acpt10q_063007.htm
 

 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q


(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007, OR
 
o
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)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “an accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 

 
 
Large accelerated filer o                                                       Accelerated filer o Non-accelerated filer x
 
 

 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
Yes o No x
 




As of August 9, 2007, there were 5,229,954 Common Shares, par value $0.01 per share, issued and outstanding

- 1 -


AMERICAN COMMUNITY PROPERTIES TRUST
FORM 10-Q
JUNE 30, 2007
TABLE OF CONTENTS
   
Page Number
     
PART I
FINANCIAL INFORMATION
 
     
Item 1.
Consolidated Financial Statements
 
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
8
     
Item 2.
21
     
Item 3.
31
     
Item 4.
31
     
PART II
 
     
Item 1.
32
     
Item 1A.
32
     
Item 2
32
     
Item 3.
32
     
Item 4.
32
     
Item 5.
32
     
Item 6.
32
     
 
33




 
CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30
 
(In thousands, except per share amounts)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Revenues
           
  Rental property
  $
29,832
    $
26,138
 
  Community development-land sales
   
5,969
     
6,626
 
  Homebuilding-home sales
   
5,214
     
11,259
 
  Management and other fees, substantially all from related entities
   
506
     
565
 
  Reimbursement of expenses related to managed entities
   
893
     
1,104
 
    Total revenues
   
42,414
     
45,692
 
                 
Expenses
               
  Rental property operating expenses
   
15,114
     
12,816
 
  Cost of land sales
   
4,356
     
3,666
 
  Cost of home sales
   
3,816
     
8,521
 
  General, administrative, selling and marketing
   
5,368
     
4,534
 
  Depreciation and amortization
   
4,581
     
4,074
 
  Expenses reimbursed from managed entities
   
893
     
1,104
 
    Total expenses
   
34,128
     
34,715
 
                 
Operating Income
   
8,286
     
10,977
 
                 
Other income (expense)
               
  Interest and other income
   
890
     
218
 
  Equity in earnings from unconsolidated entities
   
1,845
     
343
 
  Interest expense
    (9,337 )     (7,200 )
  Minority interest in consolidated entities
    (1,557 )     (2,666 )
                 
Income before provision for income taxes
   
127
     
1,672
 
Provision for income taxes
   
288
     
714
 
                 
Net (loss) income
  $ (161 )   $
958
 
                 
Earnings per share
               
    Basic
  $ (0.03 )   $
0.18
 
Weighted average shares outstanding
               
    Basic and Diluted
   
5,210
     
5,198
 
Cash dividends per share
  $
0.20
    $
0.63
 
The accompanying notes are an integral part of these consolidated statements.
         



 
CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE THREE MONTHS ENDED JUNE 30
 
(In thousands, except per share amounts)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Revenues
           
  Rental property
  $
15,422
    $
13,347
 
  Community development-land sales
   
2,214
     
2,682
 
  Homebuilding-home sales
   
2,126
     
7,234
 
  Management and other fees, substantially all from related entities
   
243
     
275
 
  Reimbursement of expenses related to managed entities
   
422
     
532
 
    Total revenues
   
20,427
     
24,070
 
                 
Expenses
               
  Rental property operating expenses
   
7,758
     
6,628
 
  Cost of land sales
   
1,440
     
1,430
 
  Cost of home sales
   
1,530
     
5,487
 
  General, administrative, selling and marketing
   
2,905
     
2,102
 
  Depreciation and amortization
   
2,397
     
2,101
 
  Expenses reimbursed from managed entities
   
422
     
532
 
    Total expenses
   
16,452
     
18,280
 
                 
Operating Income
   
3,975
     
5,790
 
                 
Other income (expense)
               
  Interest and other income
   
338
     
89
 
  Equity in earnings from unconsolidated entities
   
172
     
173
 
  Interest expense
    (4,720 )     (3,699 )
  Minority interest in consolidated entities
    (185 )     (1,601 )
                 
Income (loss) before provision (benefit) for income taxes
    (420 )    
752
 
Provision (benefit) for income taxes
    (235 )    
295
 
                 
Net (loss) income
  $ (185 )   $
457
 
                 
Earnings per share
               
    Basic
  $ (0.03 )   $
0.09
 
Weighted average shares outstanding
               
    Basic and Diluted
   
5,210
     
5,198
 
Cash dividends per share
  $
0.10
    $
0.10
 
The accompanying notes are an integral part of these consolidated statements.
         





 
CONSOLIDATED BALANCE SHEETS
 
(In thousands, except share and per share amounts)
 
             
   
As of June 30, 2007
(Unaudited)
   
As of
December 31, 2006
(Audited)
 
                                                ASSETS
           
ASSETS:
           
Investments in real estate:
           
  Operating real estate, net of accumulated depreciation
  $
166,211
    $
142,046
 
    of $146,832 and $142,458 respectively
               
  Land and development costs
   
75,298
     
67,993
 
  Condominiums under construction
   
5,842
     
9,265
 
  Rental projects under construction or development
   
488
     
24,143
 
    Investments in real estate, net
   
247,839
     
243,447
 
                 
Cash and cash equivalents
   
22,303
     
27,459
 
Restricted cash and escrow deposits
   
22,601
     
19,677
 
Investments in unconsolidated real estate entities
   
6,577
     
6,591
 
Receivable from bond proceeds
   
10,425
     
13,710
 
Accounts receivable
   
3,225
     
4,320
 
Deferred tax assets
   
30,260
     
18,157
 
Property and equipment, net of accumulated depreciation
   
1,184
     
1,157
 
Deferred charges and other assets, net of amortization of
               
  $2,319 and $1,655 respectively
   
10,663
     
12,181
 
                 
    Total Assets
  $
355,077
    $
346,699
 
                 
                         LIABILITIES AND SHAREHOLDERS' EQUITY
               
LIABILITIES:
               
