acpt10q_09302007.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 SEPTEMBER 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 November 8, 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
SEPTEMBER 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.
32
     
Item 4.
32
     
PART II
OTHER INFORMATION
 
     
Item 1.
33
     
Item 1A.
33
     
Item 2
33
     
Item 3.
33
     
Item 4.
33
     
Item 5.
33
     
Item 6.
33
     
 
34


AMERICAN COMMUNITY PROPERTIES TRUST
 
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30
 
(In thousands, except per share amounts)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Revenues
           
  Rental property
  $
45,249
    $
39,946
 
  Community development-land sales
   
8,032
     
11,317
 
  Homebuilding-home sales
   
6,113
     
16,343
 
  Management and other fees, substantially all from related entities
   
756
     
885
 
  Reimbursement of expenses related to managed entities
   
1,307
     
1,622
 
    Total revenues
   
61,457
     
70,113
 
                 
Expenses
               
  Rental property operating expenses
   
22,901
     
19,763
 
  Cost of land sales
   
5,930
     
6,156
 
  Cost of home sales
   
4,399
     
12,310
 
  General, administrative, selling and marketing
   
8,600
     
6,703
 
  Depreciation and amortization
   
7,009
     
6,239
 
  Expenses reimbursed from managed entities
   
1,307
     
1,622
 
    Total expenses
   
50,146
     
52,793
 
                 
Operating Income
   
11,311
     
17,320
 
                 
Other income (expense)
               
  Interest and other income
   
1,178
     
838
 
  Equity in earnings from unconsolidated entities
   
2,020
     
510
 
  Interest expense
    (14,037 )     (10,915 )
  Minority interest in consolidated entities
    (1,750 )     (2,997 )
                 
Income (loss) before provision (benefit) for income taxes
    (1,278 )    
4,756
 
Provision (benefit) for income taxes
    (19 )    
1,754
 
                 
Net (loss) income
  $ (1,259 )   $
3,002
 
                 
Earnings per share
               
    Basic
  $ (0.24 )   $
0.58
 
Weighted average shares outstanding
               
    Basic
   
5,205
     
5,199
 
    Diluted
   
5,212
     
5,199
 
Cash dividends per share
  $
0.30
    $
0.73
 
The accompanying notes are an integral part of these consolidated statements.
               



AMERICAN COMMUNITY PROPERTIES TRUST
 
 
FOR THE THREE MONTHS ENDED SEPTEMBER 30
 
(In thousands, except per share amounts)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Revenues
           
  Rental property
  $
15,417
    $
13,808
 
  Community development-land sales
   
2,063
     
4,691
 
  Homebuilding-home sales
   
899
     
5,084
 
  Management and other fees, substantially all from related entities
   
250
     
320
 
  Reimbursement of expenses related to managed entities
   
414
     
518
 
    Total revenues
   
19,043
     
24,421
 
                 
Expenses
               
  Rental property operating expenses
   
7,787
     
6,947
 
  Cost of land sales
   
1,574
     
2,490
 
  Cost of home sales
   
583
     
3,789
 
  General, administrative, selling and marketing
   
3,232
     
2,169
 
  Depreciation and amortization
   
2,428
     
2,165
 
  Expenses reimbursed from managed entities
   
414
     
518
 
    Total expenses
   
16,018
     
18,078
 
                 
Operating Income
   
3,025
     
6,343
 
                 
Other income (expense)
               
  Interest and other income
   
288
     
620
 
  Equity in earnings from unconsolidated entities
   
175
     
167
 
  Interest expense
    (4,700 )     (3,715 )
  Minority interest in consolidated entities
    (193 )     (331 )
                 
Income (loss) before provision (benefit) for income taxes
    (1,405 )    
3,084
 
Provision (benefit) for income taxes
    (307 )    
1,040
 
                 
Net (loss) income
  $ (1,098 )   $
2,044
 
                 
Earnings per share
               
    Basic
  $ (0.21 )   $
0.39
 
Weighted average shares outstanding
               
    Basic
   
5,207
     
5,201
 
    Diluted
   
5,214
     
5,201
 
Cash dividends per share
  $
0.10
    $
0.10
 
The accompanying notes are an integral part of these consolidated statements.
               



