|
4 |
|
|
|
12 |
|
|
|
15 |
|
|
|
11 |
|
|
|
3 |
|
Homes
sold
|
|
|
15 |
|
|
|
29 |
|
|
|
78 |
|
|
|
32 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income (3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operating Real Estate segment
|
|
|
21,326 |
|
|
|
19,181 |
|
|
|
16,433 |
|
|
|
11,766 |
|
|
|
10,478 |
|
Puerto
Rico Operating Real Estate segment (5)
|
|
|
11,216 |
|
|
|
10,873 |
|
|
|
10,561 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operating Real Estate segment
|
|
|
6,757 |
|
|
|
7,588 |
|
|
|
7,147 |
|
|
|
6,420 |
|
|
|
4,451 |
|
Puerto
Rico Operating Real Estate segment (5)
|
|
|
2,335 |
|
|
|
1,940 |
|
|
|
1,199 |
|
|
|
- |
|
|
|
- |
|
U.S.
Operating Real Estate Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
675 |
|
|
$ |
1,996 |
|
|
$ |
2,538 |
|
|
$ |
2,593 |
|
|
$ |
1,239 |
|
Depreciation
|
|
|
6,082 |
|
|
|
5,592 |
|
|
|
4,609 |
|
|
|
3,827 |
|
|
|
3,212 |
|
FFO
|
|
$ |
6,757 |
|
|
$ |
7,588 |
|
|
$ |
7,147 |
|
|
$ |
6,420 |
|
|
$ |
4,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto
Rico Operating Real Estate Segment (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,434 |
) |
|
$ |
(254 |
) |
|
$ |
(2,416 |
) |
|
|
- |
|
|
|
- |
|
Depreciation and
unconsolidated partnership adjustment
|
|
|
3,769 |
|
|
|
2,194 |
|
|
|
3,615 |
|
|
|
- |
|
|
|
- |
|
FFO
|
|
$ |
2,335 |
|
|
$ |
1,940 |
|
|
$ |
1,199 |
|
|
|
- |
|
|
|
- |
|
(1)
|
The
financial statements as of and for the year ended December 31, 2007
reflect the adoption of Financial Accounting Standards Board
Interpretation No. 48 “Account for Uncertainty in Income Taxes” (“FIN 48”)
on January 1, 2007 (Refer to Note 3 and 11 of our Consolidated
Financial Statements contained in Item 8 of this Annual Report on Form
10-K).
|
(2)
|
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 3 of our Consolidated Financial Statements in Item
8 of this Annual Report on Form 10-K
).
|
(3)
|
Net
Operating Income (“NOI”), defined as real estate rental revenue less real
estate operating expenses, is the primary performance measure we use to
assess the results of our operations. When considered with the
financial statements prepared in accordance with principles of accounting
generally accepted in the United States (“GAAP”), it is helpful to
investors in understanding our performance because it captures the
performance of our real estate operations in a measure that is comparable
with other entities that have different capitalization. We
provide NOI as a supplement to operating income and net income calculated
in accordance with GAAP. NOI does not represent operating
income or net income calculated in accordance with GAAP. As
such, it should not be considered an alternative to operating income or
net income as an indication of our operating performance. See “Results of Operations” for the U.S. and
Puerto Rican Real Estate Operating segments for a reconciliation of NOI to
operating income.
|
(4)
|
FFO
is a non-GAAP financial measure that we believe, when considered with the
financial statements prepared in accordance with GAAP, is helpful to
investors in understanding our performance because it captures features
particular to real estate performance by recognizing that real estate
generally appreciates over time or maintains residual value to a much
greater extent than do other depreciable assets such as machinery,
computers or other personal property. We compute FFO in
accordance with the Board of Governors of the National Association of Real
Estate Investment Trusts, or NAREIT, which defines FFO as net income
(loss), computed in accordance with GAAP, excluding gains (or losses) from
sales of depreciable property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint
ventures.
|
(5)
|
Puerto
Rico rental property operations were unconsolidated for the years ended
December 31, 2004 and 2005.
|
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing in Item 8 of this Annual Report
on Form 10-K.
GENERAL
ACPT is a
self managed holding company that is primarily engaged in the business of
investing in and managing multifamily rental properties as well as community
development and homebuilding through its consolidated
subsidiaries. In 2008, ACPT operated in two principal lines of
business, Operating Real Estate and Land Development, and conducted its
operations in both the United States and Puerto Rico.
U.S.
Operating Real Estate
Our U.S. Operating Real Estate
business is managed through American Rental Properties Trust ("ARPT") and
American Rental Management Company ("ARMC"). ARPT holds the general
and limited partnership interests in our single-purpose entities that own the
U.S. Apartment Properties. ARPT's ownership in these entities ranges
from 0.1% to 100%. Our U.S. Operations also include the management of
apartment properties in which we have an ownership interest and one third-party
owned apartment property. Effective March 1, 2009,
ARMC will no longer manage the third-party owned apartment
property.
Puerto
Rican Operating Real Estate
Our Puerto
Rican Operating Real Estate business is conducted through Interstate General
Properties Limited Partnership S.E. ("IGP"). IGP owns interests in
the Puerto Rico Apartment Properties and two commercial properties and provides
property management services to the Puerto Rico Apartment Properties, apartment
properties owned by third parties, our Puerto Rican commercial properties, and
home-owner associations related to our Puerto Rican planned
communities. IGP also provides management services for our Puerto
Rican homebuilding and community development operations. The Puerto Rico
Apartment Properties 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%.
U.S.
Land Development
Our U.S.
Land Development operations are managed through American Land Development, Inc.
("ALD"). ALD owns and develops our land holdings in St. Charles,
Maryland, which consists of a 9,000 acre planned community consisting of
residential, commercial, recreational and open space land. ALD also had a
50% interest in a land development joint venture formed to develop land for an
active adult community in St. Charles, Maryland, until we sold our interest in
the venture in November 2008. In October 2008, the Company entered
into an agreement with Surrey Homes, LLC (“Surrey Homes”) to contribute
$2,000,000 over the next year in exchange for a 50% ownership interest in Surrey
Homes.
Puerto
Rican Land Development
Our
Puerto Rican Land Development operations are conducted through Land Development
Associates, S.E. (“LDA”). LDA holds our community development assets
in Puerto Rico, which consists of two planned communities. The first
planned community, Parque Escorial, is currently under development and consists
of residential, commercial and recreational land similar to our U.S. land
development operations but on a smaller scale. Our second planned
community, Parque El Commandante, is currently in the planning
stages. Our homebuilding operation builds condominiums for sale on
land located in its planned communities. LDA retained a limited
partner interest in two commercial buildings in Parque Escorial opened in 2001
and 2005, which were built on land contributed by LDA.
ACPT is
taxed as a U.S. partnership and its 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 federal tax regulation has been proposed that could
eliminate the ability to pass through these foreign tax credits to ACPT’s
shareholders. Comments on the proposed regulation are currently being
evaluated with the final regulation effective for tax years beginning after the
final regulation is ultimately published in the Federal
Register. ACPT’s income consists of (i) certain passive income
from IGP Group, a controlled foreign corporation, (ii) distributions from IGP
Group and (iii) dividends from ACPT’s U.S. subsidiaries. Other than
Interstate Commercial Properties (“ICP”), which is taxed as a Puerto Rico
corporation, the income from the remaining Puerto Rico operating entities passes
through to IGP Group or ALD. Of this income, only the portion
attributable 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.
EXECUTIVE
SUMMARY OF 2008 RESULTS
Consolidated
operating revenues are derived primarily from rental revenue, community
development land sales and home sales.
For the
year ended December 31, 2008, our consolidated rental revenues increased
$1,521,000, or 2%, to $62,243,000 as compared to $60,722,000 for the year ended
December 31, 2007. The increase was primarily attributable to overall
rent increases at comparable properties in both the United States and Puerto
Rico. ACPT’s consolidated net operating income (“NOI”), defined as
real estate rental revenue less real estate operating expenses, increased
$2,486,000, or 8%, to $32,564,000 during the year ended December 31, 2008 as
compared to $30,078,000 year ended December 31, 2007. This represents
ACPT’s annual rent increase of 3% and the impact of our costs saving initiatives
in 2008.
Community
development land sales for the year ended December 31, 2008 increased $240,000,
or 1%, to $14,726,000 as compared to $14,486,000 for the year ended December 31,
2007. Land sales, currently sourced from the U.S. Land Development
segment, result in large part from a sales agreement with Lennar Corporation
(“Lennar”) which purchased 119 lots during 2008 as compared to 78 during
2007. In November, 2008, the Company amended its agreement with
Lennar modifying the minimum number of lots that Lennar is required to take down
annually to 100 lots and increasing the minimum purchase price for such lots
between November 2008 and December 31, 2011 from 22.5% to 25% of the selling
price of the home constructed and sold to the homebuyer, subject to certain
minimum pricing. In addition, on November 19, 2008, the Company sold
its 50% interest in St. Charles Active Adult Community, LLC to Lennar
recognizing $2,792,000 as revenue related to previously deferred
items. Commercial land sales in 2008 comprised 3.7 commercial acres
in St. Charles, Maryland for $1,900,000. The Company sold two
previously developed lots within Henry Ford Circle, totaling approximately two
acres for $363,000 and one parcel within the O’Donnell Lake Restaurant Park, our
latest commercial development project located near the St. Charles Towne Center,
for 1.7 acres for $1,625,000.
Home
sales for year ended December 31, 2008 decreased $3,850,000, or 51%, to
$3,730,000 as compared to $7,580,000 for the year ended December 31,
2007. Home sales, currently sourced from the Puerto Rican Land
Development segment, are impacted by the local real estate
market. The Puerto Rico real estate market has slowed
substantially. The Company closed 15 units during 2008 (only three
during the last six months) as compared to 29 units closed during
2007. As of December 31, 2008, six completed units remain within
inventory. The Company intends to offer incentives to homebuyers
along with the federal incentives offered to first time homebuyers in order to
sell the remaining six units, three of which are penthouse units.
ACPT recognized
an impairment charge of $7,456,000 in the fourth quarter of 2008 related to
the land holdings in Puerto Rico and five Baltimore properties. In Puerto Rico, the
Company determined that construction of a $350,000 product for the Hilltop
project is no longer prudent and believes that construction finance could not be
obtained at that level. The Company is now anticipating
construction of a product similar to Torres. Due to increased cost of
construction, decline in sales prices and the per unit land basis, the Company
noted that the expected total costs of the project exceeded the expected sales
proceeds. The Company has recorded an impairment of $6,200,000 in the
fourth quarter of 2008 based on an assessment of expected discounted cash flows
assuming that the Company will build and sell condominium units on the parcel
similar to those built at Torres. The carrying value of the land
holdings was $6,100,000 as of December 31, 2008. During the first quarter of 2009, the
Company executed purchase agreements for the sale of three of the five U.S.
Apartment Properties in Baltimore, Maryland for $29,200,000. The Company
has received non-binding offers of $6,598,000 and is negotiating agreements for
the two remaining properties. Based on those offers, the
Company has recorded an impairment charge of $1,256,000 during the
fourth quarter of 2008 to reduce the carrying value of the properties to their
estimated fair market value less costs to sell as of December 31, 2008 of
$35,400,000.
The
Company pools its overhead costs, including accounting, human resources, office
management, technology and executive office costs, and allocates those costs to
its segments based on percentages of management’s allocated
time. During 2008, the Company incurred $4,691,000 of severance and
salary expenses for employees who are no longer with the
Company. Included in this amount was: $2,100,000 in severance
payments to the Company’s former Chief Operating Officer and Chief Financial
Officer based on stipulations in their employment agreements; $805,000 in
severance payments in the fourth quarter as we initiated an organizational
restructuring to reduce overhead costs and reduce future cash outflows; and
$360,000 in accrued consulting fees to former Company executives in
2008. In addition, the Company recorded equity compensation
expense in the fourth quarter of $562,000 to capture the impact of an
agreement between a primary shareholder of the Company and the Company's Chief
Executive Officer ("CEO") to provide the CEO with the economic benefit of
185,550 shares of their common stock as of October 1, 2008. The
Company has also focused on non-labor cost-cutting efforts over the past
year in advertising, office expenses, and travel costs and has
budgeted to maintain or reduce costs throughout the Company in the year to
come. General, administrative, selling and marketing costs
company-wide increased $3,636,000, or 34%, to $14,483,000 as compared to
$10,847,000 for the year ended December 31, 2007.
On a
consolidated basis, the Company reported a net loss of $11,356,000 for the year
ended December 31, 2008. The net loss included a provision for
income taxes of $853,000, resulting in a consolidated effective tax rate of
approximately (8.1%). The consolidated effective rate was impacted by
the losses for which no benefit can be recognized, tax rate differences between
jurisdictions, a valuation allowance on the net deferred tax asset,
non-deductible equity compensation, and by accrued penalties. For
further discussion of these items, see “Results of Operations-Provisions for
Income Taxes.”
NEW
ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF PRESENTATION
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and
in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” 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. The Company adopted
SFAS 157 on January 1, 2008, and it did not have a material
impact. SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The fair value
election is designed to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. The Company did not adopt any fair value
election upon adoption.
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 and represent Level 1 assets under the fair value hierarchy in SFAS
No. 157
We
measure long term debt at fair value on a recurring basis. As of
December 31, 2008, the book value of long-term fixed rate debt was
$294,721,000, and the fair value of total debt was $343,076,000. As
of December 31, 2007 the book value of long-term fixed rate debt was
$296,735,000, and the fair value of total debt was $311,988,000. Fair
value was determined by discounting future cash flows using borrowing rates
currently available to the Company for debt with similar terms and
maturities. This represents Level 3 liabilities under the fair
value hierarchy in SFAS No. 157.
On
December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 replaces the concept of minority interest with
noncontrolling interests in subsidiaries. Noncontrolling interests
will now be reported as a component of equity in the consolidated statement of
financial position. Earnings attributable to noncontrolling interests
will continue to be reported as a part of consolidated earnings; however, SFAS
160 requires that income attributable to both controlling and noncontrolling
interests be presented separately on the face of the consolidated income
statement. In addition, SFAS 160 provides that when losses
attributable to noncontrolling interests exceed the noncontrolling interest’s
basis, losses continue to be attributed to the noncontrolling interest as
opposed to being absorbed by the consolidating entity. SFAS 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS 160 shall
be applied prospectively. SFAS 160 is effective for the first annual
reporting period beginning on or after December 15, 2008. This
statement is effective for us on January 1, 2009. Early adoption
is prohibited. As of January 1, 2009, the Company will reclassify
$882,000 from Minority Interest (currently shown in liabilities) to a new line
item, Noncontrolling Interests, to be included in shareholders’
equity. In addition, $13,687,000 of Minority Interest, which is
currently included in Retained Earnings as it represents distributions and
losses in excess of basis, will also be reclassified to the Noncontrolling
Interests line item.
On December
4, 2007, the FASB issued Statement No. 141R, “Business Combinations” (“SFAS
141R”). This statement changes the accounting for acquisitions
specifically eliminating the step acquisition model, changing the recognition of
contingent consideration from being recognized when it is probable to being
recognized at the time of acquisition, disallowing the capitalization of
transaction costs and delays when restructurings related to acquisitions can be
recognized. The standard is effective for fiscal years ending after
December 15, 2008 and will only impact the accounting for acquisitions we
make after its adoption. We expect SFAS 141R will have an impact on our
accounting for future business combinations once adopted, but the effect is
dependent upon the acquisitions that are made in the future
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
GAAP in the United States 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 using the relative sales value method which rely on
estimated costs and sales values. The costs of 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 for these condominiums 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 certain U.S. Apartment Properties; a limited
partnership interest in a limited partnership that owns a commercial property in
Puerto Rico; a 50% ownership interest in a joint venture formed as a limited
liability company which was sold on November 19, 2008; and effective October 28,
2008, a 50% ownership interest in Surrey Homes.
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 charge 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.
ACPT recognized
an impairment charge of $7,456,000 in the fourth quarter of 2008 related to the
land holdings in Puerto Rico and five Baltimore properties. Condominium pricing in
Puerto Rico has declined similar to those in the United
States. However, construction pricing has not declined in a similar
manner as we are experiencing in the United States. The Company has
considered the Hilltop project in Parque Escorial to be the premier parcel in
the portfolio due to the views of the island that will be enjoyed by future
residents. Accordingly, the Company had previously intended to build
condominiums with expected selling prices ranging from $350,000 to
$400,000. However, sales of condominiums in excess of $350,000 are
not occurring in the areas immediately surrounding Parque
Escorial. The Company believes that construction of a $350,000
product is no longer prudent and believes that construction financing could not
be obtained at that level. The Company is now anticipating
construction of a product similar to Torres. Due to increased cost of
construction, decline in sales prices and the per unit land basis, the Company
noted that the expected total costs of the project outweighed the expected sales
proceeds. The Company has recorded an impairment of $6,200,000 in the
fourth quarter of 2008 based on an assessment of discounted cash flows assuming
that the Company will build and sell condominium units on the parcel similar to
those build at Torres.
During
the first quarter of 2009, the Company executed purchase agreements for the sale
of three of the five U.S. Apartment Properties in Baltimore, Maryland for
$29,200,000. The Company has received non-binding offers of $6,598,000 and
is negotiating agreements for the remaining two properties. The primary
factor driving the decision to sell was the strategic disposition of
underperforming assets. Without any letters of intent or definitive
agreements to purchase the properties as of December 31, 2008, the properties
were considered “held for use” as of December 31, 2008. Since
estimated net sales proceeds are now known, the Company has recorded an
impairment charge of $1,256,000 to reduce the carrying value of the properties
to their estimated fair market value less costs to sell as of December 31, 2008
of $35,400,000.
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 charge 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 had
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; and
● 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.
The
Company provides for income taxes using the asset and liability method based on
the requirements of SFAS No. 109 (“SFAS 109”), “Accounting for Income
Taxes,” which includes an estimate of the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company’s financial
statements or tax returns. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. The Company periodically assesses future realization of deferred tax
assets and the adequacy of deferred tax liabilities, including the results of
local, state, federal or foreign statutory tax audits or estimates and judgments
used.
Realization
of deferred tax assets associated with net operating loss ("NOL") and tax credit
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration in the applicable tax jurisdiction. Periodically, not less than
annually, the Company reviews the recoverability of tax assets
recorded on the balance sheet and the necessity of providing valuation
allowances, to reduce deferred tax assets to the amount that more likely than
not will be realized. Deferred tax assets are reduced if certain
subsidiary cumulative operating losses exist, estimates of taxable income during
the carryforward period do not exist or are significantly reduced or alternative
tax strategies are not viable.
Effective
December 31, 2006, the Company adopted FIN 48, Accounting for Uncertainty
in Income Taxes – an interpretation of SFAS 109. FIN 48 provides guidance
for the recognition threshold and measurement attribute for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. In accordance with FIN 48, the Company recognized a
cumulative-effect adjustment of $1,458,000, increasing the Company’s liability
for uncertain tax positions, interest, and penalties, and reducing the
December 31, 2006 balance of retained earnings. See Note 11 to the
Company’s consolidated financial statements in Item 8 of this Annual Report on
Form 10-K for more information on income taxes.
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 the two years ended December 31, 2008 and
2007. 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 in Item 8 of this Annual Report on Form 10-K.
For the
year ended December 31, 2008, our Operating Real Estate line of business
generated $32,542,000 of net operating income compared to $30,054,000 of net
operating income generated by that line of business for the same period in
2007. Additional information and analysis of the U.S. Operating Real
Estate and Puerto Rican Operating Real Estate operations can be found in the
tables below.
U.S.
Operating Real Estate Operations
|
For
the years ended |
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
39,515 |
|
|
$ |
38,416 |
|
Operating expenses
|
|
|
18,189 |
|
|
|
19,235 |
|
Net
operating income
|
|
|
21,326 |
|
|
|
19,181 |
|
Management and other fees, substantially all from related
entities
|
|
|
157 |
|
|
|
194 |
|
General,
administrative, selling and marketing
|
|
|
(1,441 |
) |
|
|
(2,252 |
) |
Impairment
charges
|
|
|
(1,256 |
) |
|
|
- |
|
Depreciation
and amortization
|
|
|
(6,082 |
) |
|
|
(5,592 |
) |
Operating
income
|
|
|
12,704 |
|
|
|
11,531 |
|
Other
expenses
|
|
|
(10,405 |
) |
|
|
(9,998 |
) |
Income
before benefit for income taxes
|
|
|
2,299 |
|
|
|
1,533 |
|
Provision
(benefit) for income taxes
|
|
|
1,624 |
|
|
|
(463 |
) |
Net income
|
|
$ |
675 |
|
|
$ |
1,996 |
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,082 |
|
|
|
5,592 |
|
FFO
|
|
$ |
6,757 |
|
|
$ |
7,588 |
|
Net
Operating Income
Net
Operating Income (“NOI”), defined as real estate rental revenue less real estate
operating expenses, is the primary performance measure we use to assess the
results of our operations. We provide NOI as a supplement to net income
calculated in accordance with GAAP. NOI does not represent net income calculated
in accordance with GAAP. As such, it should not be considered an
alternative to net income as an indication of our operating performance.
NOI is calculated as net income, less non-real estate (“other”) revenue and the
results of discontinued operations (including the gain on sale, if any), plus
interest expense, depreciation and amortization and general and administrative
expenses.