Non-recourse debt
  $
280,668
    $
270,720
 
Recourse debt
   
26,383
     
29,351
 
Accounts payable and accrued liabilities
   
19,431
     
24,191
 
Deferred income
   
3,205
     
3,591
 
Accrued current income tax liability
   
12,123
     
2,992
 
    Total Liabilities
   
341,810
     
330,845
 
                 
SHAREHOLDERS' EQUITY
               
  Common shares, $.01 par value, 10,000,000 shares authorized,
               
    5,229,954 shares issued and outstanding as of June 30, 2007
               
    and December 31, 2006
   
52
     
52
 
  Treasury stock, 67,709 shares at cost
    (376 )     (376 )
  Additional paid-in capital
   
17,302
     
17,238
 
  Retained (deficit) earnings
    (3,711 )     (1,060 )
    Total Shareholders' Equity
   
13,267
     
15,854
 
                 
    Total Liabilities and Shareholders' Equity
  $
355,077
    $
346,699
 
The accompanying notes are an integral part of these consolidated statements.
         






 
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 (Audited)
   
5,229,954
    $
52
    $ (376 )   $
17,238
    $ (1,060 )   $
15,854
 
  Net income
   
-
     
-
     
-
     
-
      (161 )     (161 )
  Dividends paid
   
-
     
-
     
-
     
-
      (1,032 )     (1,032 )
  Cumulative effect of change in accounting for FIN 48
   
-
     
-
     
-
     
-
      (1,458 )     (1,458 )
  Amortization of Trustee Restricted Shares
   
-
     
-
     
-
     
64
     
-
     
64
 
Balance June 30, 2007 (Unaudited)
   
5,229,954
    $
52
    $ (376 )   $
17,302
    $ (3,711 )   $
13,267
 
The accompanying notes are an integral part of those consolidated statements.
 




 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE SIX MONTHS ENDED JUNE 30
 
(In thousands)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Cash Flows from Operating Activities
           
  Net (loss) income
  $ (161 )   $
958
 
  Adjustments to reconcile net income to net cash provided by
               
    operating activities:
               
      Depreciation and amortization
   
4,581
     
4,074
 
      Distribution to minority interests in excess of basis
   
1,827
     
2,646
 
      Benefit for deferred income taxes
    (2,229 )     (716 )
      Equity in earnings-unconsolidated entities
    (1,845 )     (343 )
      Distribution of earnings from unconsolidated entities
   
346
     
339
 
      Cost of land sales
   
4,356
     
3,666
 
      Cost of home sales
   
3,816
     
8,521
 
      Stock based compensation expense
   
104
     
102
 
      Amortization of deferred loan costs
   
478
     
275
 
      Changes in notes and accounts receivable
   
1,095
     
80
 
      Additions to community development assets
    (13,661 )     (9,475 )
      Right of way easement
   
2,000
     
-
 
      Homebuilding-construction expenditures
    (393 )     (4,354 )
      Deferred income-joint venture
    (386 )    
130
 
      Changes in accounts payable, accrued liabilities
    (7,000 )     (3,588 )
  Net cash (used in) provided by operating activities
    (7,072 )    
2,315
 
                 
CashFlows from Investing Activities
               
  Investment in apartment construction
    (233 )     (7,747 )
  Change in investments - unconsolidated entities
   
1,513
      (1 )
  Cash from newly consolidated properties
   
-
     
4,723
 
  Change in restricted cash
    (2,924 )     (1,513 )
  Additions to rental operating properties, net
    (4,708 )     (18,795 )
  Other assets
   
863
     
248
 
  Net cash used in investing activities
    (5,489 )     (23,085 )
                 
CashFlows from Financing Activities
               
  Cash proceeds from debt financing
   
23,339
     
37,279
 
  Payment of debt
    (18,720 )     (19,399 )
  County Bonds proceeds, net of undisbursed funds
   
5,645
     
1,077
 
  Payments of distributions to minority interests
    (1,827 )     (2,646 )
  Dividends paid to shareholders
    (1,032 )     (3,232 )
  Net cash provided by financing activities
   
7,405
     
13,079
 
                 
Net Decrease in Cash and Cash Equivalents
    (5,156 )     (7,691 )
Cash and Cash Equivalents, Beginning of Period
   
27,459
     
21,156
 
Cash and Cash Equivalents, End of Period
  $
22,303
    $
13,465
 
The accompanying notes are an integral part of these consolidated statements.
 


AMERICAN COMMUNITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited)

(1)
ORGANIZATION

American Community Properties Trust ("ACPT") is a self-managed holding company that is primarily engaged in the investment of rental properties, property management services, community development, and homebuilding.  These operations are concentrated in the Washington, D.C. metropolitan area and Puerto Rico and are carried out through American Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC "), American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group") and their subsidiaries.
ACPT is taxed as a U.S. partnership and its taxable income flows through to its shareholders.  ACPT is subject to Puerto Rico taxes on IGP Group's taxable income, generating foreign tax credits that are passed through to ACPT's shareholders.  An IRS regulation eliminating the pass through of these tax credits to ACPT’s shareholders has been proposed and is expected to become effective in 2007.  ACPT's federal taxable income consists of certain passive income from IGP Group, a controlled foreign corporation, distributions from IGP Group, and dividends from ACPT's U.S. subsidiaries.  Other than Interstate Commercial Properties ("ICP"), which is taxed as a Puerto Rico corporation, the taxable income from the remaining Puerto Rico operating entities passes through to IGP Group or ALD.  Of this taxable income, only the portion of taxable income applicable to the profits, losses or gains on the residential land sold in Parque Escorial passes through to ALD.  ALD, ARMC, and ARPT are taxed as U.S. corporations.  The taxable income from the U.S. apartment properties flows through to ARPT.