 
AMERICAN COMMUNITY PROPERTIES TRUST
 
 
(In thousands, except share and per share amounts)
 
             
   
As of 
September 30, 2007
(Unaudited)
   
As of
December 31, 2006
(Audited)
 
ASSETS
           
ASSETS:
           
Investments in real estate:
           
  Operating real estate, net of accumulated depreciation
  $
165,451
    $
142,046
 
    of $149,130 and $142,458 respectively
               
  Land and development costs
   
83,243
     
67,993
 
  Condominiums under construction
   
5,413
     
9,265
 
  Rental projects under construction or development
   
707
     
24,143
 
    Investments in real estate, net
   
254,814
     
243,447
 
                 
Cash and cash equivalents
   
18,643
     
27,459
 
Restricted cash and escrow deposits
   
21,518
     
19,677
 
Investments in unconsolidated real estate entities
   
6,552
     
6,591
 
Receivable from bond proceeds
   
10,425
     
13,710
 
Accounts receivable
   
2,514
     
4,320
 
Deferred tax assets
   
33,050
     
18,157
 
Property and equipment, net of accumulated depreciation
   
1,131
     
1,157
 
Deferred charges and other assets, net of amortization of
               
  $2,542 and $1,655 respectively
   
11,557
     
12,181
 
                 
    Total Assets
  $
360,204
    $
346,699
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
LIABILITIES:
               
Non-recourse debt
  $
279,796
    $
270,720
 
Recourse debt
   
25,952
     
29,351
 
Accounts payable and accrued liabilities
   
25,709
     
24,191
 
Deferred income
   
3,112
     
3,591
 
Accrued current income tax liability
   
13,939
     
2,992
 
    Total Liabilities
   
348,508
     
330,845
 
                 
SHAREHOLDERS' EQUITY
               
  Common shares, $.01 par value, 10,000,000 shares authorized,
               
     5,229,954 shares issued and outstanding as of September 30, 2007 and December 31, 2006
   
52
     
52
 
  Treasury stock, 67,709 shares at cost
    (376 )     (376 )
  Additional paid-in capital
   
17,345
     
17,238
 
  Retained (deficit) earnings
    (5,325 )     (1,060 )
    Total Shareholders' Equity
   
11,696
     
15,854
 
                 
    Total Liabilities and Shareholders' Equity
  $
360,204
    $
346,699
 
The accompanying notes are an integral part of these consolidated statements.
         


 

AMERICAN COMMUNITY PROPERTIES TRUST
 
 
(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
   
-
     
-
     
-
     
-
      (1,259 )     (1,259 )
  Dividends paid
   
-
     
-
     
-
     
-
      (1,548 )     (1,548 )
  Cumulative effect of change in accounting for FIN 48
   
-
     
-
     
-
     
-
      (1,458 )     (1,458 )
  Amortization of Trustee Restricted Shares
   
-
     
-
     
-
     
107
     
-
     
107
 
Balance September 30, 2007 (Unaudited)
   
5,229,954
    $
52
    $ (376 )   $
17,345
    $ (5,325 )   $
11,696
 
The accompanying notes are an integral part of those consolidated statements.
 

 

AMERICAN COMMUNITY PROPERTIES TRUST
 
 
FOR THE NINE MONTHS ENDED SEPTEMBER 30
 
(In thousands)
 
(Unaudited)
 
             
             
   
2007
   
2006
 
             
Cash Flows from Operating Activities
           
  Net (loss) income
  $ (1,259 )   $
3,002
 
  Adjustments to reconcile net income to net cash provided by
               
    operating activities:
               
      Depreciation and amortization
   
7,009
     
6,239
 
      Distribution to minority interests in excess of basis
   
1,988
     
2,957
 
      Benefit for deferred income taxes
    (5,019 )     (542 )
      Equity in earnings-unconsolidated entities
    (2,020 )     (510 )
      Distribution of earnings from unconsolidated entities
   