NOI
increased $2,145,000, or 11%, to $21,326,000 during the year ended December 31,
2008 as compared to $19,181,000 for the year ended December 31,
2007. As described below, the increase in NOI is due to annual rent
increases and a full year of rental revenues at Sheffield Greens Apartments in
addition to an overall decrease in rental property operating expenses due to
management’s cost saving initiatives.
Rental
Property Revenues and Operating Expenses
For the
year ended December 31, 2008, rental property revenues increased
$1,100,000, or 3%, to $39,515,000 compared to $38,416,000 for the same
period in 2007. The increase in rental revenues was primarily the
result of a full year of rental revenues for Sheffield Greens Apartments
(“Sheffield Greens”), which accounted for approximately $654,000 of the increase
as the property was completed in the middle of 2007. The increase was
also attributable to an overall 2% increase in rents between periods with
vacancies remaining consistent at 4% for both years.
Rental
property operating expenses decreased $1,046,000, or 5%, for the year ended
December 31, 2008 to $18,189,000 compared to $19,235,000 for the same period of
2007. The overall decrease in rental property operating expenses was
primarily the result of management’s cost saving initiatives with significant
decreases in spending on advertising, repairs and maintenance, office
expenses, snow removal, and rehabilitation of apartment properties. A
portion of the decrease was due to the completion of the leasing efforts at
Sheffield Greens. In 2007, the Company incurred $484,000 on
advertising and rental concessions compared to $150,000 in 2008 in order to
increase occupancy. In addition, the Company saw a decline in real
estate taxes and insurance costs. The cost savings were partially
offset by a full year of operating expenses at Sheffield Greens of approximately
$280,000.
Management and Other
Fees
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. Management fees generated by each of the properties accounted
for less than 1% of the Company’s total revenue. This section includes
only the fees earned from the non-consolidated properties as the fees earned
from the consolidated properties are eliminated in consolidation. For
the year ended December 31, 2008, the Company recognized $157,000 in management
and other fees compared to $194,000 for the same period in 2007.
General,
Administrative, Selling and Marketing Expenses
The
primary component of the general, administrative, selling and marketing expenses
is the corporate overhead allocation. General, administrative,
selling and marketing expenses decreased $811,000, or 36%, to $1,441,000 during
the year ended December 31, 2008, as compared to $2,252,000 for the same period
in 2007. The decrease was due to a decrease in the corporate allocation
percentage to 55% in 2008 from 63% in 2007. See “Results of
Operations – Corporate.”
Our
unconsolidated and managed-only apartment properties reimburse the Company for
certain corporate overhead costs 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.
Impairment
Charges
In 2008,
ACPT recognized an impairment charge of $1,256,000 related to the re-valuation
of the five Baltimore properties. During the first
quarter of 2009, the Company executed purchase agreements for the sale of three
of the five U.S. Apartment Properties in Baltimore, Maryland for
$29,200,000. The Company has received non-binding offers of
$6,598,000 and is negotiating agreements for the two remaining
properties. Based on those offers, the Company has recorded an
impairment charge during the fourth quarter of 2008 to reduce the carrying value
of the properties to their estimated fair market value less costs to sell as of
December 31, 2008 of $35,400,000. There were no impairment charges
for the year ended December 31, 2007.
Interest Expense
For 2008
and 2007, interest expense primarily consisted of interest incurred on the
non-recourse debt from our investment properties. Interest expense
decreased $361,000, or 2%, to $13,078,000 for the year ended December 31,
2008, as compared to $13,439,000 for the same period
in 2007. The decrease in interest expense resulted from routine
amortization of our loans.
Minority
Interest in Consolidated Entities
Minority
interest in consolidated entities includes the total minority partners’ share of
the consolidated partnership’s 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 the minority partner’s 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. Beginning on January 1, 2009, we no longer
are required to absorb distributions and losses in excess of basis.
Minority
interest expense increased $106,000, or 45%, to $461,000 for the year ended
December 31, 2008 compared to $335,000 for the same period in 2007. The
increase is due to an increase in surplus cash distributions to limited partners
between periods.
Funds
from Operations
FFO is a
non-GAAP financial measure that we believe, when considered with the financial
statements prepared in accordance with GAAP, is helpful to investors in
understanding our performance because it captures features particular to real
estate performance by recognizing that real estate generally appreciates over
time or maintains residual value to a much greater extent than do other
depreciable assets such as machinery, computers or other personal
property. FFO is defined as net income (loss), computed in accordance with
GAAP, excluding gains (or losses) from sales of depreciable property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
FFO
decreased $831,000, or 11%, to $6,757,000 for the year ended December 31, 2008
compared to $7,588,000 for the same period in 2007. The decrease was
driven by the impact of the impairment charges and the increase in the provision
for taxes due to the valuation allowance against the net deferred tax asset
offset by a full twelve months of operations of Sheffield Greens
apartments.
Puerto
Rican Operating Real Estate Operations
|
For
the years ended |
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
22,728 |
|
|
$ |
22,306 |
|
Operating expenses
|
|
|
11,512 |
|
|
|
11,433 |
|
Net
operating income
|
|
|
11,216 |
|
|
|
10,873 |
|
Management
and other fees, substantially all from related entities
|
|
|
624 |
|
|
|
635 |
|
General,
administrative, selling and marketing
|
|
|
(3,631 |
) |
|
|
(3,159 |
) |
Depreciation
and amortization
|
|
|
(3,769 |
) |
|
|
(3,694 |
) |
Operating
income
|
|
|
4,440 |
|
|
|
4,655 |
|
Other
expenses
|
|
|
(5,837 |
) |
|
|
(4,536 |
) |
(Loss)
income before benefit for income taxes
|
|
|
(1,397 |
) |
|
|
119 |
|
Provision
for income taxes
|
|
|
37 |
|
|
|
373 |
|
Net
loss
|
|
$ |
(1,434 |
) |
|
$ |
(254 |
) |
|
|
|
|
|
|
|
|
|
Depreciation
and unconsolidated entity adjustment
|
|
|
3,769 |
|
|
|
2,194 |
|
FFO
|
|
$ |
2,335 |
|
|
$ |
1,940 |
|
Net
Operating Income
NOI
increased $343,000, or 3%, to $11,216,000 during the year ended December 31,
2008 as compared to $10,873,000 for the year ended December 31,
2007. NOI increased due to annual rent increases offset by increases
in operating expenses due to the effect of inflation.
Rental
Property Revenues and Operating Expenses
Rental
property revenues increased $422,000, or 1%, to $22,728,000 for the year ended
December 31, 2008 compared to $22,306,000 for the same period of
2007. The increase in our rental property revenues was primarily the
result of an overall rent increase of 3% from HUD on our multifamily apartment
properties partially offset by a 9% decrease in rental revenues from our
commercial rental property, EOB, as a result of decreased
occupancy.
Rental
property operating expenses increased $80,000, or 1%, to $11,512,000 for the
year ended December 31, 2008 compared to $11,432,000 for the same period of
2007. The increase was the result of the effect of inflation at our
multifamily apartment properties operating expenses. The increase was
offset in part by a $32,000 decrease in operating expenses for our commercial
rental property, EOB as a result of the decreased occupancy.
General,
Administrative, Selling and Marketing Expenses
The
primary component of general, administrative, selling and marketing expenses is
the corporate overhead allocation. General, administrative, selling
and marketing expenses increased $472,000, or 15%, to $3,631,000 during the year
ended December 31, 2008, as compared to $3,159,000 for the same period in
2007. The increase was primarily due to an increase in overall corporate
overhead expenses and an increase in the corporate allocation percentage to 70%
in 2008 from 64% in 2007. See “Results in Operations –
Corporate.”
The
apartment properties reimburse IGP for certain costs, including accounting,
human resources, office management and technology, 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 considered
general, administrative, selling, and marketing expenses but rather, 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, in 2007, rent expense and
parking expenses are eliminated in consolidation.
Interest
Expense
For the
year ended December 31, 2008, interest expense decreased $508,000, or 7%, to
$6,088,000 as compared to $6,596,000 for the same period in 2007. The
decrease in interest expense resulted from routine amortization of our
loans.
Equity
in Earnings from Unconsolidated Entities
Equity in
earnings from unconsolidated entities decreased $1,500,000, or 100%, to $0 for
the year ended December 31, 2008 compared to $1,500,000 for the same period in
2007. The decrease related to the payment in full of the note
receivable from El Monte in 2007. The note was received as part of
the sale of the El Monte facility, at which point the Company determined that
the cost recovery method of accounting was appropriate for gain
recognition. Accordingly, revenue was deferred until collection of
the note receivable, which occurred in January 2007.
Funds
from Operations
FFO
increased $395,000, or 20%, to $2,335,000 for the year ended December 31, 2008
compared to $1,940,000 for the same period in 2007. The increase was
driven primarily by the increase in NOI.
LAND
DEVELOPMENT
For the
year ended December 31, 2008, our Land Development line of business generated
$2,082,000 of operating income compared to $2,248,000 of operating income
generated by the line of business for the same period in 2007. This
line of business includes both land and home sales for our U.S. and Puerto Rican
operations. Additional information and analysis of the U.S and Puerto Rican Land
Development operations can be found below.
U.S.
Land Development Operations
|
For
the years ended |
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
Operating
revenues
|
|
|
|
|
|
|
Community
development - land sales
|
|
$ |
14,726 |
|
|
$ |
14,486 |
|
Management
and other fees, substantially all from related entities
|
|
|
- |
|
|
|
142 |
|
Total
revenues
|
|
|
14,726 |
|
|
|
14,628 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost
of land sales
|
|
|
9,572 |
|
|
|
11,169 |
|
General,
administrative, selling and marketing
|
|
|
3,558 |
|
|
|
2,734 |
|
Depreciation
and amortization
|
|
|
5 |
|
|
|
5 |
|
Total
expenses
|
|
|
13,135 |
|
|
|
13,908 |
|
Operating
income
|
|
|
1,591 |
|
|
|
720 |
|
Other
expenses
|
|
|
(2,584 |
) |
|
|
(2,056 |
) |
Loss
before benefit for income taxes
|
|
|
(993 |
) |
|
|
(1,336 |
) |
Benefit
for income taxes
|
|
|
(406 |
) |
|
|
(654 |
) |
Net
loss
|
|
$ |
(587 |
) |
|
$ |
(682 |
) |
Community
Development Land Sales Revenue
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. Community development land sales revenue increased $240,000,
or 1%, to $14,726,000 for the year ended December 31, 2008 compared to
$14,486,000 for the year ended December 31, 2007. The increase is
primarily the result of an increase in delivery of residential lots to
Lennar, offset by a decrease in commercial land sales. The Company
sold 3.7 commercial acres in 2008 compared to 12.0 commercial acres in
2007. While the Company received letters of intent for various
commercial lots, financing by the potential buyers was not readily available due
to the decline in the U.S. economy.
Residential
Land Sales
For the
year ended December 31, 2008, we delivered 61 single-family lots and
58 town home lots to Lennar, resulting in the recognition of revenues of
$78,000 per single family lot and $68,000 per town home lot plus $2,600 per lot
of water and sewer fees, road fees and other off-site fees. The total
revenue recognized at initial settlement was $8,702,000 for the year ended
December 31, 2008. For the year ended December 31, 2007, we delivered
34 single-family lots and 44 town home lots to Lennar, resulting in the
recognition of revenues ranging from $121,000 to $78,000 per single family lot
and $85,000 to $65,000 per town home lot plus water and sewer fees, road fees
and other off-site fees. The total revenue recognized at initial
settlement was $5,964,000 for the year ended December 31, 2007.
During
the years ended December 31, 2008 and 2007, we also recognized $632,000 and
$2,295,000, respectively, of additional revenue for lots that were previously
sold to Lennar. This additional revenue was based on the final
settlement price of the homes as provided by our agreement with
Lennar. During 2008, new town homes in Fairway Village were priced
between $300,000 and $370,000 while single-family homes in Fairway Village are
priced between $340,000 and $440,000. The homes sold by Lennar to the
homebuyer in 2008 resulted in a total average final lot price of $90,000 per
single family lot and $73,000 per town home lot. For 2007, the homes
sold by Lennar to the homebuyer resulted in a total average final lot price of
$120,000 per single family lot and $94,000 per town home lot.
Commercial
Land Sales
For the
year ended December 31, 2008, we sold 3.7 commercial acres in St. Charles,
Maryland for $1,900,000 compared to 12.0 commercial acres of land in St.
Charles, Maryland for $5,333,000 for the year ended December 31, 2007.
Sales in 2008 included two previously developed lots within Henry Ford
Circle, totaling approximately 2 acres, for $363,000 and one 1.7 acre parcel
within the O’Donnell Lake Restaurant Park, our latest commercial development
project located near the St. Charles Towne Center, for $1,625,000. As
of December 31, 2008, our inventory contained 78.79 commercial acres in St.
Charles under contract for a total of $13,450,000. The final sale of the
land for use as a natural gas fired power plant is ultimately contingent on the
purchaser’s ability to obtain financing. While commitments have been
made for the cash equity portion of the project and state permits have been
received, financing is currently dependent on the purchaser entering into
favorable power sales contracts.
St.
Charles Active Adult Community, LLC - Land Joint Venture
In
September 2004, the Company entered into a joint venture agreement with Lennar
for the development of St. Charles Active Adult Community, LLC, a 352-unit,
active adult community located in St. Charles, Maryland. The Company
managed 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 in the joint venture 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 were reflected as deferred revenue. The deferred revenue and
related deferred costs were recognized into income as the joint venture sold
lots to Lennar. On November 19, 2008, the Company sold to Lennar the
Company’s 50% interest in the joint venture including its property management
rights for $3,467,000 in cash. Historically management fees from the
joint venture have not materially impacted the Company's financial
position.
The joint
venture did not sell any lots to Lennar’s homebuilding division during 2008
compared to 48 lots delivered in 2007. However, the Company did
recognize $2,792,000 in previously deferred revenues and costs in the fourth
quarter of 2008 as a result of the sale of its interest to Lennar. For the
year ended December 31, 2007, the Company recognized a net $1,063,000 in
deferred revenue, management fees and off-site fees and $358,000 of deferred
costs for the year ended December 31, 2007.
|
Gross
Margin on Land Sales
|
The gross
margin on land sales was 20%, excluding the proceeds from the sale of the Active
Adult Community, for the year ended December 31, 2008 as compared to 23% for the
year ended December 31, 2007. Our gross margins on land sales in the
U.S. can fluctuate based on changes in the mix of residential and commercial
land sales. The reduction in gross margin between 2008 and 2007 was
primarily the result of a decrease in our estimate of relative sales values for
our residential lots as a result of the downturn in the real estate market and
the reduced pricing granted to Lennar during the fourth quarter of 2007 and
2008. In 2008, annual residential land sales at 29% margins made
up the bulk of revenues compared to residential land sales in 2007 with margins
of 36%. For the years ended December 31, 2007 and 2008, commercial
land sales gross margins increased from 12% to 50%, respectively. The
commercial margins for 2007 were impacted by increases in the costs of
constructing the boardwalk on the restaurant park in St. Charles, Maryland, as
the actual bid proposals received in 2007 were higher than the engineer’s
expected cost.
Customer Dependence
Revenues
from Lennar include residential land sales as well as certain management
fees. Total revenues from Lennar within our U.S. land development
segment were $9,638,000 for the year ended December 31, 2008 which represents
24% of the U.S. land development segment's revenue and 11% of our consolidated
revenue. No other customers accounted for more than 10% of our
consolidated revenue for the year ended December 31, 2008. The loss
of all or a substantial portion of our land sales to Lennar would have a
significant adverse effect on our financial results until such lost sales could
be replaced.
General,
Administrative, Selling and Marketing
The
primary component of general, administrative, selling and marketing expenses is
the corporate overhead allocation. General, administrative, selling
and marketing expenses increased $824,000, or 30%, to $3,558,000 during the year
ended December 31, 2008 as compared to $2,734,000 for the same period of
2007. This increase was due to an increase in the Company’s total overhead
costs as well as an increase in the allocation percentage to 45% in 2008 from
37% in 2007. See “Results of Operations – Corporate.”
Interest
Expense
Interest
expense decreased $38,000, or 1%, to $2,855,000 for the year ended December 31,
2008 as compared to $2,893,000 for the same period in 2007. This
decrease was due to an increase in capitalized interest to $2,520,000 for the
year ended December 31, 2008 from $1,271,000 of interest capitalized during 2007
as
the amount of assets available for interest capitalization increased due to new
projects in Charles County, including the construction of an office building
within the O’Donnell Lake Restaurant Park and additional infrastructure
investments on the County Road projects.
Puerto
Rican Land Development Operations
|
For
the years ended |
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
Operating
revenues
|
|
|
|
|
|
|
Homebuilding
– home sales
|
|
$ |
3,730 |
|
|
$ |
7,580 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost
of home sales
|
|
|
2,898 |
|
|
|
5,549 |
|
General,
administrative, selling and marketing
|
|
|
341 |
|
|
|
503 |
|
Impairment
charges
|
|
|
6,200 |
|
|
|
- |
|
Total
expenses
|
|
|
9,439 |
|
|
|
6,052 |
|
Operating
income
|
|
|
(5,709 |
) |
|
|
1,528 |
|
Other
income
|
|
|
698 |
|
|
|
1,085 |
|
(Loss)
Income before benefit for income taxes
|
|
|
(5,011 |
) |
|
|
2,613 |
|
Provision
for income taxes
|
|
|
- |
|
|
|
- |
|
Net
(loss) income
|
|
$ |
(5,011 |
) |
|
$ |
2,613 |
|
Community
Development Land Sales
There
were no community development land sales during the years ended December 31,
2008 and 2007.
Homebuilding
For the
year ended December 31, 2008, homebuilding revenues decreased $3,850,000, or
51%, to $3,730,000 as compared to $7,580,000 for the year ended December 31,
2007. The decrease was primarily driven by a reduction in the number
of units sold and a decrease in the average selling price per
unit. Within the Torres project, 15 units were sold during 2008 at an
average selling price of approximately $248,000, generating aggregate revenues
of $3,850,000. For the year ended December 31, 2007, 29 units within
the Torres project were sold at an average selling price of $261,000 per unit
generating $7,580,000 in home sales revenue. The gross profit margin
on units sold for the year ended December 31, 2008 was 22% as compared to 27%
for the same period of 2007. The decrease in the gross profit
percentage was attributable to the selling of lower priced units during 2008 as
compared to 2007.
The
Puerto Rico real estate market has slowed substantially from 2007 to 2008.
For the year ended December 31, 2008, the Company had entered into 17 new
contracts and had two canceled contracts. For the year ended December 31,
2007, the Company had 22 new contracts and eight canceled
contracts. Because the Puerto Rico real estate market has slowed
substantially from 2007 to 2008, the Company intends to offer incentives to
homebuyers in addition to the incentives offered to first time homebuyers by the
federal government in order to sell the remaining six units, three of which are
penthouse units.
General,
Administrative, Selling and Marketing Expenses
The
primary component of the general, administrative, selling and marketing expenses
is the corporate overhead allocation. General, administrative,
selling and marketing expenses decreased $163,000, or 32%, to $341,000 during
the year ended December 31, 2008, as compared to $504,000 for the same period in
2007. The decrease was due to a decrease in the corporate allocation
percentage to 19% in 2008 from 28% in 2007 despite an increase in total
corporate overhead costs. See “Results of Operations –
Corporate.”
Impairment
Charges
In 2008, ACPT recognized an impairment
charge of $6,200,000 related to the revaluation of the Hilltop project in Parque
Escorial. Condominium pricing in
Puerto Rico has declined similar to those in the United
States. However, construction pricing has not declined in a similar
manner as we are experiencing in the United States. The Company has
considered the Hilltop project in Puerto Rico to be the premier parcel in the
portfolio due to the views of the island that will be enjoyed by future
residents. Accordingly, the Company had previously intended to build
condominiums with expected selling prices ranging from $350,000 to
$400,000. However, sales of condominiums in excess of $350,000 are not
occurring in the areas immediately surrounding Parque Escorial. The
Company believes that construction of a $350,000 product is no longer prudent
and believes that construction financing could not be obtained at that
level. The Company is now anticipating construction of a product
similar to Torres. Due to increased costs of construction and
a decline in sales prices, the Company noted that the expected total costs
of the project exceeded the expected sales proceeds. The Company has
recorded an impairment of $6,200,000 in the fourth quarter of 2009 based on an
assessment of discounted cash flows assuming that the Company will build and
sell condominium units on the parcel similar to those build at
Torres. The estimated value as of December 31, 2008 was
$6,100,000. There were no impairment charges for the year ended
December 31, 2007.
Interest
Expense
For the
year ended December 31, 2008, interest expense decreased $63,000, or 26%, to
$182,000 as compared to $245,000 for the same period in
2007. The decrease in interest expense is attributable to the
increase in capitalized interest from $180,000 in 2007 to $256,000 in
2008.
CORPORATE
- Results of Operations:
The
Company pools its overhead costs, including accounting, human
resources, office management and technology as well as corporate and other
executive office costs, by geographical location as it is more effective for
allocating to the Company’s lines of business. All corporate costs,
except those costs required to operate as a public company, are allocated
quarterly based on a percentage of management’s estimated usage of
time. The allocation percentages fluctuate based on the resources and
oversight required to operate that segment.