(2)
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying consolidated financial statements include the accounts of American Community Properties Trust and its majority owned subsidiaries and partnerships, after eliminating all intercompany transactions.  All of the entities included in the consolidated financial statements are hereinafter referred to collectively as the "Company" or "ACPT."
The Company consolidates entities 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, American Rental Properties Trust, American Rental Management Company, American Land Development U.S., Inc., and IGP Group Corp.  In addition, the consolidated group includes the following other entities:
 
Alturas del Senorial Associates Limited Partnership
 
LDA Group, LLC
 
American Housing Management Company
 
Milford Station I, LLC
 
American Housing Properties L.P.
 
Milford Station II, LLC
 
Bannister Associates Limited Partnership
 
Monserrate Associates Limited Partnership
 
Bayamon Garden Associates Limited Partnership
 
New Forest Apartments, LLC
 
Carolina Associates Limited Partnership S.E.
 
Nottingham South, LLC
 
Coachman's Apartments, LLC
 
Owings Chase, LLC
 
Colinas de San Juan Associates Limited Partnership
 
Palmer Apartments Associates Limited Partnership
 
Crossland Associates Limited Partnership
 
Prescott Square, LLC
 
Escorial Office Building I, Inc.
 
St. Charles Community, LLC
 
Essex Apartments Associates Limited Partnership
 
San Anton Associates S.E.
 
Fox Chase 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
 
Land Development Associates S.E.
   
 
The Company's investments in entities that it does not control are recorded using the equity method of accounting.  Refer to Note 3 for further discussion regarding Investments in Unconsolidated Real Estate Entities.
 
Interim Financial Reporting
These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The Company has no items of other comprehensive income for any of the periods presented. In the opinion of management, these unaudited financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present a fair statement of results for the interim period. While management believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2006.  The operating results for the six and three months ended June 30, 2007 and 2006 are not necessarily indicative of the results that may be expected for the full year. Net income per share is calculated based on weighted average shares outstanding.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements, and accompanying notes and disclosures. These estimates and assumptions are prepared using management's best judgment after considering past and current events and economic conditions. Actual results could differ from those estimates and assumptions.

Implementation of FIN 48
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes.  The Company implemented FIN 48 as of January 1, 2007.  See Note 7 for further discussions.

Cash Dividends
On February 28, 2007, the Board of Trustees declared a cash dividend of $0.10 per share, payable on March 28, 2007, to shareholders of record on March 14, 2007.  On May 15, 2007, the Board of Trustees declared a cash dividend of $0.10 per share, payable on June 13, 2007, to shareholders of record on May 30, 2007.

Impairment of Long-Lived Assets
ACPT carries its rental properties, homebuilding inventory, land and development costs at the lower of cost or fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." For real estate assets such as our rental properties which the Company plans to hold and use, which includes property to be developed in the future, property currently under development and real estate projects that are completed or substantially complete, we evaluate whether the carrying amount of each of these assets will be recovered from their undiscounted future cash flows arising from their use and eventual disposition. If the carrying value were to be greater than the undiscounted future cash flows, we would recognize an impairment loss to the extent the carrying amount is not recoverable. Our estimates of the undiscounted operating cash flows expected to be generated by each asset are performed on an individual project basis and based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for apartment units, competition, changes in market rental rates, and costs to operate and complete each project. There have been no impairment charges for the six- and three-month periods ended June 30, 2007 and 2006.
The Company evaluates, on an individual project basis, whether the carrying value of its substantially completed real estate projects, such as our homebuilding inventory that are to be sold, will be recovered based on the fair value less cost to sell. If the carrying value were to be greater than the fair value less costs to sell, we would recognize an impairment loss to the extent the carrying amount is not recoverable. Our estimates of the fair value less costs to sell are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, comparable sales, demand for commercial and residential lots and competition. The Company performed similar reviews for land held for future development and sale considering such factors as the cash flows associated with future development expenditures. Should this evaluation indicate an impairment has occurred, the Company will record an impairment charge equal to the excess of the historical cost over fair value less costs to sell.  There have been no impairment charges for the six- and three-month periods ended June 30, 2007 and 2006.

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,
·  
Maintenance and other repair costs are charged to operations as incurred.

The table below presents the major classes of depreciable assets as of June 30, 2007 and December 31, 2006 (in thousands):

 
June 30,
December 31,
 
2007
2006
 
(Unaudited)
(Audited)
     
Building
 $                      264,410
 $                     240,264
Building improvements
                   9,448
                    8,022
Equipment
                 13,673
                  12,569
 
               287,531
                260,855
Less: Accumulated depreciation
               146,832
                142,458
 
               140,699
                118,397
Land
                 25,512
                  23,649
Operating properties, net
 $                      166,211
 $                     142,046
 
Other Property and Equipment
In addition, the Company owned other property and equipment of $1,184,000 and $1,157,000, net of accumulated depreciation of $2,202,000 and $2,101,000 respectively, as of June 30, 2007, and December 31, 2006, respectively.