521
     
510
 
      Cost of land sales
   
5,930
     
6,156
 
      Cost of home sales
   
4,399
     
12,310
 
      Stock based compensation expense
   
190
     
219
 
      Amortization of deferred loan costs
   
643
     
411
 
      Changes in notes and accounts receivable
   
1,806
      (71 )
      Additions to community development assets
    (23,180 )     (16,789 )
      Right of way easement
   
2,000
     
-
 
      Homebuilding-construction expenditures
    (547 )     (5,860 )
      Deferred income-joint venture
    (479 )     (75 )
      Changes in accounts payable, accrued liabilities
   
1,050
      (2,685 )
  Net cash (used in) provided by operating activities
    (6,968 )    
5,272
 
                 
CashFlows from Investing Activities
               
  Investment in apartment construction
    (452 )     (16,557 )
  Change in investments - unconsolidated entities
   
1,538
     
27
 
  Cash from newly consolidated properties
   
-
     
4,723
 
  Change in restricted cash
    (1,841 )    
503
 
  Additions to rental operating properties, net
    (6,298 )     (20,096 )
  Other assets
    (221 )     (1,176 )
  Net cash used in investing activities
    (7,274 )     (32,576 )
                 
CashFlows from Financing Activities
               
  Cash proceeds from debt financing
   
23,339
     
51,847
 
  Payment of debt
    (19,678 )     (26,270 )
  County Bonds proceeds, net of undisbursed funds
   
5,301
     
2,041
 
  Payments of distributions to minority interests
    (1,988 )     (2,957 )
  Dividends paid to shareholders
    (1,548 )     (3,745 )
  Net cash provided by financing activities
   
5,426
     
20,916
 
                 
Net Decrease in Cash and Cash Equivalents
    (8,816 )     (6,388 )
Cash and Cash Equivalents, Beginning of Period
   
27,459
     
21,156
 
Cash and Cash Equivalents, End of Period
  $
18,643
    $
14,768
 
The accompanying notes are an integral part of these consolidated statements.
 

AMERICAN COMMUNITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine and three months ended September 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 31, 2007.  On August 13, 2007, the Board of Trustees declared a cash dividend of $0.10 per share, payable on September 12, 2007 to shareholders of record on August 28, 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 nine- and three-month periods ended September 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 nine- and three-month periods ended September 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 September 30, 2007 and December 31, 2006 (in thousands):

   
September 30,
   
December 31,
 
   
2007
   
2006
 
   
(Unaudited)
   
(Audited)
 
             
Building
  $
264,611
    $
240,264
 
Building improvements
   
10,263
     
8,022
 
Equipment
   
14,195
     
12,569
 
     
289,069
     
260,855
 
Less: Accumulated depreciation
   
149,130
     
142,458
 
     
139,939
     
118,397
 
Land
   
25,512
     
23,649
 
Operating properties, net
  $
165,451
    $
142,046
 
 
Other Property and Equipment
In addition, the Company owned other property and equipment of $1,131,000 and $1,157,000, net of accumulated depreciation of $2,278,000 and $2,101,000 respectively, as of September 30, 2007, and December 31, 2006, respectively.

Depreciation
Total depreciation expense was $7,009,000 and $6,239,000 for the nine months ended September 30, 2007 and 2006, respectively, and $2,428,000 and $2,165,000 for the three months ended September 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 September 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 $214,000 and $189,000 and for Lakeside of $166,000 and $172,000 as of September 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 an $8.0 million non-recourse development loan, which was amended in June 2006, December 2006 and again in October 2007.  Included within these amendments, the maximum borrowings outstanding on the facility was reduced to $5.0 million.  For the October 2007 amendment, the development loan was modified to provide a one year delay in development of the project, as to date, lot development has outpaced sales.  Per the terms of the loan, both the Company and Lennar provided development completion guarantees.  In the nine and three months ended September 30, 2007, the joint venture delivered 48 and 18 lots to Lennar, recognizing $1,063,000 and $408,000 in deferred revenue, off-site fees and management fees and $358,000 and $140,000 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
                       