Total
general, administrative, selling and marketing costs increased $3,636,000, or
34%, to $14,483,000 for the year ended December 31, 2008 as compared to
$10,847,000 for the same period in 2007. In the U.S., the increase
was $3,369,000, or 4%, to $11,450,000 in 2008 from $8,081,000 in 2007; whereas,
in Puerto Rico the increase was $262,000, or 9%, to $3,033,000 in 2008 from
$2,771,000 in 2007.
The 42%
increase in the U.S. overhead is primarily attributable to fees associated with
severance packages related to the departure of the Company’s former Chief
Financial Officer and the retirement of the Company’s former President and Chief
Operating Officer totaling approximately $2,100,000. Severance
packages of approximately $350,000 were also provided to the employees included
in the Company’s workforce reduction in early November 2008 in the
U.S. In addition, the Company recorded an equity compensation expense
in the fourth quarter of $562,000 to capture the impact of an agreement between
a primary shareholder of the Company and the Company’s Chief Executive Officer
(“CEO”) to provide the CEO with the economic benefit of 185,550 shares of their
common stock as of October 1, 2008. These increases were partially
offset by a reduction in the accrual for stock appreciation rights due to a
decrease in share price as well as a decrease in the number of shares
outstanding. In 2008, 55% of the U.S. overhead was allocated to the
Operating Real Estate segment while 45% was allocated to the Land Development
segment. In 2007, these allocations were 63% to the Operating Real
Estate segment and 37% to the Land Development segment. This shift is
primarily related to the method by which the Company allocates
overhead.
The 9%
increase in the Puerto Rican overhead is primarily attributable to an increase
in salaries and benefits related to the severance packages provided to the
employees involved in the Company’s workforce reduction in December 2008 of
approximately $450,000. Offsetting this increase were noted decreases in
property and municipal taxes paid in 2008 compared to 2007 and a reduction in
legal expenses due to a refund received in 2008 from an insurance company for
legal services paid by the Company during 2007.
INCOME
TAXES
Provision
for (Benefit from) Income Taxes
United
States
The
effective tax rates for the years ended December 31, 2008 and 2007 were (29%)
and 41%, respectively. The statutory tax rate is 40%, which includes a 35%
federal rate and a 5% state rate which is net of the federal
deduction. The difference between the statutory tax rate and the
effective tax rate for 2008 is primarily due to certain non-deductible
expenses and a valuation allowance against the net deferred tax asset, and
accrued penalties. The effective tax rate for 2007 differs from the
statutory tax rate as a result of the impact of a statutory tax rate change
effective for 2008 on the Company’s net deferred tax assets. This was
partially offset by penalties accrued on uncertain tax positions as well as
certain nondeductible expenses creating permanent
differences.
Puerto
Rico
The
effective tax rates for 2008 and 2007 were 6% and 43%, respectively. The
statutory tax rate is 29%. The difference between the statutory tax rate
and the effective tax rate for 2008 is primarily due to a basis adjustment on
loan which was partially offset by losses for which no benefit can be
recognized, foreign tax credits, and a valuation allowance against the net
deferred tax asset. The effective tax rate for 2007 is primarily due to
the double taxation on the earnings of our wholly owned corporate subsidiary,
ICP. As a result of a non-recurring gain recorded in the first
quarter of 2007 related to its investment in El Monte, ICP’s current taxes
payable and ACPT’s related deferred tax liability on the ICP undistributed
earnings experienced a considerable increase.
Valuation
of Deferred Tax Assets
Deferred
income taxes arise from temporary differences between the tax and financial
statement recognition of revenue and expense. The deferred tax assets and
liabilities are recognized based on the future tax consequences attributable to
the temporary differences that exist between the financial statement carrying
value of assets and liabilities and their respective tax bases, and operating
loss and tax credit carryforwards on a taxing jurisdiction basis. The
Company measures the deferred tax assets and liabilities using enacted tax rates
that will apply in the years in which the temporary differences
are expected to be recovered or paid. SFAS 109, requires a reduction of the
carrying amounts of deferred tax assets by recording a valuation allowance if,
based on the available evidence, it is more likely than not, defined by SFAS 109
as a likelihood of more than 50 percent, such assets will not be realized.
The valuation of deferred tax assets requires judgment in assessing the likely
future tax consequences of events that have been recognized in the Company’s
financial statements or tax returns and future profitability. Accounting
for deferred tax consequences represents management’s best estimate of future
events. Should factors change impacting the Company’s forecast of future
taxable income in determining the realizability of the Company’s net deferred
tax assets, the Company may be required to recognize additional valuation
allowance in future periods. Changes in the Company’s current estimates,
due to unanticipated events or otherwise, could have a material impact on the
Company’s financial condition and results of operations.
In assessing the need
for a valuation allowance, the Company considered both positive and negative
evidence related to the likelihood of realization of the deferred tax assets.
If, based on the weight of available evidence, it is “more likely than not” the
deferred tax assets will not be realized, the Company would be required to
establish a valuation allowance. The weight given to the positive and negative
evidence is commensurate with the extent to which the evidence may be
objectively verified. As such, it is generally difficult for positive
evidence regarding projected future taxable income exclusive of reversing
taxable temporary differences to outweigh objective negative evidence of recent
financial reporting losses. SFAS 109 states that a cumulative loss in recent
years is a significant piece of negative evidence that is difficult to overcome
in determining that a valuation allowance is not needed against deferred tax
assets.
This
assessment, which is completed on a subsidiary and taxing jurisdiction basis,
takes into account a number of types of evidence, including the
following:
·
|
For
certain subsidiaries, losses were experienced in 2008, 2007, and
2006. As indicated above, in making the assessment of the
realizability of deferred tax assets the Company assessed reversing
temporary differences, available tax planning strategies and estimates of
future taxable income. The recent financial operating losses of
certain subsidiaries was heavily weighted and, accordingly, as of December
31, 2008 there was little or no weight to subjectively determine
projections of future taxable income exclusive of reversing temporary
differences for certain subsidiaries in cumulative loss situation.
Tax planning strategies have not been a necessary consideration
historically and, in certain cases, have not been employed in the current
analysis. The
Company does not record a deferred tax valuation allowance relating to the
net unrealized losses on limited partnership investments because it is
more likely than not that these losses would reverse or be used in future
periods through tax planning strategies that could be implemented by the
subsidiary.
|
·
|
For
other certain subsidiaries which were not in a cumulative loss situations,
but for which benefits were recorded for NOL and tax credit carryforwards,
the Company assessed the reversing of temporary
differences. Not all of these subsidiaries could reasonably
predict future taxable income in the near term nor were tax planning
strategies an option.
|
As a
result of changes in judgment on the realizability of future tax benefits, a
valuation allowance was established. The Company establishes a valuation
allowance for deferred tax assets, net of reversed deferred tax liabilities,for
situations where recent financial operating losses or a cumulative loss existed
and Company could not determine that the benefits of the resulting tax credit
carryforwards could more likely than not be realized. At December 31,
2008 and 2007, the Company’s net deferred tax assets were $32,799,000 and
$34,075,000, respectively, and the valuation allowance was $3,403,000 and $0,
respectively. A return to profitability by certain subsidiaries in future
periods may result in a reversal of the valuation allowance relating to certain
recorded deferred tax assets.
LIQUIDITY
AND CAPITAL RESOURCES
Summary
of Cash Flows
As of
December 31, 2008, the Company had cash and cash equivalents of $24,035,000 and
$20,599,000 in restricted cash. Included in the Company’s cash and
cash equivalents is $11,778,000 of cash located within multifamily apartment
entities, and over which the Company does not have direct
control. ACPT receives surplus cash distributions as well as
management fees from these entities. As of December 31, 2008, the
Company had corporate available funds of $12,257,000. The following
table sets forth the changes in the Company’s cash flows ($ in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
Operating
Activities
|
|
$ |
(7,319 |
) |
|
$ |
(5,466 |
) |
Investing
Activities
|
|
|
(4,773 |
) |
|
|
(7,350 |
) |
Financing
Activities
|
|
|
11,215 |
|
|
|
10,269 |
|
Net
Decrease in Cash
|
|
$ |
(877 |
) |
|
$ |
(2,547 |
) |
Operating
Activities
For the
year ended December 31, 2008, operating activities used $7,319,000 of cash flows
compared to $5,466,000 of cash flows used in operating activities for the year
ended December 31, 2007. The $1,853,000 increase in cash flows used
in operating activities primarily resulted from the Company paying approximately
$2,800,000 of severance payments related to the retirement of the Chief
Operating Officer, departure of the Chief Financial Officer and a reduction in
workforce. In addition, the Company received a non-recurring
$2,000,000 fee from a right of way agreement in 2007. These increased
uses of cash were offset in part by a reduction of $2,960,000 in additions to
our community development assets. From period to period, cash flow
from operating activities is also impacted by changes in our net income, as
discussed more fully under "Results of Operations," as well as other changes in
our receivables and payables.
Investing
Activities
For the
year ended December 31, 2008, net cash used in investing activities was
$4,773,000 compared to $7,350,000 for the same period of 2007. 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. The $2,577,000 decrease in the cash used in investing
activities between periods was primarily the result of the impact of the sale of
our interest in the St. Charles Active Adult Community joint venture, which was
partially offset by the investment of $3,103,000 in the O’Donnell Lake
Restaurant Park, our latest commercial development project located near the St.
Charles Towne Center as compared to $598,000 needed to complete the construction
in 2007 of Sheffield Greens.
Financing
Activities
For the
year ended December 31, 2008, net cash provided by financing activities was
$11,215,000 as compared to $10,269,000 for the year ended December 31,
2007. This increase in cash provided by financing activities was
primarily the result of the net differences in the timing of and increases in
mortgage amounts for properties refinanced, differences in county bond proceeds,
dividends to shareholders and debt curtailment from sales between the years
ended December 31, 2008 and 2007. The fluctuations in cash proceeds
and repayments of debt between 2008 and 2007 relate to mortgage refinancings
completed during 2007 which were not replicated in 2008. The Company
paid dividends to shareholders for the first three quarters of 2007 compared to
only paying the required dividend in the fourth quarter of 2008 resulting in a
net cash increase of $1,032,000. (Under the terms of the Declaration
of Trust of ACPT, the Company must make minimum annual distributions to the
shareholders equal to at least 45% of the net taxable income allocated to the
shareholders.) Partially offsetting these increases was a decrease in
cash proceeds from debt financing of $12,562,000 and $5,158,000 from the Charles
County bond escrows as the County Bond projects were completed in
2008.
Liquidity
Requirements
Our short-term and long-term liquidity requirements consist primarily of
obligations under capital and operating leases, normal recurring operating
expenses, regular debt service requirements, investments in community
development and certain non-recurring expenditures. The Company has
historically met its short-term and long-term liquidity requirements from cash
flow generated from residential and commercial land sales, home sales, property
management fees, rental property revenue, and financings. However,
with the current economic environment, there are no assurances that future sales
will occur or that the Company will have adequate access to credit.
Pursuant
to agreements with the County Commissioners, the Company is committed to
completing $13,710,000 of infrastructure projects, all of which are eligible to
be funded by County bond proceeds, either through existing bond receivables or
future issuances. The Company expects to incur $3,443,000 of this
development over the next 12 months. Further, as the Company nears
completion of several significant Charles County Roads Projects, $2,759,000 of
retention and open payables as of December 31, 2008 will be required to be
funded, of which $915,000 is eligible for bond funding. These project
costs and the difference between the cost of County projects and any bond
proceeds available to fund related expenditures will be funded out of the
Company’s available cash flows.
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, Maryland. The maximum amount of the loan at any one time
is $14,000,000, bears interest at Prime Rate plus 0.75% (4.00% at December 31,
2008) and was set to mature on April 14, 2009 but has been extended to March 31,
2010. 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 test for ACPT. The Company had $6,572,000
outstanding on this facility as of December 31, 2008 which is scheduled to be
repaid quarterly as follows: first quarter payment of $2,200,000 on
March 31, 2009; second quarter payment of $1,300,000 on June 30, 2009; third
quarter payment of $300,000 on September 30, 2009; fourth quarter payment of
$2,200,000 on December 31, 2009; and the remaining balance of approximately
$571,000 in the first quarter of 2010. Although the Company has
extended this line of credit, the Company continues to work with other banks to
replace this facility entirely. There is no assurance that the
Company will be able to renegotiate favorable terms or find an alternative
facility before the facility matures. The
Company has certain financial covenants related to this revolving line of
credit. As of December 31, the Company failed to meet the Minimum Net
Worth restriction at the ACPT level as tangible net worth was
$1,341,000. The Company has received a waiver of this covenant
requirement through March 31, 2010. The failure to meet this covenant
did not impact any other debt agreements.
On July
22, 2008, the Company signed a construction contract for $5,960,000 of site
development related to the infrastructure of Hilltop phase I site development
for the future construction of 220 condominium units in Parque
Escorial. This work is currently in process and as of December 31,
2008, Puerto Rico planning and development activities had a remaining commitment
of $3,231,000, all of which is expected to be incurred over the next twelve
months. Our $10,000,000 credit facility, which matures on August 31,
2009, will be used to fund these expenditures and had an outstanding balance of
$4,327,000 as of December 31, 2008. The Company anticipates that the
balance outstanding on this facility will be approximately $8,300,000 as of
August 31, 2009. While the Company will seek to refinance the line
into a construction loan for the development of residential condominiums or
extend the term of the facility, the current state of the credit market may
prevent these plans from occurring. IGP provided a guarantee on this
credit facility; however, the lender's recourse under this guarantee is limited
to the collateral, except in the case of fraud, intentional
misrepresentation, or misappropriation of income associated with the
collateral. In the event of a default, the lender's sole recourse is
to foreclose on the property. An event of default on this facility
will not affect any other debt facility held by the Company. The collateral to
support the line of credit consists of 427 acres of land, which has a cost basis
of $11,500,000 at December 31, 2008. There is no income generated
from this property as it is in the planning stages for the development of the
Company’s second planned community in Puerto Rico.
Also
in Puerto Rico, the Company has a mortgage balance maturing on April 30,
2009. As of December 31, 2008, the balance due was
$6,816,000. The Company is in the process of refinancing this
mortgage. However, should the Company be unable to negotiate or
refinance with acceptable terms, the sole collateral for this mortgage is the
Monserrate Associates apartment property, which has a cost basis of $3,785,000
at December 31, 2008. This property generated approximately
$2,700,000 of revenue and $400,000 of pre-tax income in 2008.
In addition to the activity noted
above, we may seek additional development loans and permanent mortgages for
continued development and expansion of other parts of St. Charles and Parque
Escorial, potential opportunities in Florida and other potential rental property
opportunities.
There has
been a current reduction in the demand for residential real estate in the St.
Charles and Parque Escorial markets. Should this reduced demand
result in a significant decline in the prices of real estate in the St. Charles
and Parque Escorial markets or defaults on our sales contracts, it could
adversely impact our cash flows. With the third amendment of the
agreement with Lennar reducing Lennar’s contractual obligation to take 100 lots
per year, the market may not be sufficient to absorb this sales
pace. While the Company has negotiated agreements with other national
and local homebuilders, there is no guarantee that lot sales from these
agreements will be absorbed by the market. Management has also noted
a current reduction in the demand for commercial
properties. Sustained reductions in demand for our commercial
property would adversely impact our cash flows.
As a
result of our existing commitments and the downturn in the residential real
estate market, management expects to use its resources conservatively in
2009. Anticipated cash flow from operations, existing loans,
refinanced or extended loans, asset sales, and new financing are expected to
meet our financial commitments for the next 12 months. However, there
are no assurances that these funds will be
generated.
The
Company will evaluate and determine on a continuing basis, depending upon market
conditions and the outcome of events described under the section titled "Special
Note Regarding 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.
Recourse Debt - U.S.
Land
Development Operations
Pursuant
to an agreement reached between ACPT and the County in 2002, the Company agreed
to accelerate the construction of two major roadway links to the 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 for total Bonds issued to date of 5.1%, and call for
semi-annual interest payments and annual principal payments and mature in
fifteen years. Under the terms of bond repayment agreements between
the Company and the County, the Company is obligated to pay interest and
principal on the full amount of the Bonds. Therefore, the Company
recorded the full amount of the debt and a receivable from the County
representing the undisbursed Bond proceeds to be advanced to the Company as
major infrastructure development within the project occurs. As of
December 31, 2008, all of the bond proceeds have been used to fund the specified
development. 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 due on the Bonds. The
County also requires ACPT to fund an escrow account from lot sales that will be
used to repay this obligation.
In August
2005, the Company signed a MOU with the County Commissioners regarding a land
donation that is now the site of a minor league baseball stadium and will house
a planned 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 additional general obligation bonds to finance the infrastructure
improvements. In March 2006, $4,000,000 of bonds were issued for this
project, with an additional $3,000,000 issued in both March 2007 and March
2008. These bonds bear interest rates ranging from 4.9% to 5.75%, for
a blended rate of 5.2%, call for semi-annual interest payments and annual
principal payments, and mature in 15 years. The terms of the bond
repayment agreement are similar to those noted above. As of December
31, 2008, $2,052,000 of these bond proceeds are recorded as a receivable and
available to fund the related infrastructure. In addition, the County
agreed to issue an additional 100 school allocations a year to St. Charles
commencing with the issuance of bonds.
In
December 2006, the Company reached an agreement with the 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. For the years ended
December 31, 2008 and 2007, the Company recognized $78,000 and $540,000 of
interest income on these escrowed funds, respectively.
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, Maryland. The maximum amount of the loan at any one time
is $14,000,000, bears interest at Prime plus 0.75% (4.00% at December 31,
2008) and was set to mature on April 14, 2009 but has been extended to
March 31, 2010. The Company had $6,572,000 outstanding on this
facility as of December 31, 2008 which is scheduled to be repaid quarterly as
follows: first quarter payment of $2,200,000 on March 31, 2009;
second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of
$300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December
31, 2009; and the remaining balance of approximately $571,000 in the first
quarter of 2010. As of December 31, 2008, the Company’s tangible net
worth was $1,341,000, and the Company was not in compliance with the minimum net
worth test. The Company received a waiver of this covenant for the
period through March 31, 2010.
On April
2, 2008, the Company secured a two-year, $3,600,000 construction loan for the
construction of a commercial restaurant/office building within the O’Donnell
Lake Restaurant Park. The facility is secured by the land along with
any improvements constructed and bears interest at the Prime Rate (3.25% at
December 31, 2008). At the end of the two-year construction period,
the Company may convert the loan to a 5-year permanent loan, amortized over a
30-year period at a fixed interest rate to be determined. As of
December 31, 2008, $3,102,000 was outstanding under this facility leaving
$498,000 available to fund completion of the building. As of December
31, 2008, the building was substantially complete.
Recourse Debt - Puerto
Rican Land Development
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 a $10,000,000
recourse revolving line of credit facility. The homebuilding and land
assets in Parque Escorial are not encumbered by this facility and remain
unencumbered as of December 31, 2008. The line of credit bears
interest at a fluctuating rate equivalent to the LIBOR Rate plus 225 basis
points (4.1% at December 31, 2008) and matures on August 31,
2009. The facility is currently being used to fund the development of
infrastructure in Parque Escorial, specifically the development of our Hilltop
project, as well as Parque El Comandante. The outstanding balance of
this facility on December 31, 2008 was $4,327,000. As of
August 31, 2009, the Company anticipates that the balance outstanding on this
facility will be approximately $8,300,000. While the Company will
seek to refinance the line into a construction loan for the development of
residential condominiums or extend the term of the facility, the current state
of the credit market may prevent these plans from occurring. IGP
provided a guarantee on this credit facility; however, the lender's recourse
under this guarantee is limited to the collateral, except in the case
of fraud, intentional misrepresentation, or misappropriation of income
associated with the collateral. In the event of default, the lender's sole
recourse is to foreclose on the property.
Non-Recourse Debt - U.S.
Operating Real
Estate Operations
As more
fully described in Note 5 to our Consolidated Financial Statements included
in this Annual Report on Form 10-K, the non-recourse apartment properties' debt
is collateralized by apartment projects. As of December 31, 2008,
approximately 38% of this debt is secured by the Federal Housing Administration
("FHA"). Material changes during 2007 to the Non-Recourse debt
consists of newly acquired debt and the refinancing of existing
debt. There were no significant changes to our non-recourse debt
obligations for our U.S. Operating Real Estate Operations during the year ended
December 31, 2008.
Non-Recourse Debt - Puerto
Rican Operating
Real Estate Operations
As more
fully described in Note 5 to our Consolidated Financial Statements included
in this Form 10-K, the non-recourse debt is collateralized by the respective
multifamily apartment project or commercial building. As of December
31, 2008, approximately 1% of this debt is secured by the FHA.
On May
12, 2008, IGP agreed to provide a fixed charge and debt service guarantee
related to the Escorial Office Building I, Inc. (“EOB”) mortgage. The
fixed charge and debt service guarantee requires IGP to contribute capital in
cash in such amounts required to cause EOB to comply with the related financial
covenants. The guarantee will remain in full force until EOB has
complied with the financial covenants for four consecutive
quarters. The Company does not expect the funding of this guarantee
to have a material impact on its liquidity and cash
flows.
Also in
Puerto Rico, the Company has a mortgage balance maturing on April 30,
2009. As of December 31, 2008, the balance due was $6,816,000.
The Company is in the process of refinancing this mortgage. However,
should the Company be unable to negotiate or refinance with acceptable terms,
the sole collateral for this mortgage is the Monserrate Associates apartment
property which has a cost basis of $3,785,000 at December 31, 2008. This
property generated approximately $2,700,000 of revenue and $400,000 of pre-tax
income in 2008.