Depreciation
Total depreciation expense was $4,581,000 and $4,074,000 for the six months ended June 30, 2007 and 2006, respectively, and $2,397,000 and $2,101,000 for the three months ended June 30, 2007 and 2006, respectively.

Impact of Recently Issued Accounting Standards

SFAS 157 and 159
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. SFAS 157 is effective for fiscal years beginning after November 15, 2007.
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.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We have not yet determined the impact that SFAS 157 and SFAS 159 will have on our financial statements.

EITF Issue No. 06-08
In November 2006, the Emerging Issues Task force of the FASB (“EITF”) reached a consensus on EITF Issue No. 06-08, “Applicability of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums” (“EITF 06-08”).  EITF 06-08 will require condominium sales to meet the continuing investment criterion in FAS No. 66 in order for profit to be recognized under the percentage-of-completion method.  EITF 06-08 will be effective for annual reporting periods beginning after March 15, 2007.  The cumulative effect of applying EITF 06-08, if any, is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption.  We are evaluating the impact that EITF 06-08 may have, if any, on our financial statements.


(3)
INVESTMENT IN UNCONSOLIDATED REAL ESTATE ENTITIES

The Company accounts for investments in unconsolidated real estate entities that are not considered variable interest entities under FIN 46(R) in accordance with SOP 78-9 "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock". For entities that are considered variable interest entities under FIN 46(R), the Company performs an assessment to determine the primary beneficiary of the entity as required by FIN 46(R). The Company accounts for variable interest entities in which the Company is not a primary beneficiary and does not bear a majority of the risk of expected loss in accordance with the equity method of accounting.
The Company considers many factors in determining whether or not an investment should be recorded under the equity method, such as economic and ownership interests, authority to make decisions, and contractual and substantive participating rights of the partners. Income and losses are recognized in accordance with the terms of the partnership agreements and any guarantee obligations or commitments for financial support. The Company's investments in unconsolidated real estate entities accounted for under the equity method of accounting currently consists of general partnership interests in two limited partnerships which own apartment properties in the United States; a limited partnership interest in a limited partnership that owns a commercial property in Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited liability company.

Apartment Partnerships
The unconsolidated apartment partnerships as of June 30, 2007 and December 31, 2006 included Brookside Gardens Limited Partnership and Lakeside Apartments Limited Partnership 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 it 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 $201,000 and $189,000 and for Lakeside of $168,000 and $172,000 as of June 30, 2007, and December 31, 2006, 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 partnership interest in El Monte Properties, S.E. ("El Monte") from Insular Properties Limited Partnership ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family, a related party. In December 2004, a third-party buyer purchased El Monte for $20,000,000; $17,000,000 in cash and $3,000,000 in 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. 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 2007.

Land Development Joint Venture
In September 2004, the Company entered into a joint venture agreement with Lennar Corporation for the development of a 352-unit, active adult community located in St. Charles, Maryland.  The Company manages the project's development for a market rate fee pursuant to a management agreement.  In September 2004, the Company transferred land to the joint venture in exchange for a 50% ownership interest and $4,277,000 in cash.  The Company's investment in the joint venture was recorded at 50% of the historical cost basis of the land with the other 50% recorded within our deferred charges and other assets.  The proceeds received are reflected as deferred revenue. The deferred revenue and related deferred costs will be recognized into income as the joint venture sells lots to Lennar.  In March 2005, the joint venture closed a non-recourse development loan, which was amended in June 2006 and again in December 2006.  Per the terms of the loan, both the Company and Lennar provided development completion guarantees.   In the six and three months ended June 30, 2007, the joint venture delivered 30 and 16 lots to Lennar, recognizing $655,000 and $363,000 in deferred revenue, off-site fees and management fees and $218,000 and $125,000 of deferred costs, respectively.


The following table summarizes the financial data and principal activities of the unconsolidated real estate entities, which the Company accounts for under the equity method.  The information is presented to segregate the apartment partnerships from the commercial partnerships as well as our 50% ownership interest in the land development joint venture, which are all accounted for as “investments in unconsolidated real estate entities” on the balance sheet.

               
Land
       
               
Development
       
   
Apartment
   
Commercial
   
Joint
       
   
Properties
   
Property
   
Venture
   
Total
 
   
(in thousands)
 
Summary Financial Position:
                       
  Total Assets
                       
    June 30, 2007
  $
5,050
    $
27,861
    $
12,710
    $
45,621
 
    December 31, 2006
   
5,142
     
27,726
     
12,154
     
45,022
 
  Total Non-Recourse Debt
                               
    June 30, 2007
   
3,230
     
22,960
     
4,486
     
30,676
 
    December 31, 2006
   
3,244
     
22,960
     
3,476
     
29,680
 
  Total Other Liabilities
                               
    June 30, 2007
   
1,261
     
693
     
1,287
     
3,241
 
    December 31, 2006
   
1,242
     
722
     
1,744
     
3,708
 
  Total Equity
                               
    June 30, 2007
   
559
     
4,208
     
6,937
     
11,704
 
    December 31, 2006
   
656
     
4,044
     
6,934
     
11,634
 
  Company's Investment, net (1)
                               
    June 30, 2007
   
-
     
4,749
     
1,828
     
6,577
 
    December 31, 2006
   
-
     
4,763
     
1,828
     
6,591
 
                                 
Summary of Operations:
                               