    September 30, 2007
  $
4,970
    $
28,242
    $
12,491
    $
45,703
 
    December 31, 2006
   
5,142
     
27,726
     
12,154
     
45,022
 
  Total Non-Recourse Debt
                               
    September 30, 2007
   
3,205
     
22,960
     
3,861
     
30,026
 
    December 31, 2006
   
3,244
     
22,960
     
3,476
     
29,680
 
  Total Other Liabilities
                               
    September 30, 2007
   
1,264
     
1,046
     
1,694
     
4,004
 
    December 31, 2006
   
1,242
     
722
     
1,744
     
3,708
 
  Total Equity
                               
   September 30, 2007
   
501
     
4,236
     
6,936
     
11,673
 
    December 31, 2006
   
656
     
4,044
     
6,934
     
11,634
 
  Company's Investment, net (1)
                               
    September 30, 2007
   
-
     
4,724
     
1,828
     
6,552
 
    December 31, 2006
   
-
     
4,763
     
1,828
     
6,591
 
                                 
Summary of Operations:
                               
  Total Revenue
                               
    Nine Months Ended September 30, 2007
  $
604
    $
2,730
    $
5,560
    $
8,894
 
    Nine Months Ended September 30, 2006
   
588
     
2,742
     
2,453
     
5,783
 
    Three Months Ended September 30, 2007
   
203
     
909
     
1,951
     
3,063
 
    Three Months Ended September 30, 2006
   
196
     
914
     
2,453
     
3,563
 
  Net Income (Loss)
                               
    Nine Months Ended September 30, 2007
    (155 )    
1,407
     
2
     
1,254
 
    Nine Months Ended September 30, 2006
    (83 )    
1,374
     
-
     
1,291
 
    Three Months Ended September 30, 2007
    (58 )    
470
     
-
     
412
 
    Three Months Ended September 30, 2006
    (25 )    
448
     
-
     
423
 
  Company's recognition of equity in earnings
                               
    Nine Months Ended September 30, 2007
    (1 )    
521
     
-
     
520
 
    Nine Months Ended September 30, 2006
   
-
     
510
     
-
     
510
 
    Three Months Ended September 30, 2007
   
-
     
175
     
-
     
175
 
    Three Months Ended September 30, 2006
   
-
     
167
     
-
     
167
 

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
                       
    Nine Months Ended September 30, 2007
  $
38
    $
1,710
    $
5,508
    $
7,256
 
    Nine Months Ended September 30, 2006
   
93
     
1,606
     
3,333
     
5,032
 
    Three Months Ended September 30, 2007
    (12 )    
865
     
2,359
     
3,212
 
    Three Months Ended September 30, 2006
   
16
     
574
     
3,201
     
3,791
 
Company's Share of Cash Flows from Operating Activities
                         
    Nine Months Ended September 30, 2007
   
-
     
774
     
2,754
     
3,528
 
    Nine Months Ended September 30, 2006
   
1
     
727
     
1,666
     
2,394
 
    Three Months Ended September 30, 2007
   
-
     
392
     
1,179
     
1,571
 
    Three Months Ended September 30, 2006
   
-
     
260
     
1,600
     
1,860
 
  Operating Cash Distributions
                               
    Nine Months Ended September 30, 2007
   
-
     
1,236
     
-
     
1,236
 
    Nine Months Ended September 30, 2006
   
-
     
1,185
     
-
     
1,185
 
    Three Months Ended September 30, 2007
   
-
     
442
     
-
     
442
 
    Three Months Ended September 30, 2006
   
-
     
438
     
-
     
438
 
  Company's Share of Operating Cash Distributions
                               
    Nine Months Ended September 30, 2007
   
-
     
560
     
-
     
560
 
    Nine Months Ended September 30, 2006
   
-
     
537
     
-
     
537
 
    Three Months Ended September 30, 2007
   
-
     
200
     
-
     
200
 
    Three Months Ended September 30, 2006
   
-
     
199
     
-
     
199
 
                                 

(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 September 30, 2007 and December 31, 2006 (in thousands):

 
Maturity
Interest
Outstanding as of
 
Dates
Rates
September 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%
 $           25,835
 $             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%
                    117
                     184
Total Recourse Debt
   
              25,952
                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%
            279,296
              270,220
Total Non-Recourse Debt
   
            279,796
              270,720
    Total debt
 
 
 $         305,748
 $           300,071
         

a)  
As of September 30, 2007, $24,110,000 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 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 September 30, 2007, the Company was in compliance with these financial covenants even though 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 (7.36% at September 30, 2007) and matures on August 31, 2008.  The outstanding balance of this facility on September 30, 2007, was $1,725,000.
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 September 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 on November 23, 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 September 30, 2007, approximately $73,338,000 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 September 30, 2007, the balance of the construction loan was $25,375,000.  The construction loan was converted to a 40-year non-recourse mortgage on October 16, 2007.