There
were no other significant changes to our non-recourse debt obligations for our
Puerto Rican Operating Real Estate Operations during the year ended December 31,
2008.
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 projects in St. Charles, Maryland, costs
associated with our land development contracts for the County’s road projects
and the development of our land in 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 2009, 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.
As of
December 31, 2008, as required by the provisions of FIN 48, the Company has
$16,657,000 recorded as FIN 48 accrued income tax liabilities and $4,216,000 as
accrued interest on unpaid income tax liabilities related to uncertain tax
positions. We are unable to reasonably estimate the ultimate amount
or timing of settlement of these liabilities.
In
October 2008, the Company entered into an agreement with Surrey Homes to
contribute $2,000,000 over the next year in exchange for a 50% ownership
interest in Surrey Homes. The Company is committed to contributing
$1,500,000 during the first three quarters of 2009.
DEBT
GUARANTEES AND OTHER OBLIGATIONS
ACPT and its subsidiaries typically
provide guarantees for other ACPT subsidiaries' loan or letters of
credit. In many cases more than one subsidiary 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
A significant portion of our debt and
regulatory agreements require us to abide by covenants which, among other
things, limit the ability 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,
2008.
As
discussed above, during 2006 the Company closed on a $14,000,000 revolving
credit facility. This facility requires that ALD have a Senior Debt
to Equity Ratio, as defined by the agreement, of not more than three to one and
restricts ALD from making dividend payments to ACPT. As of December
31, 2008, the Company had $6,572,000 outstanding on this facility and was in
compliance with this financial covenant.
ACPT
DIVIDEND RESTRICTIONS
In addition to the ALD Senior Debt to
Equity covenant, the Revolver requires ACPT to maintain a Minimum Net Worth of
$5,547,000. As of December 31, the Company failed to meet the Minimum
Net Worth restriction at the ACPT level. The Company has received a
waiver of this covenant requirement through March 31,
2010.
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, 2008 for our Puerto Rico operations and
October 1, 2008 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 14% 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).
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 (a Maryland real estate investment trust) (the “Company”)
as of December 31, 2008 and 2007, and the related consolidated statements of
income, changes in shareholders’ equity and cash flows for the years then ended.
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 at December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for the years then ended, 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.
/s/ Ernst
& Young LLP
McLean,
Virginia
March 30, 2009
AMERICAN
COMMUNITY PROPERTIES TRUST
CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share amounts)
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
Rental
property revenues
|
|
$ |
62,243 |
|
|
$ |
60,722 |
|
Community
development-land sales
|
|
|
14,726 |
|
|
|
14,486 |
|
Homebuilding-home
sales
|
|
|
3,730 |
|
|
|
7,580 |
|
Management
and other fees, substantially all from related entities
|
|
|
754 |
|
|
|
941 |
|
Reimbursement
of expenses related to managed entities
|
|
|
1,461 |
|
|
|
1,647 |
|
Total
revenues
|
|
|
82,914 |
|
|
|
85,376 |
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Rental
property operating expenses
|
|
|
29,679 |
|
|
|
30,644 |
|
Cost
of land sales
|
|
|
9,572 |
|
|
|
11,169 |
|
Cost
of home sales
|
|
|
2,898 |
|
|
|
5,549 |
|
General,
administrative, selling and marketing
|
|
|
14,483 |
|
|
|
10,847 |
|
Depreciation
and amortization
|
|
|
10,009 |
|
|
|
9,438 |
|
Impairment
charges
|
|
|
7,456 |
|
|
|
- |
|
Expenses
reimbursed from managed entities
|
|
|
1,461 |
|
|
|
1,647 |
|
Total
expenses
|
|
|
75,558 |
|
|
|
69,294 |
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
7,356 |
|
|
|
16,082 |
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
623 |
|
|
|
1,392 |
|
Equity
in earnings from unconsolidated entities
|
|
|
657 |
|
|
|
2,192 |
|
Interest
expense
|
|
|
(17,405 |
) |
|
|
(18,726 |
) |
Minority
interest in consolidated entities
|
|
|
(1,734 |
) |
|
|
(1,788 |
) |
|
|
|
|
|
|
|
|
|
Loss
before provision (benefit) for income taxes
|
|
|
(10,503 |
) |
|
|
(848 |
) |
Provision
(benefit) for income taxes
|
|
|
853 |
|
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(11,356 |
) |
|
$ |
(541 |
) |
|
|
|
|
|
|
|
|
|
Loss
per share –Basic and Diluted
|
|
$ |
(2.18 |
) |
|
$ |
(0.10 |
) |
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
5,217 |
|
|
|
5,207 |
|
Cash
dividends per share
|
|
$ |
0.10 |
|
|
$ |
0.30 |
|
The
accompanying notes are an integral part of these consolidated
statements.
|
|
|
|
|
|
AMERICAN
COMMUNITY PROPERTIES TRUST
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
As
of
December
31, 2008
|
|
|
As
of
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Investments
in real estate:
|
|
|
|
|
|
|
Operating
real estate, net of accumulated depreciation
|
|
|
|
|
|
|
of
$159,202 and $150,292, respectively
|
|
$ |
156,728 |
|
|
$ |
164,352 |
|
Land
and development costs
|
|
|
96,266 |
|
|
|
84,911 |
|
Condominiums
under construction
|
|
|
1,745 |
|
|
|
4,460 |
|
Rental
projects under construction or development
|
|
|
4,564 |
|
|
|
853 |
|
Investments
in real estate, net
|
|
|
259,303 |
|
|
|
254,576 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents – Direct Control
|
|
|
12,257 |
|
|
|
13,935 |
|
Cash
and cash equivalents – Multifamily Apartment Entities
|
|
|
11,778 |
|
|
|
10,977 |
|
Cash
and cash equivalents
|
|
|
24,035 |
|
|
|
24,912 |
|
Restricted
cash and escrow deposits
|
|
|
20,599 |
|
|
|
20,223 |
|
Investments
in unconsolidated real estate entities
|
|
|
5,121 |
|
|
|
6,528 |
|
Receivable
from bond proceeds
|
|
|
2,052 |
|
|
|
5,404 |
|
Accounts
receivable, net
|
|
|
1,445 |
|
|
|
2,676 |
|
Deferred
tax assets
|
|
|
32,799 |
|
|
|
34,075 |
|
Property
and equipment, net of accumulated depreciation
|
|
|
920 |
|
|
|
1,045 |
|
Deferred
charges and other assets, net of amortization of
|
|
|
|
|
|
|
|
|
$3,611
and $2,764, respectively
|
|
|
8,919 |
|
|
|
11,285 |
|
Total
Assets
|
|
$ |
355,193 |
|
|
$ |
360,724 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$ |
276,120 |
|
|
$ |
279,981 |
|
Recourse
debt
|
|
|
39,416 |
|
|
|
25,589 |
|
Accounts
payable and accrued liabilities
|
|
|
23,361 |
|
|
|
24,874 |
|
Deferred
income
|
|
|
200 |
|
|
|
3,214 |
|
Accrued
current income tax liability
|
|
|
14,755 |
|
|
|
14,620 |
|
Total
Liabilities
|
|
|
353,852 |
|
|
|
348,278 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Common
shares, $.01 par value, 10,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
5,229,954
shares issued and outstanding
|
|
|
|
|
|
|
|
|
as
of December 31, 2008 and December 31, 2007
|
|
|
52 |
|
|
|
52 |
|
Treasury
stock, 67,709 shares at cost
|
|
|
(376 |
) |
|
|
(376 |
) |
Additional
paid-in capital
|
|
|
18,144 |
|
|
|
17,377 |
|
Retained
(deficit) earnings
|
|
|
(16,479 |
) |
|
|
(4,607 |
) |
Total
Shareholders' Equity
|
|
|
1,341 |
|
|
|
12,446 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
355,193 |
|
|
$ |
360,724 |
|
The
accompanying notes are an integral part of these consolidated
statements.
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, 2006
|
|
|
5,229,954 |
|
|
$ |
52 |
|
|
$ |
(376 |
) |
|
$ |
17,238 |
|
|
$ |
(1,060 |
) |
|
$ |
15,854 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(541 |
) |
|
|
(541 |
) |
Dividends Paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,548 |
) |
|
|
(1,548 |
) |
Cumulative effect of change in accounting for FIN 48
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,458 |
) |
|
|
(1,458 |
) |
Vesting of restricted trustee shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
139 |
|
|
|
- |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2007
|
|
|
5,229,954 |
|
|
|
52 |
|
|
|
(376 |
) |
|
|
17,377 |
|
|
|
(4,607 |
) |
|
|
12,446 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(11,356 |
) |
|
|
(11,356 |
) |
Dividends paid
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(516 |
) |
|
|
(516 |
) |
Equity Compensation
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
767 |
|
|
|
- |
|
|
|
767 |
|
Balance
December 31, 2008
|
|
|
5,229,954 |
|
|
$ |
52 |
|
|
$ |
(376 |
) |
|
$ |
18,144 |
|
|
$ |
(16,479 |
) |
|
$ |
1,341 |
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(11,356 |
) |
|
$ |
(541 |
) |
Adjustments
to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
10,009 |
|
|
|
9,438 |
|
Distribution
to minority interests in excess of basis
|
|
|
1,587 |
|
|
|
1,988 |
|
Benefit
for deferred income taxes
|
|
|
1,276 |
|
|
|
(6,044 |
) |
Equity
in earnings-unconsolidated entities
|
|
|
(657 |
) |
|
|
(2,191 |
) |
Distribution
of earnings from unconsolidated entities
|
|
|
737 |
|
|
|
692 |
|
Cost
of land sales
|
|
|
9,572 |
|
|
|
11,169 |
|
Cost
of home sales
|
|
|
2,898 |
|
|
|
5,549 |
|
Impairment
charges
|
|
|
7,456 |
|
|
|
- |
|
Stock
based compensation expense
|
|
|
500 |
|
|
|
12 |
|
Amortization
of deferred loan costs
|
|
|
863 |
|
|
|
920 |
|
Changes
in notes and accounts receivable
|
|
|
1,231 |
|
|
|
1,644 |
|
Additions
to community development assets
|
|
|
(27,127 |
) |
|
|
(30,087 |
) |
Right
of way easement
|
|
|
- |
|
|
|
2,000 |
|
Homebuilding-construction
expenditures
|
|
|
(183 |
) |
|
|
(744 |
) |
Deferred
income-joint venture
|
|
|
(3,014 |
) |
|
|
(377 |
) |
Changes
in accounts payable, accrued liabilities
|
|
|
(1,111 |
) |
|
|
1,106 |
|
Net
cash used in operating activities
|
|
|
(7,319 |
) |
|
|
(5,466 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Investment
in rental property construction
|
|
|
(3,711 |
) |
|
|
(598 |
) |
Change
in investments - unconsolidated entities
|
|
|
1,327 |
|
|
|
1,562 |
|
Cash
from newly consolidated properties
|
|
|
- |
|
|
|
- |
|
Change
in restricted cash
|
|
|
(376 |
) |
|
|
(546 |
) |
Additions
to rental operating properties, net
|
|
|
(3,337 |
) |
|
|
(7,542 |
) |
Other
assets
|
|
|
1,324 |
|
|
|
(226 |
) |
Net
cash used in investing activities
|
|
|
(4,773 |
) |
|
|
(7,350 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Cash
proceeds from debt financing
|
|
|
12,395 |
|
|
|
24,957 |
|
Payment
of debt
|
|
|
(3,896 |
) |
|
|
(21,129 |
) |
County
Bonds proceeds, net of undisbursed funds
|
|
|
4,819 |
|
|
|
9,977 |
|
Payments
of distributions to minority interests
|
|
|
(1,587 |
) |
|
|
(1,988 |
) |
Dividends
paid to shareholders
|
|
|
(516 |
) |
|
|
(1,548 |
) |
Net
cash provided by financing activities
|
|
|
11,215 |
|
|
|
10,269 |
|
Net
Decrease in Cash and Cash Equivalents
|
|
|
(877 |
) |
|
|
(2,547 |
) |
Cash
and Cash Equivalents, Beginning of Year
|
|
|
24,912 |
|
|
|
27,459 |
|
Cash
and Cash Equivalents, End of Year
|
|
$ |
24,035 |
|
|
$ |
24,912 |
|
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") is a self-managed holding company that is primarily engaged in the
business of investing in and managing multifamily rental properties as well as
community development and homebuilding. ACPT’s operations are
primarily concentrated in the Washington, D.C. metropolitan area and Puerto
Rico and are carried out through its U.S. subsidiaries, American Rental
Properties Trust ("ARPT"), American Rental Management Company ("ARMC "),
American Land Development, Inc. ("ALD") and their subsidiaries and its Puerto
Rican subsidiary, IGP Group Corp. ("IGP Group").
ACPT is
taxed as a U.S. partnership and its income flows through to its
shareholders. ACPT is subject to Puerto Rico income taxes on IGP Group’s
taxable income, generating foreign tax credits that have been passed through to
ACPT’s shareholders. A federal tax regulation has been proposed that could
eliminate ACPT’s ability to pass through these foreign tax credits to its
shareholders. Comments on the proposed regulation are currently being
evaluated, and the final regulation will be effective for tax years beginning
after the final regulation is ultimately published in the Federal
Register. ACPT’s income consists of (i) certain passive income from
IGP Group, (ii) additional distributions from IGP Group including Puerto Rico
taxes paid on behalf of ACPT and (iii) dividends from ACPT’s U.S.
subsidiaries. Other than Interstate Commercial Properties (“ICP”), which
is a subsidiary of IGP Group and is taxed as a Puerto Rico corporation, the
income from the remaining Puerto Rico operating entities passes through to IGP
Group or ALD. Of this income, only the portion is attributable to the
profits, losses or gains on the residential land sold in our Parque Escorial
property passes through to ALD. ALD, ARMC, and ARPT are taxed as U.S.
corporations.
United
States Subsidiaries
ARPT
ARPT holds partnership interests in
entities that own 21 multifamily rental properties in Maryland and Virginia (the
"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 one
other third-party owned apartment community. Effective March 1,
2009, ARMC ceased managing the third-party owned apartment
community.
ALD
ALD owns interests in and operates
community developments, including the following:
1.
|
a
100% ownership interest in St. Charles Community LLC ("SCC LLC"), which
holds approximately 3,790 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 the balance of the residential
land in our Parque Escorial property in Puerto Rico held by Land
Development Associates, S.E. ("LDA"), a wholly owned subsidiary of
IGP;
|
3.
|
through
November 19, 2008, a 50% interest, through SCC LLC, in a land
development joint venture, St. Charles Active Adult Community, LLC
(“Active Adult Community”). ACPT sold its interest in Active
Adult Community to Lennar Corporation (“Lennar”) in the fourth quarter
2008; and
|
4.
|
effective
on October 28, 2008, a 50% interest in Surrey Homes, LLC (“Surrey Homes”),
which is a homebuilding company that was created to meet the needs of
developing communities in central Florida with a lot option, low overhead
model.
|
Puerto
Rican Subsidiaries
IGP
Group
IGP Group owns and operates the assets
of ACPT's Puerto Rico division indirectly through a 99% limited partner interest
and a 1% general partner interest in IGP (excluding the Class B interest in IGP
transferred to ALD). IGP's assets and operations include:
1.
|
a
100% ownership interest in LDA, a Puerto Rico special partnership which
holds 120 acres of land in the planned community of Parque Escorial in
Carolina, Puerto Rico (“Parque Escorial”) and 490 acres of land in
Canovanas, Puerto Rico;
|
2.
|
general
partner interests in nine partnerships, which collectively own and operate
a total of 12 multifamily rental facilities in Puerto Rico (the
“Puerto Rico Apartment Properties”), and a limited partner interest in two
of these partnerships;
|
3.
|
a
100% ownership interest in Escorial Office Building I, Inc. (“EOBI”), and,
through LDA and IGP, a 100% ownership interest in a Puerto Rico
corporation that operates a three-story, 56,000 square foot office
building in Carolina Puerto Rico;
|
4.
|
a
100% ownership interest in ICP, an entity that holds the partnership
interest in El Monte Properties S.E.
(“EMP”);
|
5.
|
a
limited partner interest in ELI, S.E. ("ELI"), an entity 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.
|
(2)
|
LIQUIDITY
RESOURCES AND DEBT MATURITIES
|
The
Company is in discussions with lenders to refinance or extend certain debt that
is scheduled to mature in the near term. The Company’s loans contain various
financial, cross collateral, cross default, technical and restrictive
provisions. The Company has two lines of credit and one non-recourse
mortgage that mature in 2009. In the United States, a $14,000,000
revolving line of credit loan that was set to mature on April 14, 2009 has been
extended to March 31, 2010 with quarterly scheduled payments as
follows: first quarter payment of $2,200,000 on March 31, 2009;
second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of
$300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December
31, 2008; and the remaining balance of approximately $571,000 in the first
quarter of 2010. Although the Company has extended this line of credit, the
Company continues to work with other lenders to replace this facility entirely.
The Company has certain financial covenants related to this revolving line of
credit. As of December 31, 2008, the Company failed to meet the
Minimum Net Worth covenant at the ACPT level as tangible net worth was
$1,341,000. The Company has received a waiver of this covenant
requirement through March 31, 2010. The failure to meet this covenant
did not impact any other debt agreements.
In Puerto
Rico, a $10,000,000 credit facility, with an outstanding balance of $4,327,000
as of December 31, 2008, matures on August 31, 2009. The
Company anticipates that the balance outstanding on this facility will be
approximately $8,300,000 as of August 31, 2009. While the
Company will seek to refinance the line into a construction loan for the
development of residential condominiums or extend the term of the facility, the
current state of the credit market may prevent these plans from
occurring. IGP, another subsidiary of the Company, provided a
guarantee on this credit facility; however, the lender’s recourse under this
guarantee is limited to the collateral, except in the case of fraud, intentional
misrepresentation, or misappropriation of income associated with the collateral.
In the event of a default, the lender’s sole recourse is to foreclose on the
property. An event of default on this facility will not affect any
other debt facility held by the Company. The collateral to support the line of
credit consists of 427 acres of land, which has a cost basis of $11,500,000 at
December 31, 2008. There is no income generated from this property as
it is in the planning stages for the development of the Company’s second planned
community in Puerto Rico.
Also in Puerto Rico, the Company has a mortgage balance maturing on April 30,
2009. As of December 31, 2008, the balance due was
$6,816,000. The Company is in the process of refinancing this
mortgage. However, should the Company be unable to negotiate or
refinance with acceptable terms, the sole collateral for this mortgage is the
Monserrate Associates apartment property, which has a cost basis of $3,785,000
at December 31, 2008. This property generated approximately
$2,700,000 of revenue and $400,000 of pre-tax income in 2008.
As a
result of the Company’s existing commitments and the downturn in the residential
real estate market, the Company expects to use its resources conservatively in
2009. Anticipated cash flow from operations, existing loans,
refinanced or extended loans, asset sales, and new financing are expected to
meet financial commitments for the next twelve months. However, there
are no assurances that these funds will be generated. Even without
refinancing or extending existing loans, the Company has sufficient liquidity to
satisfy its obligations as they come due, with the exception of the Puerto Rico
debt discussed above.
(3)
|
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 that are not variable interest entities as defined
by Financial Accounting Standard Board (“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, 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.
The
consolidated group includes ACPT and its four major subsidiaries, ARPT, ARMC,
ALD, and IGP Group. In addition, the consolidated group includes the
following other entities:
Alturas
del Senorial Associates Limited Partnership
|
|
Land
Development Associates S.E.
|
American
Housing Management Company
|
|
LDA
Group, LLC
|
American
Housing Properties L.P.
|
|
Milford
Station I, LLC
|
Bannister
Associates Limited Partnership
|
|
Milford
Station II, LLC
|
Bayamon
Garden Associates Limited Partnership
|
|
Monserrate
Associates Limited Partnership
|
Carolina
Associates Limited Partnership S.E.
|
|
New
Forest Apartments, LLC
|
Coachman's
Apartments, LLC
|
|
Nottingham
South, LLC
|
Colinas
de San Juan Associates Limited Partnership
|
|
Owings
Chase, LLC
|
Crossland
Associates Limited Partnership
|
|
Palmer
Apartments Associates Limited Partnership
|
Escorial
Office Building I, Inc.
|
|
Prescott
Square, LLC
|
Essex
Apartments Associates Limited Partnership
|
|
St.
Charles Community, LLC
|
Fox
Chase Apartments, LLC
|
|
San
Anton Associates S.E.
|
Gleneagles
Apartments, LLC
|
|
Sheffield
Greens Apartments, LLC
|
Headen
House Associates Limited Partnership
|
|
Torres
del Escorial, Inc.
|
Huntington
Associates Limited Partnership
|
|
Turabo
Limited Dividend Partnership
|
Interstate
Commercial Properties, Inc.
|
|
Valle
del Sol Associates Limited Partnership
|
Interstate
General Properties Limited Partnership, S.E.
|
|
Village
Lake Apartments, LLC
|
Jardines
de Caparra Associates Limited Partnership
|
|
Wakefield
Terrace Associates Limited Partnership
|
Lancaster
Apartments Limited Partnership
|
|
Wakefield
Third Age 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 4 for further
discussion regarding Investments in Unconsolidated Real Estate
Entities.
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 No.
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.