  Total Revenue
                               
    Six Months Ended June 30, 2007
  $
401
    $
1,821
    $
3,609
    $
5,831
 
    Six Months Ended June 30, 2006
   
392
     
1,828
     
-
     
2,220
 
    Three Months Ended June 30, 2007
   
231
     
912
     
1,735
     
2,878
 
    Three Months Ended June 30, 2006
   
193
     
915
     
-
     
1,108
 
  Net Income (Loss)
                               
    Six Months Ended June 30, 2007
    (97 )    
937
     
3
     
843
 
    Six Months Ended June 30, 2006
    (58 )    
926
     
-
     
868
 
    Three Months Ended June 30, 2007
    (58 )    
469
     
3
     
414
 
    Three Months Ended June 30, 2006
    (31 )    
468
     
-
     
437
 
  Company's recognition of equity in earnings
                               
    Six Months Ended June 30, 2007
    (1 )    
346
     
-
     
345
 
    Six Months Ended June 30, 2006
   
-
     
343
     
-
     
343
 
    Three Months Ended June 30, 2007
    (1 )    
173
     
-
     
172
 
    Three Months Ended June 30, 2006
   
-
     
173
     
-
     
173
 

Notes:
(1)  Represents the Company's net investment, including assets and accrued liabilities in the consolidated balance sheet for
 unconsolidated real estate entities.




               
Land
       
               
Development
       
   
Apartment
   
Commercial
   
Joint
       
   
Partnerships
   
Partnerships
   
Venture
   
Total
 
   
(In thousands)
 
Summary of Cash Flows:
                       
  Cash Flows from Operating Activities
                       
    Six Months Ended June 30, 2007
  $
50
    $
845
    $
3,149
    $
4,044
 
    Six Months Ended June 30, 2006
   
77
     
1,032
     
132
     
1,241
 
    Three Months Ended June 30, 2007
   
16
      (17 )    
1,791
     
1,790
 
    Three Months Ended June 30, 2006
   
24
     
173
     
721
     
918
 
Company's Share of Cash Flows from Operating Activities
                         
    Six Months Ended June 30, 2007
   
1
     
382
     
1,575
     
1,958
 
    Six Months Ended June 30, 2006
   
1
     
467
     
66
     
534
 
    Three Months Ended June 30, 2007
   
1
      (8 )    
896
     
889
 
    Three Months Ended June 30, 2006
   
-
     
78
     
361
     
439
 
  Operating Cash Distributions
                               
    Six Months Ended June 30, 2007
   
-
     
794
     
-
     
794
 
    Six Months Ended June 30, 2006
   
-
     
747
     
-
     
747
 
    Three Months Ended June 30, 2007
   
-
     
383
     
-
     
383
 
    Three Months Ended June 30, 2006
   
-
     
388
     
-
     
388
 
  Company's Share of Operating Cash Distributions
                               
    Six Months Ended June 30, 2007
   
-
     
360
     
-
     
360
 
    Six Months Ended June 30, 2006
   
-
     
339
     
-
     
339
 
    Three Months Ended June 30, 2007
   
-
     
174
     
-
     
174
 
    Three Months Ended June 30, 2006
   
-
     
176
     
-
     
176
 


(4)
DEBT

The Company's outstanding debt is collateralized primarily by land, land improvements, receivables, investment properties, investments in partnerships, and rental properties.  The following table summarizes the indebtedness of the Company at June 30, 2007 and December 31, 2006 (in thousands):
 
 
Maturity
Interest
Outstanding as of
 
Dates
Rates
June 30,
December 31,
 
From/To
From/To
2007
2006
     
(Unaudited)
(Audited)
Recourse Debt
       
  Community Development (a), (b), (c)
08-31-08/03-01-22
4%/8%
 $                   26,255
 $             24,694
  Investment Properties (d)
PAID
P+1.25%/6.98%
                        -
                  4,473
  General obligations (e)
07-29-07/01-01-12
Non-interest
   
   
bearing/8.10%
                    128
                     184
Total Recourse Debt
   
              26,383
                29,351
         
Non-Recourse Debt
       
  Community Development (f)
11-23-07
Non-interest bearing
                    500
                     500
  Investment Properties (g)
04-30-09/08-01-47
4.95%/10%
            280,168
              270,220
Total Non-Recourse Debt
   
            280,668
              270,720
    Total debt
 
 
 $                 307,051
 $            300,071

a)  
As of June 30, 2007, $24,455,000 of the community development recourse debt relates to the general obligation bonds issued by the Charles County government as described in detail under the heading "Financial Commitments" in Note 5. 
b)  
On April 14, 2006, the Company closed a three year $14,000,000 revolving acquisition and development line of credit loan (“the Revolver”) secured by a first lien deed  of trust on property located in St. Charles, MD.  The maximum amount of the loan at any one time is $14,000,000.  The facility includes various sub-limits on a revolving basis for amounts to finance apartment project acquisitions and land development in St. Charles.  The terms require certain financial covenants to be calculated annually as of December 31, including a tangible net worth to senior debt ratio for ALD and a minimum net worth test for ACPT.  As of June 30, 2007, the Company was in compliance with these financial covenants.  However, no amounts were outstanding on the Revolver.
c)  
On September 1, 2006, LDA secured a revolving line of credit facility of $15,000,000 to be utilized as follows: (i) to repay its outstanding loan of $800,000; and (ii) to fund development costs of a project in which the Company plans to develop a planned community in Canovanas, Puerto Rico, to fund acquisitions and/or investments mainly in estate ventures, to fund transaction costs and expenses, to fund future payments of interest under the line of credit and to fund any future working capital needs of the Company.  The line of credit bears interest at a fluctuating rate equivalent to the LIBOR Rate plus 200 basis points (7.35% at June 30, 2007) and matures on August 31, 2008.  The outstanding balance of this facility on June 30, 2007, was $1,800,000.
d)  
The outstanding recourse debt within the investment properties was comprised of a loan borrowed to finance the acquisition of our properties Village Lake and Coachman's in January 2003, as well as a two-year, $3,000,000 recourse note that the Company obtained in June 2005.  Both of these loans were repaid in full in January 2007.
e)  
The general recourse debt outstanding as of June 30, 2007, 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)  
In 2005, the Company purchased 22 residential acres adjacent to the Sheffield Neighborhood for $1,000,000.  The Company funded half of the purchase price with cash and signed a two-year note for $500,000 due in November 2007.  The Company plans to annex the land into the St. Charles master plan community.
g)  
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 June 30, 2007, approximately $73,558,000 of this debt is secured by the Federal Housing Administration ("FHA") or the Maryland Housing Fund.  The non-recourse debt related to the investment properties also includes a construction loan for Sheffield Greens Apartments LLC (Sheffield Greens).  As of June 30, 2007, the balance of the construction loan was $25,390,000.  The construction loan will convert to a 40-year non-recourse permanent mortgage not later than September of 2007.