The Company’s loans contain various financial, cross collateral, cross default, technical and restrictive provisions.  As of September 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 nine and three months ended September 30, 2007, the Company recognized $458,000 and $159,000 of interest income on these escrowed funds.
 As of September 30, 2007, ACPT is guarantor of $22,354,000 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 September 30, 2007, ACPT has guaranteed $24,110,000 of outstanding debt owed by its subsidiaries.  IGP has guaranteed $1,725,000 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 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:
                         
     
Nine Months Ended
   
Three Months Ended
 
     
September 30,
   
September 30,
 
     
2007
   
2006
   
2007
   
2006
 
                           
Management and Other Fees (A)
                         
  Unconsolidated subsidiaries with third party partners
    $
32
    $
32
    $
11
    $
13
 
  Affiliates of J. Michael Wilson, CEO and Chairman
     
43
     
333
     
-
     
85
 
      $
75
    $
365
    $
11
    $
98
 
                                   
Rental Property Revenues
(B)
  $
43
    $
5
    $
15
    $
5
 
                                   
Interest and Other Income
                                 
  Unconsolidated real estate entities with third party partners
    $
6
    $
6
    $
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)
   
25
     
-
     
14
      (9 )
  Reimbursement to IBC for ACPT's share of J. Michael Wilson's salary
   
293
     
281
     
98
     
93
 
  Reimbursement of administrative costs-
                                 
    Affiliates of J. Michael Wilson, CEO and Chairman
      (18 )     (16 )     (5 )     (11 )
    Legal fees paid to J. Michael Wilson's attorney
(C4)
   
188
     
-
     
140
     
-
 
  Consulting Fees -
                                 
    James J. Wilson, IGC Chairman and Director
(C2)
   
150
     
150
     
50
     
50
 
    Thomas J. Shafer, Trustee
(C3)
   
45
     
45
     
15
     
15
 
      $
683
    $
479
    $
312
    $
138
 
                                   
BALANCE SHEET:
   
Balance
   
Balance
                 
     
September 30,
   
December 31,
                 
     
2007
   
2006
                 
                                   
Other Assets
                                 
Receivables - All unsecured and due on demand
                                 
  Affiliate of J. Michael Wilson, CEO and Chairman
    $
13
    $
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.
(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 Interstate Waste Technologies, Inc. (“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 $225,000 of such costs, $188,000 of which have been incurred as of September 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 uncertain tax positions 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 nine and three months ended September 30, 2007, and our Consolidated Balance Sheet as of that date included interest of $855,000,  $304,000 and $2,485,000, respectively and penalties of $143,000, $71,000 and $740,000, 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, 2003 through 2006 remain subject to examination.  On August 31, 2007, the Company reached a closing agreement with the Puerto Rico Treasury Department whereby the company paid $252,000 related to the correction of a special partnership income tax return.  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 $27,000 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 $5,131,000 for the nine months ended September 30, 2007, which represents 14% 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 nine months ended September 30, 2007.
In March 2004, the Company executed an agreement with Lennar Corporation to sell 1,950 residential lots (1,359 single family lots and 591 town home lots) in Fairway Village in St. Charles, Maryland. The agreement requires the homebuilder to provide $20,000,000 in letters of credit to secure the purchase of the lots and purchase 200 residential lots per year, provided that they are developed and available for delivery as defined by the development agreement.  Although Lennar is contractually obligated to take 200 lots per year, the market is not sufficient to absorb this sales pace.  Accordingly, Lennar’s management requested a reduction of the 200 lot requirement and lot price.  The Company is in active negotiations with Lennar to reach agreed upon terms that are mutually beneficial to both parties.