The costs of developing the land are allocated to our land assets and charged to
cost of sales as the related inventories are sold using the relative sales value
method which rely on estimated costs and sales values. In
accordance with SFAS No. 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 $1,502,000 and $1,424,000 at
December 31, 2008 and 2007, 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 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 charge 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.
In 2008,
ACPT recognized an impairment charge of $7,456,000 related to the revaluation of
the five Baltimore properties and the Hilltop project in Puerto Rico. During the first quarter
of 2009, the Company executed purchase agreements for the sale of three of the
five U.S. Apartment Properties in Baltimore, Maryland for
$29,200,000. The Company has received non-binding offers of
$6,598,000 and is negotiating agreements for the remaining two
properties. The primary factor driving the decision to sell was the
strategic disposition of underperforming assets. Based on those
offers, the Company has recorded an impairment charge of $1,256,000 during the
fourth quarter of 2008 to reduce the carrying value of the properties to their
estimated fair market value less costs to sell as of December 31, 2008 of
$35,400,000. The assets, liabilities, and results of operations for
these properties and the corresponding impairment charge are included in U.S.
Real Estate Operating segment. These properties represent $35,292,000
of the Company’s Operating Real Estate balance and $30,129,000 of the Company’s
non-recourse debt balance as of December 31, 2008.
Condominium pricing in Puerto Rico has
declined similar to those in the United States. However, construction
pricing has not declined in a similar manner as we are experiencing in the
United States. The Company has considered the Hilltop project in
Puerto Rico to be the premier parcel in the portfolio due to the views of the
island that will be enjoyed by future residents. Accordingly, the
Company had previously intended to build condominiums with expected selling
prices ranging from $350,000 to $400,000. However, sales of
condominiums in excess of $350,000 are not occurring in the areas immediately
surrounding Parque Escorial. The Company believes that construction
of a $350,000 product is no longer prudent and believes that construction
financing could not be obtained at that level. The Company is
now anticipating construction of a product similar to Torres. Due to
increased costs of construction and a decline in sales prices, the Company noted
that the expected total costs of the project exceeded the expected sales
proceeds. The Company has recorded an impairment charge of $6,200,000
in the fourth quarter of 2008 based on an assessment of discounted cash flows
assuming that the Company will build and sell condominium units on the parcel
similar to those built at Torres. The estimated value as of December
31, 2008 was $6,100,000. There were no impairment charges for the
year ended December 31, 2007.
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 charge 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 that 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, 2008 and 2007 related to its
completed real estate projects.
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 equipment 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,
and
|
·
|
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, 2008
and 2007 (in thousands):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building
|
|
$ |
266,071 |
|
|
$ |
265,115 |
|
Building
improvements
|
|
|
10,599 |
|
|
|
10,414 |
|
Equipment
|
|
|
13,749 |
|
|
|
13,603 |
|
|
|
|
290,419 |
|
|
|
289,132 |
|
Less: Accumulated
depreciation
|
|
|
159,202 |
|
|
|
150,292 |
|
|
|
|
131,217 |
|
|
|
138,840 |
|
Land
|
|
|
25,511 |
|
|
|
25,512 |
|
Operating
properties, net
|
|
$ |
156,728 |
|
|
$ |
164,352 |
|
Other
Property and Equipment
In
addition, the Company owned other property and equipment of $920,000 and
$1,045,000, net of accumulated depreciation of $2,553,000 and $2,294,000,
respectively, as of December 31, 2008 and December 31, 2007,
respectively.
Depreciation
Total
depreciation expense was $10,009,000 and $9,438,000 for the years ended December
31, 2008 and 2007, respectively.
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 minority partners’ 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, 2008 and 2007, we recorded in the consolidated financial
statements charges for excess partnership losses and distributions to minority
partners of approximately $187,000 and $352,000, 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.
As of December 31, 2008, the Company
had cash and cash equivalents of $24,035,000 and $20,599,000 in restricted
cash. Included in the Company’s cash and cash equivalents is
$11,778,000 of cash located within multifamily apartment entities, and to which
the Company does not have direct control. 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.
The Company provides for income taxes using the asset and liability method based
on the requirements of SFAS No. 109 (“FSAS 109”), “Accounting for Income
Taxes,” which includes an estimate of the amount of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company’s financial
statements or tax returns. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. The Company periodically assesses future realization of deferred
tax assets and the adequacy of deferred tax liabilities, including the results
of local, state, federal or foreign statutory tax audits or estimates and
judgments used.
Realization
of deferred tax assets associated with net operating loss and tax credit
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration in the applicable tax jurisdiction. Periodically, not
less than annually, the Company reviews the recoverability of tax assets
recorded on the balance sheet and the necessity of providing valuation
allowances, to reduce deferred tax assets to the amount that more likely than
not will be realized. Deferred tax assets are reduced if certain
subsidiaries’ cumulative operating losses exist, estimates of taxable income
during the carryforward period do not exist or are significantly reduced or
alternative tax strategies are not viable.
Effective
December 31, 2006, the Company adopted FASB Interpretation No. 48
(“FIN 48”), Accounting for Uncertainty in Income Taxes – an interpretation of
SFAS 109. FIN 48 provides guidance for the recognition threshold and
measurement attribute for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. In accordance
with FIN 48, the Company recognized a cumulative-effect adjustment of
$1,458,000, increasing the Company’s liability for uncertain tax positions,
interest, and penalties, and reducing the December 31, 2006 balance of
retained earnings. See Note 11 to the Company’s consolidated financial
statements for more information on income taxes.
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 taxed as corporations and as such 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). For 2008 and 2007, 8,000 and 7,000 shares, respectively, were excluded
from diluted shares due to their antidilution effect on earnings per
share. 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):
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(11,356 |
) |
|
$ |
(541 |
) |
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
5,217 |
|
|
|
5,207 |
|
Loss
per share:
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$ |
(2.18 |
) |
|
$ |
(0.10 |
) |
The Company accrues for dividends when
declared. During the year ended December 31, 2008, the Company
declared and paid cash dividends of $0.10 per share on 5,229,954 common shares
outstanding. During the year ended December 31, 2007, the Company
declared and paid cash dividends of $0.30 per share on 5,229,954 common shares
outstanding.
Share Based
Payments
In
accordance with Statement of Financial Accounting Standard (SFAS) No. 123(R)
“Share Based Payment,”
liability instruments are measured at fair value, and 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.
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. Specifically, the Company reclassified prior year
segment presentation to conform to a change in the current year segment
presentation. See Note 13 below for further discussion.
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
judgment, after considering past and current events and economic
conditions. Actual results could differ from those
estimates.
Impact
of Recently Adopted Accounting Standards
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and
in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” 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. The Company adopted
SFAS 157 on January 1, 2008, and it did not have a material
impact. SFAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The fair value
election is designed to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. The Company did not adopt any fair value
election upon adoption of SFAS 159. See Note 12 to the consolidated
financial statements for further discussion.
Impact
of Recently Issued Accounting Standards
On
December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”). SFAS 160 replaces the concept of minority interest with
noncontrolling interests in subsidiaries. Noncontrolling interests
will now be reported as a component of equity in the consolidated statement of
financial position. Earnings attributable to noncontrolling interests
will continue to be reported as a part of consolidated earnings; however, SFAS
160 requires that income attributable to both controlling and noncontrolling
interests be presented separately on the face of the consolidated income
statement. In addition, SFAS 160 provides that when losses
attributable to noncontrolling interests exceed the noncontrolling interest’s
basis, losses continue to be attributed to the noncontrolling interest as
opposed to being absorbed by the consolidating entity. SFAS 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS 160
shall be applied prospectively. SFAS 160 is effective for the first
annual reporting period beginning on or after December 15, 2008. This
statement is effective for us on January 1, 2009. Early adoption
is prohibited. As of January 1, 2009, the Company will reclassify
$882,000 from Minority Interest (currently shown in liabilities) to a new line
item, Noncontrolling Interests, to be included in shareholders’
equity. In addition, $13,687,000 of Minority Interest, which is
currently included in Retained Earnings as it represents distributions and
losses in excess of basis, will also be reclassified to the Noncontrolling
Interests line item.
On December 4,
2007, the FASB issued Statement No. 141R, “Business Combinations” (“SFAS
141R”). This statement changes the accounting for acquisitions
specifically eliminating the step acquisition model, changing the recognition of
contingent consideration from being recognized when it is probable to being
recognized at the time of acquisition, disallowing the capitalization of
transaction costs and delays when restructurings related to acquisitions can be
recognized. The standard is effective for fiscal years ending after
December 15, 2008 and will only impact the accounting for acquisitions we
make after its adoption. We expect SFAS 141R will have an impact on our
accounting for future business combinations once adopted, but the effect is
dependent upon the acquisitions that are made in the future.
(4)
|
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.
Apartment
Partnerships
The
unconsolidated apartment partnerships as of December 31, 2008 and December 31,
2007 included Brookside Gardens Limited Partnership (“Brookside”) and Lakeside
Apartments Limited Partnership (“Lakeside”) that collectively represent 110
rental units. We have determined that these two entities are variable
interest entities under FIN 46(R). However, the Company is not
required to consolidate the partnerships due to the fact that the Company is not
the primary beneficiary and does not bear the majority of the risk of expected
losses. The Company holds an economic interest in Brookside and Lakeside
but, as a general partner, we have significant influence over operations of
these entities that is disproportionate to our economic ownership. 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 $231,000 and for
Lakeside of $165,000 and $172,000 as of December 31, 2008, and December 31,
2007, 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 a 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 partner 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 two notes of
$1,500,000 each that bear an interest rate of prime plus 2%, with a ceiling of
9%, and were to mature on December 3, 2009. 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 the
notes to the partners whereby the Company received a $1,500,000
note. The Company determined that the cost recovery method of
accounting was appropriate for this transaction and accordingly, deferred
revenue recognition on this note until cash payment was received. In
January 2007, the Company received $1,707,000, equal to the full principal
amount due plus all accrued interest outstanding and, accordingly, recognized
$1,500,000 of equity in earnings from unconsolidated entities and $207,000 of
interest income. The Company has no required funding obligations and
management expects to wind up El Monte’s affairs in 2009.
Land
Development/Homebuilding Joint Ventures
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 managed 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 were reflected as deferred
revenue. The deferred revenue and related deferred costs were recognized
into income as the joint venture sold lots to Lennar. For the year
ended December 31, 2007, the joint venture delivered 48 lots to Lennar,
recognizing $1,063,000 in deferred revenue, off-site fees and management fees
and $358,000 of deferred costs. On November 19, 2008, the
Company sold to Lennar the Company’s 50% interest in St. Charles
Active Adult Community, LLC (the “Active Adult Community"). The
Company transferred all of its rights, title and interest in the Active Adult
Community, including the Company’s interest as the manager of the Active Adult
Community to Lennar for $3,467,000 in cash. The Company recognized
$2,792,000 in community development land sales revenues related to previously
unrecognized portions of the initial land sale to the joint
venture.
In
October 2008, the Company entered into an agreement with Surrey Homes, LLC to
contribute $2,000,000 over the next year in exchange for a 50% ownership
interest of the Series A Units. During the fourth quarter of 2008,
ACPT contributed $500,000 with the remainder to be contributed during the first
three quarters of 2009. Surrey Homes’ business model is focused on
providing affordable quality homes with the lowest ongoing cost of maintenance
through energy efficiency and other green initiatives. Surrey Homes
is establishing itself as a low overhead, lot option home
builder.
We have
determined that our investment in Surrey Homes is a variable interest entity
under FIN 46(R); however, we are not required to consolidate the partnership as
the Company is not the primary beneficiary and does not bear the majority of the
risk of expected losses. In accordance with SOP 78-9 and APB No. 18,
this investment is accounted for under the equity method. The Company
is exposed to losses consisting of our initial investment of $500,000 as of
December 31, 2008.
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 and homebuilding
operation, which are all accounted for as “investments in unconsolidated real
estate entities” on the balance sheet.
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
Apartment
|
|
|
Commercial
|
|
|
Development/
|
|
|
|
|
|
|
Properties
|
|
|
Property
|
|
|
Homebuilding
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Summary
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
4,781 |
|
|
$ |
27,005 |
|
|
$ |
2,478 |
|
|
$ |
34,264 |
|
December
31, 2007
|
|
|
4,980 |
|
|
|
27,379 |
|
|
|
12,397 |
|
|
|
44,756 |
|
Total
Non-Recourse Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
3,123 |
|
|
|
22,380 |
|
|
|
- |
|
|
|
25,503 |
|
December
31, 2007
|
|
|
3,189 |
|
|
|
22,960 |
|
|
|
4,722 |
|
|
|
30,871 |
|
Total
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
960 |
|
|
|
153 |
|
|
|
- |
|
|
|
1,113 |
|
December
31, 2007
|
|
|
976 |
|
|
|
147 |
|
|
|
741 |
|
|
|
1,864 |
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008 (2)
|
|
|
698 |
|
|
|
4,472 |
|
|
|
2,478 |
|
|
|
7,648 |
|
December
31, 2007 (2)
|
|
|
815 |
|
|
|
4,272 |
|
|
|
6,934 |
|
|
|
12,021 |
|
Company's
Investment, net (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
- |
|
|
|
4,632 |
|
|
|
489 |
|
|
|
5,121 |
|
December
31, 2007
|
|
|
(1 |
) |
|
|
4,701 |
|
|
|
1,828 |
|
|
|
6,528 |
|
Summary
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
827 |
|
|
|
3,567 |
|
|
|
1,626 |
|
|
|
6,020 |
|
Year
Ended December 31, 2007
|
|
|
811 |
|
|
|
3,636 |
|
|
|
4,983 |
|
|
|
9,430 |
|
Net
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
(118 |
) |
|
|
1,826 |
|
|
|
(22 |
) |
|
|
1,686 |
|
Year
Ended December 31, 2007
|
|
|
(141 |
) |
|
|
1,869 |
|
|
|
- |
|
|
|
1,728 |
|
Company's
recognition of equity in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
(1 |
) |
|
|
669 |
|
|
|
(11 |
) |
|
|
657 |
|
Year
Ended December 31, 2007
|
|
|
(1 |
) |
|
|
692 |
|
|
|
- |
|
|
|
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
90 |
|
|
|
1,814 |
|
|
|
1,576 |
|
|
|
3,480 |
|
Year
Ended December 31, 2007
|
|
|
101 |
|
|
|
1,864 |
|
|
|
3,977 |
|
|
|
5,942 |
|
Company's
share of cash flows from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
1 |
|
|
|
821 |
|
|
|
788 |
|
|
|
1,610 |
|
Year
Ended December 31, 2007
|
|
|
1 |
|
|
|
844 |
|
|
|
1,989 |
|
|
|
2,834 |
|
Operating
cash distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
- |
|
|
|
1,625 |
|
|
|
- |
|
|
|
1,625 |
|
Year
Ended December 31, 2007
|
|
|
- |
|
|
|
1,641 |
|
|
|
- |
|
|
|
1,641 |
|
Company's
share of operating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
- |
|
|
|
737 |
|
|
|
- |
|
|
|
737 |
|
Year
Ended December 31, 2007
|
|
|
- |
|
|
|
754 |
|
|
|
- |
|
|
|
754 |
|
Notes:
(1)
|
Represents
the Company's net investment, including assets and accrued liabilities in
the consolidated balance sheet for unconsolidated real estate
entities.
|
(2)
|
In
December 2007, the Company made a $300,000 equity contribution to Lakeside
which was used by Lakeside to pay an equal portion of the Development Fee
owed to the Company. The Company both contributed and received
the cash, and accordingly, the Company did not recognize fee income nor
change its investment balance in
Lakeside.
|
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, 2008 and 2007 (in thousands):
|
|
Maturity
|
|
|
Interest
|
|
|
Outstanding
as of
|
|
|
|
Dates
|
|
|
Rates
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
From/To
|
|
|
From/To
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Community
Development (a)(b)(c)(d)
|
|
04-15-09/03-01-23
|
|
|
3.25%/8% |
|
$ |
39,232 |
|
|
$ |
25,490 |
|
General
obligations (e)
|
|
06-01-09/03-13-12
|
|
|
Non-interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bearing/8.55%
|
|
|
|
184 |
|
|
|
99 |
|
Total
Recourse Debt
|
|
|
|
|
|
|
|
|
|
|
39,416 |
|
|
|
25,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Recourse
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Properties (f)(g)
|
|
04-30-09/08-01-47
|
|
|
4.95%/10%
|
|
|
276,120 |
|
|
|
279,981 |
|
Total
Non-Recourse Debt
|
|
|
|
|
|
|
|
|
|
|
276,120 |
|
|
|
279,981 |
|
Total
debt
|
|
|
|
|
|
|
|
|
|
$ |
315,536 |
|
|
$ |
305,570 |
|
a)
|
As
of December 31, 2008, $25,232,000 of the community development recourse
debt is owed to Charles County Commissioners and relates to the general
obligation bonds issued by the Charles County government, with 15 year
amortization of maturities, with the earliest in June 2019, as
described in detail under the heading "Financial Commitments" in Note
6. As of December 31, 2008, the Company has a receivable balance
related to the bonds of $2,052,000.
|
b)
|
On
April 14, 2006, the Company closed a three year $14,000,000 revolving
acquisition and development 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, bears interest
at Prime plus 0.75% (4.00% at December 31, 2008) and was set to mature on April 14, 2009 but has
been extended to March 31, 2010. 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, 2008,
$6,571,000 was outstanding on the Revolver. During the first quarter of
2009, the Company renegotiated the terms of the agreement. See
Note 2 for further discussion.
|
c)
|
LDA
has a $10,000,000 revolving line of credit facility that bears interest at
a fluctuating rate equivalent to the LIBOR Rate plus 225 basis points
(4.1% as of December 31, 2008) and matures on August 31,
2009. The facility is to be used to fund the development of
infrastructure of Parque Escorial and Parque El Comandante. The
outstanding balance of this facility on December 31, 2008, was
$4,327,000. See Note 2 for further
discussion.
|
d)
|
On
April 2, 2008, the Company secured a two-year, $3,600,000 construction
loan for the construction of a commercial restaurant/office building
within the O’Donnell Lake Restaurant Park. The facility is
secured by the land along with any improvements constructed and bears
interest at Wall Street Journal published Prime Rate (3.25% at December
31, 2008). At the end of the two-year construction period, the
Company may convert the loan to a 5-year permanent loan, amortized over a
30 year period at a fixed interest rate to be determined. As of
December 31, 2008, $3,102,000 was outstanding under this facility leaving
$498,000 available to fund completion of the building. As of
December 31, 2008, the building was substantially
complete.
|
e)
|
The
general recourse debt outstanding as of December 31, 2008, is made up of
various capital leases outstanding within our U.S. and Puerto Rico
operations, as well as installment loans for vehicles and other
miscellaneous equipment.
|
f)
|
The
non-recourse debt related to the investment properties is collateralized
by the multifamily rental properties and the office building in Parque
Escorial. As of December 31, 2008, approximately $73,642,000 of
this debt is secured by the Federal Housing Administration ("FHA") or the
Maryland Housing Fund. $10,732,000 of the non-recourse debt
balance is due in 2009.
|
g)
|
On
May 12, 2008, IGP agreed to provide a fixed charge and debt service
guarantee related to the Escorial Office Building I, Inc (“EOB”)
mortgage. The fixed charge and debt service guarantee requires
IGP to contribute capital in cash in such amounts required to cause EOB to
comply with the related financial covenants. The guarantee will
remain in full force until EOB has complied with the financial covenants
for four consecutive quarters.
|
The Company’s loans contain various
financial, cross collateral, cross default, technical and restrictive
provisions. As of December 31, 2008, the Company is in compliance
with all but one of its financial covenants and the other provisions of its loan
agreements. As of December 31, 2008, the Company failed to meet the
Minimum Net Worth restriction at the ACPT level as tangible net worth was
$1,341,000. The Company has received a waiver of this covenant
requirement through March 31, 2010.
ACPT's weighted average interest rate
on the amounts outstanding at December 31, 2008 and 2007 on its variable rate
debt was 3.6% and 7.23%, respectively.
The aggregate minimum principal
maturities of ACPT's indebtedness at December 31, 2008 are as follows (in
thousands):
2009
|
|
$ |
23,307 |
|
2010
|
|
|
9,039 |
|
2011
|
|
|
6,290 |
|
2012
|
|
|
6,653 |
|
2013
|
|
|
17,836 |
|
Thereafter
|
|
|
252,411 |
|
|
|
$ |
315,536 |
|
The components of interest and other
financing costs, net, are summarized as follows (in thousands):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expensed
|
|
$ |
17,405 |
|
|
$ |
18,726 |
|
Capitalized
|
|
|
2,776 |
|
|
|
1,451 |
|
|
|
$ |
20,181 |
|
|
$ |
20,177 |
|
(6)
|
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
for total Bonds issued to date of 5.1%, and call for semi-annual interest
payments and annual principal payments and mature in 15 years. Under
the terms of Bond repayment agreements between the Company and the County, the
Company is obligated to pay interest and principal to the County based 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 and the Lennar
agreement require ACPT to fund an escrow account from lot sales to be used to
repay the principal portion of 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, with an additional
$3,000,000 issued in both March 2007 and March 2008. These bonds bear
interest rates ranging from 4.9% to 5.75%, for a blended rate of 5.2%, call for
semi-annual interest payments and annual principal payments, and mature in 15
years. The terms of the bond repayment agreement are similar to those
noted above. In addition, the County agreed to issue an additional
100 school allocations a year to St. Charles commencing with the issuance of
bonds.