The Company’s loans contain various financial, cross collateral, cross default, technical and restrictive provisions.  As of June 30, 2007, the Company is in compliance with the financial covenants and the other provisions of its loan agreements.

(5)
COMMITMENTS AND CONTINGENT LIABILITIES

Financial Commitments
Pursuant to an agreement reached between ACPT and the Charles County Commissioners in 2002, the Company agreed to accelerate the construction of two major roadway

links to the Charles County (the "County") road system. As part of the agreement, the County agreed to issue general obligation public improvement bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by letters of credit provided by Lennar as part of a residential lot sales contract for 1,950 lots in Fairway Village.  The Bonds were issued in three installments with the final $6,000,000 installment issued in March 2006.  The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate 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 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 will also require ACPT to fund an escrow account from lot sales that will be used to repay these Bonds.
In August 2005, the Company signed a memorandum of understanding ("MOU") with the Charles County Commissioners regarding a land donation that is anticipated to house a planned minor league baseball stadium and entertainment complex. Under the terms of the MOU, the Company donated 42 acres of land in St. Charles to the County on December 31, 2005. The Company also agreed to expedite off-site utilities, storm-water management and road construction improvements that will serve the entertainment complex and future portions of St. Charles so that the improvements will be completed concurrently with the entertainment complex.  In return, the County agreed to issue $7,000,000 of general obligation bonds to finance the infrastructure improvements.  In March 2006, the County issued $4,000,000 of bonds for this project and in March 2007, the County issued an additional $3,000,000.  The funds for this project will be repaid by ACPT over a 15-year period. 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 six and three months ended June 30, 2007, the Company recognized $299,000 and $147,000 of interest income on these escrowed funds.
 As of June 30, 2007, ACPT is guarantor of $22,845,000 of surety bonds for the completion of land development projects with Charles County; substantially all are for the benefit of the Charles County Commissioners.

Consulting Agreement and Arrangement
ACPT entered into a consulting and retirement compensation agreement with Interstate General Company L.P.’s (“IGC”) founder and Chief Executive Officer, James J. Wilson, effective October 5, 1998 (the "Consulting Agreement").  IGC was the predecessor company to ACPT.  Under the terms of the Consulting Agreement, the Company will pay Mr. Wilson $200,000 per year through October 2008.

Guarantees
ACPT and its subsidiaries typically provide guarantees for another subsidiary's loans. In many cases more than one company guarantees the same debt. Since all of these companies are consolidated, the debt or other financial commitment made by the subsidiaries to third parties and guaranteed by ACPT, is included within ACPT's consolidated financial statements.  As of June 30, 2007, ACPT has guaranteed $24,455,000 of outstanding debt owed by its subsidiaries.  IGP has guaranteed $1,800,000 of its subsidiaries' outstanding 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.  In addition to debt service guarantees, both the Company and Lennar provided development completion guarantees related to the St. Charles Active Adult Community Joint Venture.  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
There have been no other material changes to the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.
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 certain 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 the pending unresolved 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.

(6)
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:
                           
       
Six Months Ended
   
Three Months Ended
       
June 30,
   
June 30,
       
2007
   
2006
   
2007
   
2006
                           
Management and Other Fees (A)
                         
  Unconsolidated subsidiaries with third party partners
      $
21
    $
19
    $
11
    $
9
 
  Affiliates of J. Michael Wilson, CEO and Chairman
       
43
     
248
     
-
     
117
 
        $
64
    $
267
    $
11
    $
126
 
                                 
Rental Property Revenues
(B)
    $
28
    $
-
    $
14
    $
-
 
                                 
Interest and Other Income
                               
  Unconsolidated real estate entities with third party partners
      $
4
    $
2
    $
2
    $
2
 
                                 
General and Administrative Expense
                               
  Affiliates of J. Michael Wilson, CEO and Chairman
(C1)
    $
-
    $
19
    $
-
    $
-
 
  Reserve additions and other write-offs-
                               
    Unconsolidated real estate entities with third party partners
(A)
     
11
     
5
     
7
      (1 )
  Reimbursement to IBC for ACPT's share of J. Michael Wilson's salary
     
195
     
188
     
97
     
94
 
  Reimbursement of administrative costs-
                               
    Affiliates of J. Michael Wilson, CEO and Chairman
        (13 )     (5 )     (7 )     (2 )
    Reimbursement of legal fees to attorney for J. Michael Wilson
(C4)
     