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

   
United
   
Puerto
   
Inter-
       
   
States
   
Rico
   
Segment
   
Total
 
                         
Nine Months Ended September 30, 2007 (Unaudited):
 
$
   
$
   
$
   
$
 
Rental property revenues
   
28,529
     
16,720
     
-
     
45,249
 
Rental property operating expenses
   
14,376
     
8,543
      (18 )    
22,901
 
Land sales revenue
   
8,032
     
-
     
-
     
8,032
 
Cost of land sales
   
5,930
     
-
     
-
     
5,930
 
Home sales revenue
   
-
     
6,113
     
-
     
6,113
 
Cost of home sales
   
-
     
4,399
     
-
     
4,399
 
Management and other fees
   
299
     
479
      (22 )    
756
 
General, administrative, selling and marketing expense
   
6,355
     
2,249
      (4 )    
8,600
 
Depreciation and amortization
   
4,252
     
2,757
     
-
     
7,009
 
Operating income
   
5,947
     
5,364
     
-
     
11,311
 
Interest income
   
843
     
228
      (80 )    
991
 
Equity in earnings from unconsolidated entities
    (1 )    
2,021
     
-
     
2,020
 
Interest expense
   
9,436
     
4,681
      (80 )    
14,037
 
Minority interest in consolidated entities
   
332
     
1,418
     
-
     
1,750
 
Income before provision/(benefit) for income taxes
    (2,975 )    
1,697
     
-
      (1,278 )
Income tax provision/(benefit)
    (829 )    
810
     
-
      (19 )
Net (loss) income
    (2,146 )    
887
     
-
      (1,259 )
Gross profit on land sale
   
2,102
     
-
     
-
     
2,102
 
Gross profit on home sales
   
-
     
1,714
     
-
     
1,714
 
Total assets
   
260,772
     
101,056
      (1,624 )    
360,204
 
Additions to long lived assets
   
6,226
     
524
     
-
     
6,750
 
                                 
Nine Months Ended September 30, 2006 (Unaudited):
   
     
     
     
 
Rental property revenues
   
23,889
     
16,057
     
-
     
39,946
 
Rental property operating expenses
   
11,591
     
8,187
      (15 )    
19,763
 
Land sales revenue
   
11,317
     
-
     
-
     
11,317
 
Cost of land sales
   
6,156
     
-
     
-
     
6,156
 
Home sales revenue
   
-
     
16,343
     
-
     
16,343
 
Cost of home sales
   
-
     
12,310
     
-
     
12,310
 
Management and other fees
   
461
     
443
      (19 )    
885
 
General, administrative, selling and marketing expense
   
4,648
     
2,059
      (4 )    
6,703
 
Depreciation and amortization
   
3,532
     
2,707
     
-
     
6,239
 
Operating income
   
9,740
     
7,580
     
-
     
17,320
 
Interest income
   
576
     
95
      (40 )    
631
 
Equity in earnings from unconsolidated entities
    (1 )    
511
     
-
     
510
 
Interest expense
   
6,604
     
4,351
      (40 )    
10,915
 
Minority interest in consolidated entities
   
610
     
2,387
     
-
     
2,997
 
Income before provision/(benefit) for income taxes
   
3,105
     
1,651
     
-
     
4,756
 
Income tax provision/(benefit)
   
1,284
     
470
     
-
     
1,754
 
Net income
   
1,821
     
1,181
     
-
     
3,002
 
Gross profit on land sale
   
5,161
     
-
     
-
     
5,161
 
Gross profit on home sales
   
-
     
4,033
     
-
     
4,033
 
Total assets
   
220,662
     
106,489
     
-
     
327,151
 
Additions to long lived assets
   
33,801
     
1,192
     
-
     
34,993
 


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

   
United
   
Puerto
   
Inter-
       
   
States
   
Rico
   
Segment
   
Total
 
                         
Three Months Ended September 30, 2007 (Unaudited):
 
$
   
$
   
$
   
$
 
Rental property revenues
   
9,823
     
5,594
     
-