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. For the years ended December 31,
2008 and 2007 the Company recognized $78,000 and $540,000 of interest income on
these escrowed funds, respectively.
As of December 31, 2008, ACPT is
guarantor of $24,654,000 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
Agreements and Severance Arrangements
ACPT entered into a consulting
agreement with Carlos Rodriguez, the former Executive Vice President and Chief
Executive Officer for IGP, a wholly owned Puerto Rico subsidiary of ACPT,
effective July 1, 2008. Under the terms of the Consulting Agreement,
the Company will pay Mr. Rodriguez $100,000 per year through June
2010.
On June 24, 2008, ACPT and Cynthia L.
Hedrick mutually reached an agreement that Ms. Hedrick’s employment as Executive
Vice President and Chief Financial Officer of the Company would
end. In accordance with her employment agreement, Ms. Hedrick
received a lump sum payment of $600,000.
On October 1, 2008, Mr. Edwin L. Kelly
notified the Company that he would retire as the Company’s President and Chief
Operating Officer effective December 1, 2008. Pursuant to his
employment agreement, Mr. Kelly received a severance payment of
$1,500,000. The Company has also agreed to enter into a consulting
agreement with Mr. Kelly providing compensation for his services at a rate of
$10,000 per month, for an initial term of one year.
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, 2008, ACPT has
guaranteed $39,232,000 debt. 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 nine years. We do not expect any of these
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. The trial began in 2007 and continued throughout
2008. A judgment is expected to be entered near the end of
2009.
Capital
Park
In 2006, a group of approximately 60
tenants of Capital Park Towers Apartments (“Capital Park”) a property managed,
but not owned by ARMC and located at 301 G Street, S.W., Washington, D.C. filed
a tenant petition with the Rent Administrator for the District of Columbia
challenging increases in rent implemented with respect to said tenants units
during the previous three year period (“Initial Case”). Following the
initial petition, a group of 60 additional tenants filed a similar petition in
May of 2008. While the Company has numerous defenses to the claims
asserted in both cases, at this time management believes that potential exposure
to damages in these cases is probable and estimates the loss at approximately
$230,000. Generally, these types of losses are covered by our
insurance policies. However, the Company has recently been informed
that our insurance carrier intends to deny these claims. We intend to
vigorously defend against the claims asserted and will continue to pursue
coverage under our insurance policies. Given the current
circumstances, the Company accrued $230,000 in the third quarter 2008 related to
the potential losses. However, absent a settlement of the case, it
will likely take a number of years before the case is concluded and a final
determination rendered. The Company's Chairman has an economic
interest in the property related to a note receivable from Capital
Park.
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
certain matters discussed above. While we intend to vigorously defend
these matters and believe we have meritorious defenses available to us, there
can be no assurance that we will prevail. If these matters are not
resolved in our favor, we believe we are insured for potential losses unless
otherwise stated. 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
$77,000, exclusive of interest, are reported with general recourse debt in the
Debt Note (see Note 5). The following is a schedule of the future minimum lease
payments for operating leases as of December 31, 2008 (in
thousands):
|
|
Operating
|
|
|
|
Obligations
|
|
|
|
|
|
2009
|
|
$ |
358 |
|
2010
|
|
|
250 |
|
2011
|
|
|
42 |
|
2012
|
|
|
3 |
|
Total
minimum lease payments
|
|
$ |
653 |
|
Rental expense under non-cancelable
operating leases was $525,000 in 2008 and $424,000 in 2007 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, 2008 (in thousands):
|
|
Lease
|
|
|
|
Income
|
|
|
|
|
|
2009
|
|
$ |
788 |
|
2010
|
|
|
841 |
|
2011
|
|
|
674 |
|
2012
|
|
|
632 |
|
2013
|
|
|
644 |
|
Thereafter
|
|
|
1,007 |
|
Total
minimum lease payments
|
|
$ |
4,586 |
|
(8)
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Management and Other
Fees (A)
|
|
|
|
|
|
|
Unconsolidated
subsidiaries with third party partners
|
|
$ |
43 |
|
|
$ |
42 |
|
Affiliates
of J. Michael Wilson, Chairman
|
|
|
- |
|
|
|
43 |
|
|
|
$ |
43 |
|
|
$ |
85 |
|
|
|
|
|
|
|
|
|
|
Rental Property
Revenues (B)
|
|
$ |
36 |
|
|
$ |
57 |
|
|
|
|
|
|
|
|
|
|
Interest and Other Income
|
|
|
|
|
|
|
|
|
Unconsolidated
real estate entities with third party partners
|
|
$ |
8 |
|
|
$ |
8 |
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
General and Administrative
Expense
|
|
|
|
|
|
|
|
|
|
Reserve
additions and other write-offs-
|
|
|
|
|
|
|
|
|
|
Unconsolidated
real estate entities with third party partners
|
|
(A)
|
|
|
$ |
(16 |
) |
|
$ |
43 |
|
Reimbursement
to IBC for ACPT's share of
|
|
|
|
|
|
|
|
|
|
|
|
J.
Michael Wilson's compensation
|
|
|
|
|
|
415 |
|
|
|
390 |
|
Reimbursement
of administrative costs-
|
|
|
|
|
|
|
|
|
|
|
|
Affiliates
of J. Michael Wilson, Chairman
|
|
|
|
|
|
(18 |
) |
|
|
(23 |
) |
Legal
fees paid to J. Michael Wilson’s attorney
|
|
|
(C3 |
) |
|
|
- |
|
|
|
225 |
|
Consulting
Fees -
|
|
|
|
|
|
|
|
|
|
|
|
|
James
J. Wilson, IWT Chairman
|
|
|
(C1 |
) |
|
|
150 |
|
|
|
200 |
|
Thomas
J. Shafer, Trustee
|
|
|
(C2 |
) |
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
$ |
591 |
|
|
$ |
895 |
|
BALANCE
SHEET:
|
|
|
Balance
|
|
|
Balance
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
Receivables
- All unsecured and due on demand
|
|
|
|
|
|
|
|
Unconsolidated
subsidiaries
|
|
|
$ |
10 |
|
|
$ |
- |
|
Affiliate
of J. Michael Wilson, Chairman
|
|
|
|
2 |
|
|
|
5 |
|
|
|
|
$ |
12 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
(C4)
|
|
$ |
562 |
|
|
$ |
- |
|
(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.
At the
end of February 2007, G.L. Limited Partnership, which was owned by affiliates of
J. Michael Wilson, was sold to a third party. Accordingly, we are no
longer the management agent for this property effective March 1,
2007. Management fees generated by this property accounted for less
than 1% of the Company’s total revenue.
(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. On
February 25, 2008, CWT executed its rights under the lease and provided six
months written notice of its intention to terminate the lease, effective August
24, 2008. 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)
|
Represents
fees paid to James J. Wilson pursuant to a consulting and retirement
agreement. At Mr. Wilson's request, payments are made to
Interstate Waste Technologies, Inc.
(“IWT”).
|
2)
|
Represents
fees paid to Thomas J. Shafer, a Trustee, pursuant to a consulting
agreement.
|
3)
|
The
Independent Trustees concluded that certain legal fees and expenses
incurred by J. Michael Wilson in connection with the preliminary work
being done in seeking a strategic partner to recapitalize the Company are
in the best interest of the Company and the minority
shareholders. Accordingly, the Independent Trustees authorized
the Company to fund up to $225,000 of such costs, all of which have been
incurred as of December 31, 2007.
|
4)
|
A
primary shareholder of the Company agreed in principle to provide the
Company’s Chief Executive Officer with the economic benefit of 185,550
shares of their common stock as of October 1, 2008. According to
SFAS 123(R), any share-based payments awarded to an employee of the
reporting entity by a related party for services provided to the entity
are share-based payment transactions under SFAS123(R) unless the transfer
is clearly for a purpose other than compensation for services to the
reporting entity. Therefore, in essence, the economic interest
holder makes a capital contribution to the reporting entity, and the
reporting entity makes a share-based payment to its employee in exchange
for services rendered. The Company has recognized $562,000 in
compensation expense in 2008 related to this
grant. |
Related Party
Acquisitions
El
Monte
On April
30, 2004, the Company purchased a 50% limited partner 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 two notes of $1,500,000 each that bear an
interest rate of prime plus 2%, with a ceiling of 9%, and mature on December 3,
2009. 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 a $1,500,000 note to the Company in January
2005. On January 24, 2007, the Company received $1,707,000 as payment
in full of the principal balance and all accrued interest related to the El
Monte note receivable. Accordingly, in 2007 the Company recorded
$1,500,000 as equity in earnings and $207,000 as interest income.
(9)
|
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. Both plans expired July 7,
2008.
Under the Share Incentive Plan, the
Compensation Committee of the Board of Trustees (the "Compensation Committee")
granted 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 were
reserved for issuance under the Share Incentive Plan.
The Share Incentive Plan authorized the
Compensation Committee to determine the exercise price and manner of payment for
Options and the base price for Rights. The Compensation Committee was
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 were not transferable
other than to immediate family members or by will or the laws of interstate
succession.
The Trustee Share Plan authorized 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 were not employees of ACPT or any affiliated
company were eligible to receive Awards under the Trustee Share
Plan. A total of 52,000 registered shares were 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 June 2008, the Company accelerated the vesting of the shares of
two trustees, who did not return to the Board of Trustees, with all previously
unvested shares vesting as of June 30, 2008. 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 $175,000 and
$129,000 for the year ended December 31, 2008 and 2007,
respectively.
Employee Share
Grants
During
the fourth quarter of 2008, ACPT and the Chief Executive Officer entered into an
employment agreement, which included restricted stock awards with both
performance and time vesting criteria. ACPT has agreed to award
363,743 in common shares with 50% subject to time vesting equally over the next
five years on the anniversary of the grant and 50% subject to performance
vesting over a period not to exceed five years. ACPT will not be able
to issue shares until the plan has been approved by the shareholders of the
Company. Once the plan is approved, the shares will be
issued. In accordance with SFAS 123(R), ACPT began accruing
compensation cost for the 50% time vesting portion of the equity awards based on
the current fair value using a grant date of October 1, 2008, the date of the
completed employee agreement. The value will be remeasured on a
quarterly basis until the measurement date, when the total compensation costs to
be accrued over the next five years will be determinable. The Company
has recognized $39,000 in compensation expense in 2008. For the
remaining portion of the award, the performance criteria have not yet been
established or approved. Therefore, the factors pertinent to
determining the value of the compensation have not been
determined. Once the criteria have been finalized, grant and
measurement dates for the remaining 50% subject to performance vesting will be
established. Accruals of compensation cost for this portion of the
award will be based on the probable outcome of those performance
conditions.
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, 2008, there are 10,400 outstanding Rights which are all
exercisable and expire on April 30, 2011. During 2008 and 2007, the
Company recognized $(128,000) and $(47,000), respectively, of compensation
expense in connection with the outstanding Rights.
(10)
|
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 $230,000 for 2008) 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 $597,000 and $615,000, in
2008 and 2007, respectively.
ACPT’s
subsidiaries, 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. The reconciliation below for the provision for income
taxes includes income from ARMC, ALD, ARPT and Puerto Rico source
income. The 2008 permanent differences reflect special tax exempt
income, tax rate differences between jurisdictions for land investment, a
valuation on the net deferred tax asset, certain non-deductible expenses passed
through to shareholders, non-deductible equity compensation, foreign tax
credits, and certain losses for which no benefit can be
recognized. The 2007 permanent differences reflect special tax exempt
income and certain non-deductible expenses passed through to
shareholders.
The
following table reconciles the effective rate to the statutory rate (in
thousands, except amounts in %):
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
%
of
|
|
|
|
|
|
%
of
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
at statutory U.S. federal
|
|
|
|
|
|
|
|
|
|
|
|
|
income tax rate
|
|
$ |
(3,676 |
) |
|
|
35.0
|
% |
|
$ |
(297 |
) |
|
|
35.0 |
% |
State
income taxes, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
federal tax benefit
|
|
|
(213 |
) |
|
|
2.0
|
% |
|
|
(128 |
) |
|
|
15.1 |
% |
Income
only subject to foreign tax
|
|
|
384 |
|
|
|
(3.7 |
)% |
|
|
(118 |
) |
|
|
14.0 |
% |
Permanent
differences
|
|
|
(8 |
) |
|
|
0.1 |
% |
|
|
112 |
|
|
|
(13.2 |
)% |
Net
change in uncertain tax positions
|
|
|
44 |
|
|
|
(0.4 |
)% |
|
|
231 |
|
|
|
27.3 |
% |
Losses
not recognized
|
|
|
2,042 |
|
|
|
(19.4 |
)% |
|
|
- |
|
|
|
- |
|
Investment
basis adjustment
|
|
|
(1,725 |
) |
|
|
16.4 |
% |
|
|
- |
|
|
|
- |
|
Equity
compensation
|
|
|
226 |
|
|
|
(2.1 |
)% |
|
|
- |
|
|
|
- |
|
Foreign
tax credit
|
|
|
345 |
|
|
|
(3.3 |
)% |
|
|
- |
|
|
|
- |
|
Net
change in valuation allowance
|
|
|
3,403 |
|
|
|
(32.4 |
)% |
|
|
- |
|
|
|
- |
|
Other
|
|
|
31 |
|
|
|
(0.3 |
)% |
|
|
(107 |
) |
|
|
12.6 |
% |
Income
tax provision (benefit)
|
|
$ |
853 |
|
|
|
(8.1 |
)% |
|
$ |
(307 |
) |
|
|
36.2 |
% |
The provision for income taxes includes the following components (in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
United
States
|
|
$ |
(419 |
) |
|
$ |
4,439 |
|
Puerto
Rico
|
|
|
(4 |
) |
|
|
376 |
|
|
|
|
(423 |
) |
|
|
4,815 |
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
United
States
|
|
|
1,628 |
|
|
|
(5,664 |
) |
Puerto
Rico
|
|
|
(352 |
) |
|
|
542 |
|
|
|
|
1,276 |
|
|
|
(5,122 |
) |
Income
tax provision (benefit)
|
|
$ |
853 |
|
|
$ |
(307 |
) |
The income
tax expense associated with the vesting of trustee stock grants increased income
taxes on the Consolidated Balance Sheet by $9,000 as of December 31, 2008 and
decreased income taxes by $10,000 as of December 31, 2007. Additional
paid in capital was credited and debited for the years ended December 31, 2008
and 2007, respectively, to reflect these income tax effects.
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 (in
thousands):
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Deferred
income related to long-term receivables from
partnerships operating in Puerto Rico
|
|
$ |
282 |
|
|
$ |
282 |
|
Receivables
from partnerships operating in United States
|
|
|
1,189 |
|
|
|
1,189 |
|
Tax
benefit on equity in earnings of partnerships operating in Puerto
Rico
|
|
|
(6,935 |
) |
|
|
(6,875 |
) |
Tax
benefit on equity in earnings of partnerships operating in United
States
|
|
|
(8,882 |
) |
|
|
(9,428 |
) |
Tax
on deferred income
|
|
|
(1,020 |
) |
|
|
(1,217 |
) |
Tax
on land development costs capitalized for book purposes but deducted
currently for tax purposes
|
|
|
(15,132 |
) |
|
|
(12,804 |
) |
Tax
on differences in basis related to joint venture in United
States
|
|
|
- |
|
|
|
(705 |
) |
Tax
on differences in basis related to land in United States
|
|
|
(2,538 |
) |
|
|
(2,574 |
) |
Tax
on differences in basis related to land in Puerto Rico
|
|
|
(19 |
) |
|
|
(66 |
) |
Tax
on basis difference for Puerto Rico commercial venture
|
|
|
1,188 |
|
|
|
1,337 |
|
Allowance
for doubtful accounts
|
|
|
(300 |
) |
|
|
(294 |
) |
Accrued
expenses
|
|
|
(2,946 |
) |
|
|
(2,395 |
) |
Net
operating losses
|
|
|
(612 |
) |
|
|
- |
|
Alternative
minimum tax credits
|
|
|
(197 |
) |
|
|
(150 |
) |
Other
|
|
|
(280 |
) |
|
|
(375 |
) |
Net
deferred tax asset before valuation allowance
|
|
|
(36,202 |
) |
|
|
(34,075 |
) |
Valuation
allowance
|
|
|
3,403 |
|
|
|
- |
|
Net
deferred tax asset
|
|
$ |
(32,799 |
) |
|
$ |
(34,075 |
) |
Maryland
legislation enacted during the fourth quarter of 2007 increased the income tax
rate from 7% to 8% effective for periods after December 31, 2007. As
a result of the Maryland legislation, the ending December 31, 2007 deferred
asset and the deferred expense were increased by $460,000.
Deferred
income taxes reflect the impact of temporary differences between the amounts of
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. The Company records the current year
amounts payable or refundable, as well as the consequences of events that give
rise to deferred tax assets and liabilities based on differences in how these
events are treated for tax purposes. Management bases the estimate of deferred
tax assets and liabilities on current tax laws and rates and, in certain cases,
business plans and other expectations about future outcomes. The Company
provides a valuation allowance against the net deferred tax assets when it is
more likely than not that sufficient taxable income will not be generated to
utilize the net deferred tax assets.
At
December 31, 2008, the Company recorded a valuation allowance of $3,403,000
against its net deferred tax asset for components for which the Company
concluded it was more likely than not that the deferred tax asset could not be
realized. Realization of future benefits related to a net deferred
tax asset is dependent on many factors, such as the ability to generate future
taxable income, capital or ordinary, in the near future. Since future
earnings for one or more of the Company’s subsidiaries are uncertain, management
cannot predict whether certain net deferred tax assets will be realized; and
therefore, management provided valuation allowances for certain net deferred tax
assets. Included in this valuation was an amount related to
NOL carryforwards of $1,523,000, $613,000 tax effected, which begin to
expire in 2027. Additionally,
it is likely the Company may generate future capital losses related to tax
benefits recorded as deferred tax assets at December 31,
2008. However, the Company cannot reasonably predict future capital
gains in the near term to offset all of the tax benefit currently
recorded. Accordingly, the Company recorded as part of the overall
deferred tax asset valuation allowance $198,000 related to projected future
capital losses of $493,000. Another component of the deferred tax
valuation allowance relates to alternative minimum tax (“AMT”) credit
carryforwards recorded as deferred tax assets at December 31,
2008. The Company has concluded that the realization of these
benefits is not more likely than not and accordingly, a valuation allowance of
$197,000 was provided. The balance of the deferred tax valuation allowance,
$2,395,000 relates to certain other subsidiary deferred tax benefits for which
it is uncertain that sufficient future earnings will be generated and therefore,
the Company concluded that realization of those certain subsidiary deferred tax
assets was not more likely than not.
The
alternative minimum tax (“AMT”) credit carryforwards at December 31, 2008 and
2007 were $197,000 and $150,000, respectively. Since the Company cannot
predict future use of the AMT credits, a full valuation allowance for these
deferred benefits has been provided.
The
Company adopted the provisions of FIN 48 on January 1, 2007. As a
result of the implementation of FIN 48, the Company recorded a $1,458,000
increase in the net liability for unrecognized tax positions, which was recorded
as a cumulative effect of a change in accounting principle, reducing the opening
balance of retained earnings on January 1, 2007.
The total
amount of unrecognized tax benefits as of December 31, 2008, was
$15,543,000. Included in the balance at December 31, 2008, were
$39,000 of tax positions that, if recognized, would affect the effective tax
rate. A reconciliation of the beginning and ending amount of
unrecognized tax benefit (in thousands) is as follows:
Unrecognized
tax benefit at beginning of period (December 31, 2007)
|
|
$ |
14,869 |
|
Change
attributable to tax positions taken during a prior period
|
|
|
1,277 |
|
Change
attributable to tax positions taken during the current
period
|
|
|
- |
|
Decrease
attributable to settlements with taxing authorities
|
|
|
(577 |
) |
Decrease
attributable to lapse of statute of limitations
|
|
|
(26 |
) |
Unrecognized
tax benefit at end of period (December 31, 2008)
|
|
$ |
15,543 |
|
In
accordance with our accounting policy, the Company presents accrued interest
related to uncertain tax positions as a component of interest expense and
accrued penalties as a component of income tax expense on the Consolidated
Statement of Income. The Company's Consolidated Statements of Income
for the year ended December 31, 2008 and 2007 included interest expense of
$1,403,000 and $1,233,000, respectively and penalties of $28,511 and $200,000,
respectively. Our Consolidated Balance Sheets as of December 31, 2008
and December 31, 2007, included accrued interest of $4,216,000 and $2,814,000,
respectively and accrued penalties of $1,113,821 and $1,085,000,
respectively.
The
Company currently does not have any tax returns under audit by the United States
federal or state taxing authorities or the Puerto Rico Treasury
Department. However, the tax returns filed in the United States for
the years ended December 31, 2005 through 2008 remain subject to
examination. For Puerto Rico, the tax returns for the years ended
December 31, 2004 through 2008 remain subject to examination. For tax
purposes, the Company applied for a change in method of accounting for certain
contracts, and during the quarter ended December 31, 2008, the IRS approved the
change in method. Therefore, there was a decrease in the unrecognized
tax benefit of $577,000. Within the next twelve months, the Company
does not anticipate any payments related to settlement of any tax
examinations. There is a reasonable possibility within the next
twelve months the amount of unrecognized tax benefits will decrease by $578,000
when the related statutes of limitations expire and certain payments are
recognized as taxable income.