48
     
-
     
48
     
-
 
  Consulting Fees -
                               
    James J. Wilson, IGC Chairman and Director
(C2)
     
100
     
100
     
50
     
50
 
    Thomas J. Shafer, Trustee
(C3)
     
30
     
30
     
15
     
15
 
        $
371
    $
337
    $
210
    $
156
 
                                 
BALANCE SHEET:
                     
Balance
   
Balance
                       
June 30,
   
December 31,
                       
2007
   
2006
                                 
Other Assets
                               
Receivables - All unsecured and due on demand
                               
  Affiliate of J. Michael Wilson, CEO and Chairman
                      $
10
    $
128
 

(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.
Chastleton Associates, LP, previously owned by an affiliate of J. Michael Wilson, was sold to a third party during April 2007, resulting in a termination of our management agreement.  The Company earned an agreed-upon management fee for administrative services through the end of the second quarter 2006.  Management fees generated by this property accounted for less than 1% of the Company’s total revenue.
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.

- 16 -


(B)           Rental Property Revenue
On September 1, 2006, the Company, through one of its Puerto Rican subsidiaries, Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson Family.  The lease provides for 1,842 square feet of office space to be leased by CWT for five years at $19.00 per rentable square foot.  The company provided CWT with an allowance of $9,000 in tenant improvements which are being amortized over the life of the lease.  In addition, CWT shall have the right to terminate this lease at any time after one year, provided it gives Landlord written notice six (6) months prior to termination.   The lease agreement is unconditionally guaranteed by Interstate Business Corporation (“IBC”), a company owned by the J. Michael Wilson Family.
(C)           Other
Other transactions with related parties are as follows:
1)  
In 2005, the Company rented executive office space and other property from an affiliate in the United States pursuant to leases that were assigned to the new owners when the property was sold in January 2006.  In management’s opinion, all leases with affiliated persons were on terms at least as favorable as these generally available from unaffiliated persons for comparable property.
2)  
Represents fees paid to James J. Wilson pursuant to a consulting and retirement agreement.  At Mr. Wilson's request, payments are made to IWT.
3)  
Represents fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting agreement.
4)  
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 $170,000 of such costs, $48,000 of which had been incurred as of June 30, 2007.

Related Party Acquisitions

El Monte
On April 30, 2004, the Company purchased a 50% limited partnership interest in El Monte Properties S.E. ("El Monte") from Insular Properties Limited Partnership ("Insular") for $1,462,500.  Insular is owned by the J. Michael Wilson Family.  Per the terms of the agreement, the Company was responsible to fund $400,000 of capital improvements and lease stabilization costs, and had a priority on cash distributions up to its advances plus accrued interest at 8%, investment and a 13% cumulative preferred return on its investment.  The purchase price was based on a third party appraisal of $16,500,000 dated April 22, 2003. The Company's limited partnership investment was accounted for under the equity method of accounting.
In December 2004, a third party buyer purchased El Monte for $20,000,000:  $17,000,000 in cash and $3,000,000 in 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, the Company recorded $1,500,000 as equity in earnings and $207,000 as interest income.  As previously noted, the Company deferred revenue recognition on this note until the cash was received.

(7)
INCOME TAXES

We adopted the provisions of FIN 48 on January 1, 2007.  As a result of the implementation of FIN 48, we 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 January 1, 2007, was $13,544,000.  Included in the balance at January 1, 2007, were $2,605,000 of tax positions that, if recognized, would impact the effective tax rate.
In accordance with our accounting policy, we recognize accrued interest related to unrecognized tax benefits as a component of interest expense and penalties as a component of tax expense on the Consolidated Statements of Income.  This policy did not change as a result of the adoption of FIN 48.  Our Consolidated Statements of Income for the six and three months ended June 30, 2007, and our Consolidated Balance Sheet as of that date included interest of $551,000,  $282,000 and $2,181,000, respectively and penalties of $72,000, $14,000 and $669,000, respectively.
The Company currently does not have any tax returns under audit by the United States Internal Revenue Service or the Puerto Rico Treasury Department.  However, the tax returns filed in the Unites States for the years ended December 31, 2003 through 2006 remain subject to examination.  For Puerto Rico, the tax returns for the years ended December 31, 2002 through 2006 remain subject to examination.  Within the next twelve months, the Company anticipates the payment of $252,000 related to a closing agreement being pursued with the Puerto Rico Treasury Department.  The Company does not anticipate any other payments related to settlement of any tax examinations.  Additionally, as certain United States and Puerto Rico income tax returns will no longer be subject to examination, and as a result, there is a reasonable possibility that the amount of unrecognized tax benefits will decrease by $26,000 when the related statutes of limitations expire.



(8)
SEGMENT INFORMATION

ACPT has two reportable segments: U.S. operations and Puerto Rico operations. The Company's chief decision-makers allocate resources and evaluate the Company's performance based on these two segments. The U.S. segment is comprised of different components grouped by product type or service, to include:  investments in rental properties, community development and property management services. The Puerto Rico segment entails the following components: investment in rental properties, community development, homebuilding and property management services.  The U.S. segment bears substantially all of the corporate costs associated with being a public company and other corporate governance.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Customer Dependence
Residential land sales to Lennar within our U.S. segment were $3,309,000 for the six months ended June 30, 2007, which represents 13% of the U.S. segment's revenue and 8% of our total year-to-date consolidated revenue.  No customers accounted for more than 10% of our consolidated revenue for the six months ended June 30, 2007.