(12)
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
No. 157) for financial assets and liabilities. SFAS No. 157
clarifies the definition of fair value, prescribes methods for measuring fair
value, establishes a fair value hierarchy based on the inputs used to measure
fair value and expands disclosures about the use of fair value
measurements. The adoption of SFAS No. 157 did not have a
material impact on our fair value measurements.
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 and represent Level 1 under the fair value hierarchy in SFAS No.
157.
We measure long term debt at fair value on a recurring basis. As
of December 31, 2008, the book value of long-term fixed rate debt was
$294,721,000, and the fair value of total debt was $343,076,000. As
of December 31, 2007 the book value of long-term fixed rate debt was
$296,735,000, and the fair value of total debt was $311,988,000. Fair
value was determined by discounting future cash flows using borrowing rates
currently available to the Company for debt with similar terms and
maturities. The significant unrealized gains resulted from a decline
in the 10 Year Treasury Rate from 4.10% at December 31, 2007 to 2.24% at
December 31, 2008. This represents Level 3 under the fair value
hierarchy in SFAS No. 157.
Reconciliation
for the year ended December 31, 2008
|
|
(in
thousands)
|
|
|
|
Fair
value as of January 1, 2008
|
|
$ |
311,988 |
|
Purchases,
issuances, and
|
|
|
|
|
settlements
|
|
|
(3 |
) |
Unrealized gains
|
|
|
31,091 |
|
Fair
value as of December 31, 2008
|
|
$ |
343,076 |
|
ACPT operated in two principal lines of
business in 2008: Operating Real Estate and Land Development. The
Operating Real Estate segment is comprised of ACPT’s investments in rental
properties and property management services; whereas, the Land Development
segment is comprised of ACPT’s community development and homebuilding services.
This represents a change from ACPT’s historical financial reporting practice of
evaluating the company solely based on geographical location. During
the fourth quarter of 2008, the Company had a change in senior
management. The chief operating decision maker emphasizes net
operating income as a key measurement of segment profit or
loss. Segment net operating income is generally defined as segment
revenues less direct segment operating expenses. Management is now
evaluating the Company based on its operating lines of business, Operating Real
Estate and Land Development. While ACPT continues to report operating
results on a consolidated basis, it also now reports separately the operating
results of its two lines of business. The Company has reclassified
its financial statements for 2007 to include the results of these segments.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Operating
Real Estate
The Operating Real Estate segments in
the U.S. and Puerto Rico are comprised of investments in rental properties and
property management services. The Operations are managed through
American Rental Properties Trust ("ARPT"), American Rental Management Company
("ARMC"), and Interstate General Properties Limited Partnership S.E. ("IGP"), a
wholly owned subsidiary of IGP Group Corp., which is a wholly owned subsidiary
of ACPT. ARPT and its subsidiaries hold the general and limited
partnership interests in our U.S. Operating Real Estate apartment property
portfolio. The apartment properties are individually organized into
separate entities. ARPT's ownership in these entities ranges from 0.1% to
100%. The U.S. Operating Real Estate operations also include the
management of apartment properties in which we have an ownership interest and
one apartment property owned by a third party in 2008. Effective
March 1, 2009, ARMC will no longer manage the rental community not owned by
ACPT.
|
|
For the years
ended |
|
U.S. Operating Real Estate:
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
39,515 |
|
|
$ |
38,416 |
|
Operating expenses
|
|
|
18,189 |
|
|
|
19,235 |
|
Net
operating income
|
|
|
21,326 |
|
|
|
19,181 |
|
Management
and other fees, substantially all from related entities
|
|
|
157 |
|
|
|
194 |
|
General,
administrative, selling and marketing
|
|
|
(1,441 |
) |
|
|
(2,252 |
) |
Impairment
charges
|
|
|
(1,256 |
) |
|
|
- |
|
Depreciation
and amortization
|
|
|
(6,082 |
) |
|
|
(5,592 |
) |
Operating
income
|
|
|
12,704 |
|
|
|
11,531 |
|
Other
expense
|
|
|
(10,405 |
) |
|
|
(9,998 |
) |
Income
before provision (benefit) for income taxes
|
|
|
2,299 |
|
|
|
1,533 |
|
Provision
(benefit) for income taxes
|
|
|
1,624 |
|
|
|
(463 |
) |
Net
income
|
|
$ |
675 |
|
|
$ |
1,996 |
|
|
|
As
of
|
|
|
As
of
|
|
U.S. Operating Real
Estate Balance Sheet: |
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Investments
in real estate, net
|
|
$ |
110,412 |
|
|
$ |
115,479 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
7,008 |
|
|
|
12,139 |
|
Restricted
cash and escrow deposits
|
|
|
7,763 |
|
|
|
8,359 |
|
Deferred
tax assets
|
|
|
7,807 |
|
|
|
10,131 |
|
Deferred
charges and other assets, net of amortization
|
|
|
54,256 |
|
|
|
49,872 |
|
Total
Assets
|
|
$ |
187,246 |
|
|
$ |
195,980 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$ |
189,951 |
|
|
$ |
192,274 |
|
Recourse
debt
|
|
|
257 |
|
|
|
152 |
|
Other
liabilities
|
|
|
7,770 |
|
|
|
9,160 |
|
Accrued
income tax liability-current
|
|
|
(1,047 |
) |
|
|
(474 |
) |
Total
Liabilities
|
|
|
196,931 |
|
|
|
201,112 |
|
Total
Shareholders' Equity
|
|
|
(9,685 |
) |
|
|
(5,132 |
) |
Total
Liabilities and Shareholders' Equity
|
|
$ |
187,246 |
|
|
$ |
195,980 |
|
The
Puerto Rican Operating Real Estate operations, via IGP, provides property
management services to multifamily rental properties in Puerto Rico in which we
have an ownership interest, apartment properties owned by third parties, our
commercial properties, and home-owner 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%.
|
For the years ended
|
Puerto
Rican Operating Real Estate:
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
$ |
22,728 |
|
|
$ |
22,306 |
|
Operating
expenses
|
|
|
11,512 |
|
|
|
11,433 |
|
Net
operating income
|
|
|
11,216 |
|
|
|
10,873 |
|
Management
and other fees, substantially all from related entities
|
|
|
624 |
|
|
|
635 |
|
General,
administrative, selling and marketing
|
|
|
(3,631 |
) |
|
|
(3,159 |
) |
Depreciation
and amortization
|
|
|
(3,769 |
) |
|
|
(3,694 |
) |
Operating
income
|
|
|
4,440 |
|
|
|
4,655 |
|
Other
expense
|
|
|
(5,837 |
) |
|
|
(4,536 |
) |
(Loss
) income before provision for income taxes
|
|
|
(1,397 |
) |
|
|
119 |
|
Provision
for income taxes
|
|
|
37 |
|
|
|
373 |
|
Net
loss
|
|
$ |
(1,434 |
) |
|
$ |
(254 |
) |
|
|
As
of
|
|
|
As
of
|
|
Puerto Rican
Operating Real Estate Balance Sheet: |
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Investments
in real estate
|
|
$ |
48,042 |
|
|
$ |
50,601 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
6,825 |
|
|
|
5,120 |
|
Restricted
cash and escrow deposits
|
|
|
10,434 |
|
|
|
10,771 |
|
Investments
in unconsolidated real estate entities
|
|
|
6,819 |
|
|
|
13,583 |
|
Deferred
charges and other assets, net of amortization
|
|
|
19,632 |
|
|
|
21,683 |
|
Total
Assets
|
|
$ |
91,752 |
|
|
$ |
101,758 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$ |
86,170 |
|
|
$ |
87,707 |
|
Recourse
debt
|
|
|
5,215 |
|
|
|
6,455 |
|
Other
liabilities
|
|
|
5,291 |
|
|
|
5,402 |
|
Accrued
income tax liability-current
|
|
|
(1 |
) |
|
|
3 |
|
Total
Liabilities
|
|
|
96,675 |
|
|
|
99,567 |
|
Total
Shareholders' Equity
|
|
|
(4,923 |
) |
|
|
2,191 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
91,752 |
|
|
$ |
101,758 |
|
Land
Development
The Land Development Operation involves
community development and homebuilding services in the U.S. and Puerto
Rico. The Operations are managed through American Land Development,
Inc. ("ALD") and Land Development Associates, S.E. ("LDA"). ALD and
its subsidiary comprise the U.S. Land Development operations and 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. We also remain open to construction and acquisition of additional
properties that will add value to our existing investment assets. ALD also
had a 50% interest in a land development joint venture formed to develop land
for an active adult community in St. Charles until we sold our interest in the
venture in November 2008. In October 2008, the Company entered into
an agreement with Surrey Homes, LLC to contribute $2,000,000 over the next year
in exchange for a 50% ownership interest of the Series A
Units. Surrey Homes was created to be a lot option, low overhead
homebuilder servicing communities in central Florida.
Revenues
from Lennar include residential land sales as well as certain management
fees. Total revenues from Lennar within our U.S. Land Development
Operation were $12,438,000 for the year ended December 31, 2008 which represents
84% of the Operation’s revenue and 15% 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, 2008.
|
For
the years ended |
U.S.
Land Development Operations:
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
Community
development - land sales
|
|
$ |
14,726 |
|
|
$ |
14,486 |
|
Management
and other fees, substantially all from related entities
|
|
|
- |
|
|
|
142 |
|
Total
revenues
|
|
|
14,726 |
|
|
|
14,628 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost
of land sales
|
|
|
9,572 |
|
|
|
11,169 |
|
General,
administrative, selling and marketing
|
|
|
3,558 |
|
|
|
2,734 |
|
Depreciation
and amortization
|
|
|
5 |
|
|
|
5 |
|
Total
expenses
|
|
|
13,135 |
|
|
|
13,908 |
|
Operating
income
|
|
|
1,591 |
|
|
|
720 |
|
Other
expense
|
|
|
(2,584 |
) |
|
|
(2,056 |
) |
(Loss)
income before benefit for income taxes
|
|
|
(993 |
) |
|
|
(1,336 |
) |
Benefit
for income taxes
|
|
|
(406 |
) |
|
|
(654 |
) |
Net
loss
|
|
$ |
(587 |
) |
|
$ |
(682 |
) |
|
|
As of
|
|
|
As of
|
|
U.S. Land
Development Balance Sheet: |
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Investments
in real estate
|
|
$ |
81,821 |
|
|
$ |
64,236 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
10,140 |
|
|
|
7,416 |
|
Restricted
cash and escrow deposits
|
|
|
2,399 |
|
|
|
1,087 |
|
Deferred
tax assets
|
|
|
19,151 |
|
|
|
18,493 |
|
Deferred
charges and other assets, net of amortization
|
|
|
(37,176 |
) |
|
|
(22,178 |
) |
Total
Assets
|
|
$ |
76,335 |
|
|
$ |
69,054 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Non-recourse
debt
|
|
$ |
- |
|
|
$ |
- |
|
Recourse
debt
|
|
|
37,542 |
|
|
|
27,556 |
|
Other
liabilities
|
|
|
13,383 |
|
|
|
17,331 |
|
Accrued
income tax liability-current
|
|
|
15,803 |
|
|
|
15,013 |
|
Total
Liabilities
|
|
|
66,728 |
|
|
|
59,900 |
|
Total
Shareholders' Equity
|
|
|
9,607 |
|
|
|
9,154 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
76,335 |
|
|
$ |
69,054 |
|
Puerto
Rican Land Development operations hold our community development assets in
Puerto Rico, consisting of two planned communities, owned by 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 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 partner interest in two commercial buildings in Parque Escorial opened
in 2001 and 2005 which were built on land contributed by LDA.
|
For
the years ended |
Puerto
Rican Land Development Operations:
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
Homebuilding
– home sales
|
|
$ |
3,730 |
|
|
$ |
7,580 |
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Cost
of home sales
|
|
|
2,898 |
|
|
|
5,549 |
|
General,
administrative, selling and marketing
|
|
|
341 |
|
|
|
503 |
|
Impairment
charges
|
|
|
6,200 |
|
|
|
- |
|
Total
expenses
|
|
|
9,439 |
|
|
|
6,052 |
|
Operating
(loss) income
|
|
|
(5,709 |
) |
|
|
1,528 |
|
Other
income
|
|
|
698 |
|
|
|
1,085 |
|
(Loss)
income before provision for income taxes
|
|
|
(5,011 |
) |
|
|
2,613 |
|
Provision
for income taxes
|
|
|
- |
|
|
|
- |
|
Net
income
|
|
$ |
(5,011 |
) |
|
$ |
2,613 |
|
Puerto
Rican Land Development Balance Sheet:
|
|
December 31, 2008
|
|
|
December 31,
2007
|
|
ASSETS
|
|
|
|
|
|
|
Investments
in real estate
|
|
$ |
20,310 |
|
|
$ |
25,741 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
61 |
|
|
|
236 |
|
Restricted
cash and escrow deposits
|
|
|
3 |
|
|
|
6 |
|
Investments
in unconsolidated real estate entities
|
|
|
14,234 |
|
|
|
15,983 |
|
Deferred
charges and other assets, net of amortization
|
|
|
(1,556 |
) |
|
|
(1,498 |
) |
Total
Assets
|
|
$ |
33,052 |
|
|
$ |
40,468 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Recourse
debt
|
|
$ |
4,327 |
|
|
$ |
1,725 |
|
Accounts
payable and accrued liabilities
|
|
|
9,348 |
|
|
|
10,915 |
|
Total
Liabilities
|
|
|
13,675 |
|
|
|
12,640 |
|
Total
Shareholders' Equity
|
|
|
19,377 |
|
|
|
27,828 |
|
Total Liabilities and
Shareholders' Equity
|
|
$ |
33,052 |
|
|
$ |
40,468 |
|
Corporate
The
Company’s Corporate segment consists of the general and administrative expenses
necessary to operate as a public company. These costs have not been
allocated to the apartment rental and land development divisions.
The following tables reconcile the segment reporting to the financial
statements.
For
the year ended December 31, 2008:
|
|
Revenues
|
|
|
Expenses
|
|
|
Operating
Income
|
|
|
Other
Income/
(Expense)
|
|
|
Income
Before Provision (Benefit) for Income Taxes
|
|
|
Provision
(Benefit) for Income Taxes
|
|
|
Net
Income (Loss)
|
|
Operating
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
40,164 |
|
|
$ |
27,460 |
|
|
$ |
12,704 |
|
|
$ |
(10,405 |
) |
|
$ |
2,299 |
|
|
$ |
1,624 |
|
|
$ |
675 |
|
P.R.
|
|
|
24,321 |
|
|
|
19,881 |
|
|
|
4,440 |
|
|
|
(5,837 |
) |
|
|
(1,397 |
) |
|
|
37 |
|
|
|
(1,434 |
) |
Total
Operating Real Estate
|
|
|
64,485 |
|
|
|
47,341 |
|
|
|
17,144 |
|
|
|
(16,242 |
) |
|
|
902 |
|
|
|
1,661 |
|
|
|
(759 |
) |
Land
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
14,726 |
|
|
|
13,135 |
|
|
|
1,591 |
|
|
|
(2,584 |
) |
|
|
(993 |
) |
|
|
(406 |
) |
|
|
(587 |
) |
P.R.
|
|
|
3,730 |
|
|
|
9,439 |
|
|
|
(5,709 |
) |
|
|
698 |
|
|
|
(5,011 |
) |
|
|
- |
|
|
|
(5,011 |
) |
Total
Land Development
|
|
|
18,456 |
|
|
|
22,574 |
|
|
|
(4,118 |
) |
|
|
(1,886 |
) |
|
|
(6,004 |
) |
|
|
(406 |
) |
|
|
(5,598 |
) |
Corporate
|
|
|
- |
|
|
|
6,941 |
|
|
|
(6,941 |
) |
|
|
(574 |
) |
|
|
(7,515 |
) |
|
|
(413 |
) |
|
|
(7,102 |
) |
Intersegment
|
|
|
(27 |
) |
|
|
(1,298 |
) |
|
|
1,271 |
|
|
|
843 |
|
|
|
2,114 |
|
|
|
11 |
|
|
|
2,103 |
|
|
|
$ |
82,914 |
|
|
$ |
75,558 |
|
|
$ |
7,356 |
|
|
$ |
(17,859 |
) |
|
$ |
(10,503 |
) |
|
$ |
853 |
|
|
$ |
(11,356 |
) |
For
the year ended December 31, 2007:
|
|
Revenues
|
|
|
Expenses
|
|
|
Operating
Income
|
|
|
Other
Income/
(Expense)
|
|
|
Income
Before Provision (Benefit) for Income Taxes
|
|
|
Provision
(Benefit) for Income Taxes
|
|
|
Net
Income (Loss)
|
|
Operating
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
39,250 |
|
|
$ |
27,719 |
|
|
$ |
11,531 |
|
|
$ |
(9,998 |
) |
|
$ |
1,533 |
|
|
$ |
(463 |
) |
|
$ |
1,996 |
|
P.R.
|
|
|
23,948 |
|
|
|
19,293 |
|
|
|
4,655 |
|
|
|
(4,536 |
) |
|
|
119 |
|
|
|
373 |
|
|
|
(254 |
) |
Total
Operating Real Estate
|
|
|
63,198 |
|
|
|
47,012 |
|
|
|
16,186 |
|
|
|
(14,534 |
) |
|
|
1,652 |
|
|
|
(90 |
) |
|
|
1,742 |
|
Land
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
14,628 |
|
|
|
13,908 |
|
|
|
720 |
|
|
|
(2,056 |
) |
|
|
(1,336 |
) |
|
|
(654 |
) |
|
|
(682 |
) |
P.R.
|
|
|
7,580 |
|
|
|
6,052 |
|
|
|
1,528 |
|
|
|
1,085 |
|
|
|
2,613 |
|
|
|
- |
|
|
|
2,613 |
|
Total
Land Development
|
|
|
22,208 |
|
|
|
19,960 |
|
|
|
2,248 |
|
|
|
(971 |
) |
|
|
1,277 |
|
|
|
(654 |
) |
|
|
1,931 |
|
Corporate
|
|
|
- |
|
|
|
3,712 |
|
|
|
(3,712 |
) |
|
|
2,122 |
|
|
|
(1,590 |
) |
|
|
453 |
|
|
|
(2,043 |
) |
Intersegment
|
|
|
(30 |
) |
|
|
(1,390 |
) |
|
|
1,360 |
|
|
|
(3,547 |
) |
|
|
(2,187 |
) |
|
|
(16 |
) |
|
|
(2,171 |
) |
|
|
$ |
85,376 |
|
|
$ |
69,294 |
|
|
$ |
16,082 |
|
|
$ |
(16,930 |
) |
|
$ |
(848 |
) |
|
$ |
(307 |
) |
|
$ |
(541 |
) |
As
of December 31, 2008:
|
|
Investment
in Real Estate
|
|
|
Total
Assets
|
|
|
Recourse
Debt
|
|
|
Non-recourse
Debt
|
|
|
Total
Liabilities
|
|
Operating
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
110,412 |
|
|
$ |
187,246 |
|
|
$ |
257 |
|
|
$ |
189,950 |
|
|
$ |
196,931 |
|
P.R.
|
|
|
48,042 |
|
|
|
91,752 |
|
|
|
5,215 |
|
|
|
86,170 |
|
|
|
96,675 |
|
Total
Operating Real Estate
|
|
|
158,454 |
|
|
|
278,998 |
|
|
|
5,472 |
|
|
|
276,120 |
|
|
|
293,606 |
|
Land
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
81,821 |
|
|
|
76,335 |
|
|
|
37,542 |
|
|
|
- |
|
|
|
66,728 |
|
P.R.
|
|
|
20,310 |
|
|
|
33,052 |
|
|
|
4,327 |
|
|
|
- |
|
|
|
13,675 |
|
Total
Land Development
|
|
|
102,131 |
|
|
|
109,387 |
|
|
|
41,869 |
|
|
|
- |
|
|
|
80,403 |
|
Corporate
|
|
|
- |
|
|
|
12,663 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Intersegment
|
|
|
(1,282 |
) |
|
|
(45,855 |
) |
|
|
(7,925 |
) |
|
|
- |
|
|
|
(20,157 |
) |
|
|
$ |
259,303 |
|
|
$ |
355,193 |
|
|
$ |
39,416 |
|
|
$ |
276,120 |
|
|
$ |
353,852 |
|
As
of December 31, 2007:
|
|
Investment
in Real Estate
|
|
|
Total
Assets
|
|
|
Recourse
Debt
|
|
|
Non-recourse
Debt
|
|
|
Total
Liabilities
|
|
Operating
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
115,479 |
|
|
$ |
195,980 |
|
|
$ |
152 |
|
|
$ |
192,274 |
|
|
$ |
201,112 |
|
P.R.
|
|
|
50,601 |
|
|
|
102,324 |
|
|
|
6,455 |
|
|
|
87,707 |
|
|
|
99,567 |
|
Total
Operating Real Estate
|
|
|
166,080 |
|
|
|
298,304 |
|
|
|
6,607 |
|
|
|
279,981 |
|
|
|
300,679 |
|
Land
Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
64,236 |
|
|
|
69,054 |
|
|
|
27,556 |
|
|
|
- |
|
|
|
59,900 |
|
P.R.
|
|
|
25,741 |
|
|
|
40,468 |
|
|
|
1,725 |
|
|
|
- |
|
|
|
12,640 |
|
Total
Land Development
|
|
|
89,977 |
|
|
|
109,522 |
|
|
|
29,281 |
|
|
|
- |
|
|
|
72,540 |
|
Corporate
|
|
|
- |
|
|
|
12,924 |
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
Intersegment
|
|
|
(1,481 |
) |
|
|
(60,026 |
) |
|
|
(10,299 |
) |
|
|
- |
|
|
|
(25,018 |
) |
|
|
$ |
254,576 |
|
|
$ |
360,724 |
|
|
$ |
25,589 |
|
|
$ |
279,981 |
|
|
$ |
348,278 |
|
(14)
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
Interest and income taxes paid were as
follows for the years ended December 31 (in thousands):
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
17,400 |
|
|
$ |
18,124 |
|
Income
taxes paid
|
|
$ |
1,267 |
|
|
$ |
3,901 |
|
Gleneagles
Apartment Financing
On
January 28, 2009, the Company completed the initial closing of a 6.9 percent,
$25,045,000 non-recourse construction loan to fund the construction costs for a
new apartment property in St. Charles’ Fairway Village. The
construction loan will convert to a 6.9 percent, 40 year permanent mortgage not
later than December 1, 2010.