The following presents the segment information for the six months ended June 30, 2007 and 2006 (in thousands):

 
United
 
Puerto
 
Inter-   
     
 
States
 
Rico  
 
Segment
 
Total
 
                 
Six Months Ended June 30, 2007 (Unaudited):
$    
 
$   
 
$  
 
$    
 
Rental property revenues
 
18,706
   
11,126
   
-
   
29,832
 
Rental property operating expenses
 
9,489
   
5,638
    (13 )  
15,114
 
Land sales revenue
 
5,969
   
-
   
-
   
5,969
 
Cost of land sales
 
4,356
   
-
   
-
   
4,356
 
Home sales revenue
 
-
   
5,214
   
-
   
5,214
 
Cost of home sales
 
-
   
3,816
   
-
   
3,816
 
Management and other fees
 
208
   
313
    (15 )  
506
 
General, administrative, selling and marketing expense
 
3,923
   
1,448
    (3 )  
5,368
 
Depreciation and amortization
 
2,745
   
1,836
   
-
   
4,581
 
Operating income
 
4,370
   
3,915
   
1
   
8,286
 
Interest income
 
591
   
226
    (55 )  
762
 
Equity in earnings from unconsolidated entities
  (1 )  
1,846
   
-
   
1,845
 
Interest expense
 
6,226
   
3,166
    (55 )  
9,337
 
Minority interest in consolidated entities
 
173
   
1,384
   
-
   
1,557
 
Income before provision/(benefit) for income taxes
  (1,436 )  
1,563
   
-
   
127
 
Income tax provision/(benefit)
  (481 )  
769
   
-
   
288
 
Net income
  (955 )  
794
   
-
    (161 )
Gross profit on land sale
 
1,613
   
-
   
-
   
1,613
 
Gross profit on home sales
 
-
   
1,398
   
-
   
1,398
 
Total assets
 
254,637
   
102,060
    (1,620 )  
355,077
 
Additions to long lived assets
 
4,519
   
422
    -    
4,941
 
                         
Six Months Ended June 30, 2006 (Unaudited):
 
$    
    $        $       
$    
 
Rental property revenues
 
15,606
   
10,532
   
-
   
26,138
 
Rental property operating expenses
 
7,373
   
5,443
   
-
   
12,816
 
Land sales revenue
 
6,626
   
-
   
-
   
6,626
 
Cost of land sales
 
3,666
   
-
   
-
   
3,666
 
Home sales revenue
 
-
   
11,259
   
-
   
11,259
 
Cost of home sales
 
-
   
8,521
   
-
   
8,521
 
Management and other fees
 
269
   
296
   
-
   
565
 
General, administrative, selling and marketing expense
 
3,178
   
1,356
   
-
   
4,534
 
Depreciation and amortization
 
2,275
   
1,799
   
-
   
4,074
 
Operating income
 
6,009
   
4,968
   
-
   
10,977
 
Interest income
 
59
   
60
    (18 )  
101
 
Equity in earnings from unconsolidated entities
 
-
   
343
   
-
   
343
 
Interest expense
 
4,048
   
3,170
    (18 )  
7,200
 
Minority interest in consolidated entities
 
312
   
2,354
   
-
   
2,666
 
Income before provision/(benefit) for income taxes
 
1,710
    (38 )  
-
   
1,672
 
Income tax provision/(benefit)
 
729
    (15 )  
-
   
714
 
Net income
 
981
    (23 )  
-
   
958
 
Gross profit on land sale
 
2,960
   
-
   
-
   
2,960
 
Gross profit on home sales
 
-
   
2,738
   
-
   
2,738
 
Total assets
 
208,106
   
109,767
    (369 )  
317,504
 
Additions to long lived assets
 
24,208
   
908
   
-
   
25,116
 
 
 
 

The following presents the segment information for the three months ended June 30, 2007 and 2006 (in thousands):

 
United
 
Puerto
 
Inter-
     
 
States
 
Rico
 
Segment
 
Total
 
                 
Three Months Ended June 30, 2007 (Unaudited):
$    
 
$    
 
$  
 
$    
 
Rental property revenues
 
9,801
   
5,621
   
-
   
15,422
 
Rental property operating expenses
 
4,864
   
2,907
    (13 )  
7,758
 
Land sales revenue
 
2,214
   
-
   
-
   
2,214
 
Cost of land sales
 
1,440
   
-
   
-
   
1,440
 
Home sales revenue
 
-
   
2,126
   
-
   
2,126
 
Cost of home sales
 
-
   
1,530
   
-
   
1,530
 
Management and other fees
 
98
   
160
    (15 )  
243
 
General, administrative, selling and marketing expense
 
2,176
   
732
    (3 )  
2,905
 
Depreciation and amortization
 
1,474
   
923
   
-
   
2,397
 
Operating income
 
2,159
   
1,815
   
1
   
3,975
 
Interest income
 
294
   
11
    (25 )  
280
 
Equity in earnings from unconsolidated entities
  (1 )  
173
   
-
   
172
 
Interest expense
 
3,160
   
1,585
    (25 )  
4,720
 
Minority interest in consolidated entities
 
173
   
12
   
-
   
185
 
Income before provision/(benefit) for income taxes
  (879 )  
459
   
-
    (420 )
Income tax provision/(benefit)
  (406 )  
171
   
-
    (235 )
Net income
  (473 )  
288
   
-
    (185 )
Gross profit on land sale
 
774
   
-
   
-
   
774
 
Gross profit on home sales
 
-
   
596