Sale
of Baltimore Properties
During
the first quarter of 2009, the Company executed purchase agreements for the sale
of three of the five U.S. Apartment Properties in Baltimore, Maryland for
$29,200,000. The Company has received non-binding offers of
$6,598,000 and is negotiating agreements for the remaining two
properties. The primary factor driving the decision to sell was the
strategic disposition of underperforming assets. Based on those
offers, the Company has recorded an impairment charge of $1,256,000 during the
fourth quarter of 2008 to reduce the carrying value of the properties to their
estimated fair market value less costs to sell as of December 31, 2008 of
$35,400,000. The offers are subject to certain customary closing
conditions, including lender consent to allow the purchaser to assume
the loans. We anticipate closing on the sale of these properties
in the second quarter of 2009. The assets, liabilities, and results
of operations for these properties and the corresponding impairment charge are
included in the U.S. Real Estate Operating segment. These properties
represent $35,292,000 of the Company’s Operating Real Estate balance and
$30,129,000 of the Company’s non-recourse debt balance as of December 31,
2008.
Sale of Puerto Rican Apartment
Properties
During the first quarter of 2009, the
Company executed a non-binding letter of intent to sell the Puerto Rico
Apartment Properties. The letter of intent is subject to customary
closing conditions, including the ability of the purchaser to obtain financing,
and we anticipate closing on the sale of these properties in the second quarter
of 2009. The assets, liabilities, and results of operations comprise
the Puerto Rican Real Estate Operating segment. This
segment represents $48,042,000 of the Company’s Operating Real Estate
balance and $86,170,000 of the Company’s non-recourse debt balance as of
December 31, 2008.
AMERICAN
COMMUNITY PROPERTIES TRUST
|
SCHEDULE
III
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
AS
OF DECEMBER 31, 2008
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
and Subsequent Costs and Encumbrances
|
|
|
Total
Capitalized Costs and Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
Bldgs.
&
|
|
|
Subsequent
|
|
|
|
|
|
Bldgs.
&
|
|
|
|
|
|
Accumulated
|
|
Constructed
|
Depreciable
|
Description
|
|
Encumbrances
|
|
|
Land
|
|
|
Improvements
|
|
|
Costs
|
|
|
Land
|
|
|
Improvements
|
|
|
Total
|
|
|
Depreciation
|
|
or
Acquired
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bannister
Apartments
|
|
$ |
12,301 |
|
|
$ |
410 |
|
|
$ |
4,180 |
|
|
$ |
4,391 |
|
|
$ |
410 |
|
|
$ |
8,571 |
|
|
$ |
8,981 |
|
|
$ |
5,683 |
|
11/30/1976
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookmont
Apartments
|
|
|
7,180 |
|
|
|
162 |
|
|
|
2,677 |
|
|
|
2,733 |
|
|
|
162 |
|
|
|
5,410 |
|
|
|
5,572 |
|
|
|
3,911 |
|
5/18/1979
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coachman's
|
|
|
10,740 |
|
|
|
572 |
|
|
|
6,421 |
|
|
|
1,012 |
|
|
|
572 |
|
|
|
7,433 |
|
|
|
8,005 |
|
|
|
3,326 |
|
9/5/1989
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossland
Apartments
|
|
|
4,034 |
|
|
|
350 |
|
|
|
2,697 |
|
|
|
436 |
|
|
|
350 |
|
|
|
3,133 |
|
|
|
3,483 |
|
|
|
2,302 |
|
1/13/1978
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Essex
Village Apts.
|
|
|
13,766 |
|
|
|
2,667 |
|
|
|
21,381 |
|
|
|
(2,828 |
) |
|
|
2,667 |
|
|
|
18,553 |
|
|
|
21,220 |
|
|
|
16,782 |
|
1/31/1982
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Richmond,
VA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fox
Chase Apartments
|
|
|
12,685 |
|
|
|
745 |
|
|
|
7,014 |
|
|
|
1,231 |
|
|
|
745 |
|
|
|
8,245 |
|
|
|
8,990 |
|
|
|
4,117 |
|
3/31/1987
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headen
House
|
|
|
6,828 |
|
|
|
205 |
|
|
|
4,765 |
|
|
|
3,640 |
|
|
|
205 |
|
|
|
8,405 |
|
|
|
8,610 |
|
|
|
6,001 |
|
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, 2008
|
(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
|
9,104
|
350
|
8,513
|
1,271
|
|
350
|
9,784
|
10,134
|
6,166
|
10/7/1980
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
Lancaster
Apartments
|
8,355
|
484
|
4,292
|
1,266
|
|
484
|
5,558
|
6,042
|
3,355
|
12/31/1985
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
Milford
Station I
|
10,491
|
2,659
|
9,878
|
734
|
|
2,659
|
10,612
|
13,271
|
995
|
5/1/2006
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Acquired
|
Bldg
Equip-5/7 Yrs
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
Milford
Station II
|
1,345
|
455
|
1,350
|
74
|
|
455
|
1,424
|
1,879
|
1284
|
5/1/2006
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Acquired
|
Bldg
Equip-5/7 Yrs
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
New
Forest Apartments
|
22,445
|
1,229
|
12,102
|
2,182
|
|
1,229
|
14,284
|
15,513
|
7,047
|
6/28/1988
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
Nottingham
South
|
2,543
|
359
|
2,586
|
125
|
|
359
|
2,711
|
3,070
|
653
|
5/23/2005
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
Acquired
|
Bldg
Equip-5/7 Yrs
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
Owings
Chase
|
12,208
|
1,691
|
13,428
|
803
|
|
1,691
|
14,231
|
15,922
|
1,226
|
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, 2008
|
(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
|
|
6,649 |
|
|
471 |
|
|
4,788 |
|
|
3,926 |
|
|
471 |
|
|
8,714 |
|
|
9,185 |
|
|
6,175 |
|
3/31/1980
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prescott
Square
|
|
3,541 |
|
|
470 |
|
|
3,867 |
|
|
451 |
|
|
470 |
|
|
4,318 |
|
|
4,788 |
|
|
744 |
|
10/29/2004
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
Bldg
Equip-5/7 Yrs
|
Baltimore,
MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheffield
Greens
|
|
26,749 |
|
|
3,562 |
|
|
22,292 |
|
|
145 |
|
|
3,562 |
|
|
22,437 |
|
|
25,999 |
|
|
1,255 |
|
1/31/2007
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrace
Apartments
|
|
9,897 |
|
|
497 |
|
|
5,377 |
|
|
5,427 |
|
|
497 |
|
|
10,804 |
|
|
11,301 |
|
|
7,495 |
|
11/1/1979
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Village
Lake
|
|
9,088 |
|
|
824 |
|
|
6,858 |
|
|
312 |
|
|
824 |
|
|
7,170 |
|
|
7,994 |
|
|
2,764 |
|
10/1/1993
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto
Rico Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alturas
Del Senorial
|
|
3,450 |
|
|
345 |
|
|
4,185 |
|
|
661 |
|
|
345 |
|
|
4,846 |
|
|
5,191 |
|
|
3,592 |
|
11/17/1979
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayamon
Garden
|
|
9,151 |
|
|
1,153 |
|
|
12,050 |
|
|
1,108 |
|
|
1,153 |
|
|
13,158 |
|
|
14,311 |
|
|
9,250 |
|
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, 2008
|
(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
|
|
9,380 |
|
|
900 |
|
|
10,742 |
|
|
1,060 |
|
|
900 |
|
|
11,802 |
|
|
12,702 |
|
|
8,433 |
|
3/20/1981
|
Bldg-40
Yrs
|
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
San
Juan, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
De
Diego
|
|
5,457 |
|
|
601 |
|
|
6,718 |
|
|
903 |
|
|
601 |
|
|
7,621 |
|
|
8,222 |
|
|
5,412 |
|
3/20/1980
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escorial
Office
|
|
8,400 |
|
|
1,596 |
|
|
8,202 |
|
|
478 |
|
|
1,596 |
|
|
8,680 |
|
|
10,276 |
|
|
750 |
|
9/1/2005
|
Bldg-40
Yrs
|
Building
I, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Puerto
Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jardines
De Caparra
|
|
6,233 |
|
|
546 |
|
|
5,719 |
|
|
1,892 |
|
|
546 |
|
|
7,611 |
|
|
8,157 |
|
|
5,410 |
|
4/1/1980
|
Bldg-40
Yrs
|
Highrise
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Bayamon,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
I
|
|
6,816 |
|
|
543 |
|
|
10,436 |
|
|
1,965 |
|
|
543 |
|
|
12,401 |
|
|
12,944 |
|
|
9,159 |
|
5/1/1979
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Carolina,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monserrate
II
|
|
9,862 |
|
|
731 |
|
|
11,172 |
|
|
1,763 |
|
|
731 |
|
|
12,935 |
|
|
13,666 |
|
|
9,261 |
|
1/30/1980
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Carolina,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San
Anton
|
|
4,091 |
|
|
313 |
|
|
3,525 |
|
|
1,805 |
|
|
313 |
|
|
5,330 |
|
|
5,643 |
|
|
4,151 |
|
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, 2008
|
(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
|
|
|
7,036 |
|
|
487 |
|
|
6,748 |
|
|
995 |
|
|
487 |
|
|
7,743 |
|
|
8,230 |
|
|
5,544 |
|
2/8/1980
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Caguas,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Torre
De Las Cumbres
|
|
|
5,067 |
|
|
466 |
|
|
5,954 |
|
|
735 |
|
|
466 |
|
|
6,689 |
|
|
7,155 |
|
|
4,930 |
|
12/6/1979
|
Bldg-40
Yrs
|
Highrise
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Rio
Piedras, PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valle
Del Sol
|
|
|
10,430 |
|
|
992 |
|
|
14,017 |
|
|
876 |
|
|
992 |
|
|
14,893 |
|
|
15,885 |
|
|
9,899 |
|
3/15/1983
|
Bldg-40
Yrs
|
Highrise
and
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
Bayamon,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vistas
Del Turabo
|
|
|
798 |
|
|
354 |
|
|
2,508 |
|
|
727 |
|
|
354 |
|
|
3,235 |
|
|
3,589 |
|
|
2,130 |
|
12/30/1983
|
Bldg-40
Yrs
|
Walk-up
Apts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
Bldg
Equip-5/7 Yrs
|
Caguas,
PR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Consolidated Properties
|
|
|
276,120 |
|
|
27,189 |
|
|
246,442 |
|
|
42,299 |
|
|
27,189 |
|
|
288,741 |
|
|
315,930 |
|
|
159,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookside
Gardens Apartments
|
|
|
1,241 |
|
|
156 |
|
|
2,487 |
|
|
53 |
|
|
156 |
|
|
2,540 |
|
|
2,696 |
|
|
1,296 |
|
11/10/1994
|
Bldg-40
Yrs
|
Garden
Shared Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lakeside
Apartments
|
|
|
1,952 |
|
|
440 |
|
|
3,649 |
|
|
42 |
|
|
440 |
|
|
3,691 |
|
|
4,131 |
|
|
1,138 |
|
7/1/1996
|
Bldg-40
Yrs
|
Garden
Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constructed
|
Bldg
Equip-5/7 Yrs
|
St.
Charles, MD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Unconsolidated Properties
|
|
|
3,193 |
|
|
596 |
|
|
6,136 |
|
|
95 |
|
|
596 |
|
|
6,231 |
|
|
6,827 |
|
|
2,434 |
|
|
|
Total
Properties
|
|
$ |
279,313 |
|
|
27,785 |
|
|
252,578 |
|
|
42,394 |
|
|
27,785 |
|
|
294,972 |
|
|
322,757 |
|
|
161,636 |
|
|
|
(1) Operating
real estate shown on the Consolidated Balance Sheets includes real estate
assets of $164,352 net of accumulated depreciation of
$150,292.
|
|
The
aggregate cost, net of depreciation and amortization, for federal income
tax purposes for U.S. and P.R. properties is $128,693.
(Unaudited)
|
|
|
|
SCHEDULE
III
|
|
REAL
ESTATE AND ACCUMULATED DEPRECIATION
|
|
AS
OF DECEMBER 31, 2008 AND 2007
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Partnerships
|
|
|
Partnerships
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate at January 1, 2007
|
|
$ |
284,504 |
|
|
$ |
6,824 |
|
|
$ |
291,328 |
|
Additions
for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Improvements
|
|
|
31,430 |
|
|
|
22 |
|
|
|
31,452 |
|
Deductions
for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
1,290 |
|
|
|
22 |
|
|
|
1,312 |
|
Real
Estate at December 31, 2007
|
|
|
314,644 |
|
|
|
6,824 |
|
|
|
321,468 |
|
Additions
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Improvements
|
|
|
3,337 |
|
|
|
28 |
|
|
|
3,365 |
|
Deductions
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
2,051 |
|
|
|
25 |
|
|
|
2,076 |
|
Real
Estate at December 31, 2008
|
|
$ |
315,930 |
|
|
$ |
6,827 |
|
|
$ |
322,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation at January 1, 2007
|
|
$ |
142,458 |
|
|
$ |
2,070 |
|
|
$ |
144,528 |
|
Additions
for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
9,124 |
|
|
|
206 |
|
|
|
9,330 |
|
Deductions
for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
1,290 |
|
|
|
22 |
|
|
|
1,312 |
|
Accumulated
depreciation at December 31, 2007
|
|
|
150,292 |
|
|
|
2,254 |
|
|
|
152,546 |
|
Additions
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
9,705 |
|
|
|
205 |
|
|
|
9,910 |
|
Impairment
|
|
|
1,256 |
|
|
|
- |
|
|
|
1,256 |
|
Deductions
for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
|
|
2,051 |
|
|
|
25 |
|
|
|
2,076 |
|
Accumulated
depreciation at December 31, 2008
|
|
$ |
159,202 |
|
|
$ |
2,434 |
|
|
$ |
161,636 |
|
None.
Evaluation
of Disclosure Controls and Procedures
In
connection with the preparation of this Form 10-K, as of December 31, 2008, 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 were effective and designed to
ensure that the information required to be disclosed in our reports filed with
the SEC is recorded, processed, summarized and reported on a timely
basis.
The
Company had previously reported a significant deficiency that resulted in the
conclusion that the Company’s disclosure controls and procedures were not
effective. Since that time, the Company has been taking steps to
begin remediation of the significant deficiency. The Company has
appointed a new CEO and CFO in accordance with appropriate policies and has
worked to improve communication between senior management and the Board of
Trustees. In addition, the Company has revised its Delegation of
Authority policy as part of the implementation of the recommended controls and
procedures noted in the June 30, 2008 Form 10-Q. As part of this
process, no new matters have come to our attention that would require additional
remediation and we believe that the significant deficiency was fully remediated
as of December 31, 2008.
Management’s
Annual Report on Internal Control Over Financial Reporting and Attestation
Report of the Independent Registered Public Accounting Firm
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of
our management, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated
Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2008.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008 is not subject to attestation pursuant to the rules of the
Securities and Exchange Commission that permit the Company to provide only
Management’s report and therefore has not been audited by Ernst & Young
LLP.
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, 2008, 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.
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 2009.
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
2009.
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
2009.
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
2009.
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
2009.
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
2009.
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
2009.
PART
IV
(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, 2008 and
2007
|
|
Consolidated
Balance Sheets as of December 31, 2008 and
2007
|
|
Consolidated
Statements of Changes in Shareholders' Equity for the years ended December
31, 2008 and 2007
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
|
Notes
to Consolidated Financial Statements for the years ended December 31, 2008
and 2007
|
2. Financial Statement
Schedules
The following financial statement
schedule is contained herein:
|
Schedule
III -- Real Estate and Accumulated Depreciation as of December 31,
2008
|
All other
schedules for which provision is made in the applicable accounting regulation of
the Securities and Exchange Commission are
not
required under the related instructions or are not applicable and therefore have
been omitted.
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
|
|
Filed
herewith
|
4.1
|
Form
of Common Share Certificate
|
Exhibit
4.1 to Form S-11
|
10.1
|
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
|
10.2
|
Form
of Consulting Agreement, dated August 24, 1998, between the Company and
James J. Wilson*
|
Exhibit
10.4 to Form S-11
|
10.3
|
Employment
and Consulting Agreement for Carlos R. Rodriguez *
|
Exhibit
10.1 to Form 10-Q for quarter ended June 30, 2006
|
10.4
|
Consulting
Agreement between St. Charles Community, LLC and Thomas J. Shafer dated
January 1, 1998*
|
Exhibit
10.14 to 1998 Form 10-K
|
10.5
|
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
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10.6
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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
|
10.7
|
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
|
10.8
|
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
|
10.9
|
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
|
10.10
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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
|
10.11
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Consent
Judgment dated July 22, 2002
|
Exhibit
10.2 to Form 10-Q for the quarter ended June 30, 2002
|
10.12
|
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
|
10.13
|
Amended
Order to Docket #90 dated July 22, 2002
|
Exhibit
10.2 to Form 10-Q for the quarter ended September 30,
2002
|
10.14
|
Certificate
of Limited Partnership of Village Lake Apartments Limited Partnership
dated May 17, 1991
|
Exhibit
10.37 to 2002 Form 10-K
|
10.15
|
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
|
10.16
|
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
|
10.17
|
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
|
10.18
|
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
|
10.19
|
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
|
10.20
|
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
|
10.21
|
Purchase
Agreement between St. Charles Community, LLC and Lennar Corporation dated
March 4, 2004
|
Exhibit
10.1 to Form 8-K filed on January 4, 2008
|
10.22
|
Development
Agreement between St. Charles Community, LLC and Lennar Corporation dated
March 4, 2004
|
Exhibit
10. 2 to Form 8-K filed on January 4, 2008
|
10.23
|
First
Amendment to Purchase Agreement between St. Charles Community, LLC and
Lennar Corporation dated June 20, 2006
|
Exhibit
10.3 to Form 8-K filed on January 4, 2008
|
10.24
|
Second
Amendment to Purchase Agreement between St. Charles Community, LLC and
Lennar Corporation dated December 31, 2007
|
Exhibit
10.4 to Form 8-K filed on January 4, 2008
|
10.25
|
Third
Amendment to Purchase Agreement between St. Charles Community, LLC and
Lennar Corporation dated November 19, 2008
|
Exhibit
10.1 to Form 8-K filed on November 25, 2008
|
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
|
Lease,
dated as of September 1, 2006, by and between the Company and Caribe Waste
Technologies, Inc.
|
Exhibit
10.1 to Form 10-Q for quarter ended September 30, 2006
|
10.33
|
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, 2007
|
Exhibit
10.33 to 2006 Form 10-K
|
10.34
|
Employment
Agreement, dated September 26, 2008, between the Company and Steve
Griessel*
|
Exhibit
10.1 to Form 10-Q for the quarter ended September 30,
2008
|
10.35
|
|
Filed
herewith
|
10.36
|
|
Filed
herewith
|
10.37
|
|
Filed
herewith
|
21
|
|
Filed
herewith
|
23
|
233
|
Filed
herewith
|
31.1
|
|
Filed
herewith
|
31.2
|
|
Filed
herewith
|
32.1
|
|
Filed
herewith
|
32.2
|
|
Filed
herewith
|
*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
31, 2009
|
By: /s/
Stephen K.
Griessel
|
|
Stephen
K. Griessel
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
|
Dated: March
31, 2009
|
By: /s/
Matthew M. Martin
|
|
Martin
M. Martin
Chief
Financial Officer
(Principal
Financial and 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
and Trustee
|
March
31, 2009
|
/s/
Stephen
K. Griessel
Stephen
K. Griessel
|
Chief
Executive Officer and Trustee
|
March
31, 2009
|
/s/
Matthew
M. Martin
Matthew
M. Martin
|
Chief
Financial Officer
|
March
31, 2009
|
/s/
Thomas J. Shafer
Thomas
J. Shafer
|
Trustee
|
March
31, 2009
|
/s/Michael
Williamson
Michael
Williamson
|
Trustee
|
March
31, 2009
|
/s/
Antonio Ginorio
Antonio
Ginorio
|
Trustee
|
March
31, 2009
|
/s/
Donald
J. Halldin
Donald
J. Halldin
|
Trustee
|
March
31, 2009
|
/s/
Thomas
E. Green
Thomas
E. Green
|
Trustee
|
March
31, 2009
|
/s/
Ross
B. Levin
Ross
B. Levin
|
Trustee
|
March
31,
2009
|