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 MARCH 31, 1999, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number 1-14369
American Community Properties Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-2058165
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
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(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 report(s), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
5,191,554 Common Shares
------------------------
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
FORM 10-Q
INDEX
Page
PART I FINANCIAL INFORMATION Number
------
Item 1. Consolidated Financial Statements
Consolidated Statements of Income for
the Three Months Ended March 31, 1999 and
1998. (Unaudited) 3
Consolidated Balance Sheets as of March 31, 1999
(Unaudited) and December 31, 1998 (Audited). 4
Consolidated Statements of Cash Flow for the
Three Months Ended March 31, 1999 and 1998.
(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited). 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Three
Months Ended March 31, 1999 and 1998. 19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 24
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Material Modifications of Rights of Registrant's 25
Securities
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands, except per share amounts)
(Unaudited)
1999 1998
---------- -----------
REVENUES
Community development-land sales
Non-affiliates $ 529 $ 5,665
Affiliates 538 296
Equity in earnings from partnerships
and developer fees 448 505
Rental property revenues 2,257 2,209
Management and other fees, substantially
all from related entities 823 976
Interest and other income 228 137
---------- ----------
Total revenues 4,823 9,788
---------- ----------
EXPENSES
Cost of land sales, including cost of sales
to affiliates of $439 and $236, respectively 708 3,608
Selling and marketing 62 21
General and administrative 1,438 1,600
Interest expense 1,063 910
Rental properties operating expense 859 896
Depreciation and amortization 500 471
Spin-off costs 19 757
---------- ----------
Total expenses 4,649 8,263
---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND MINORITY INTEREST 174 1,525
PROVISION FOR INCOME TAXES 63 283
---------- ----------
INCOME BEFORE MINORITY INTEREST 111 1,242
MINORITY INTEREST (102) (241)
---------- ----------
NET INCOME $ 9 $ 1,001
========== ==========
BASIC NET INCOME PER SHARE $ -- $ .19
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,192 5,218
========== ==========
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
A S S E T S
March 31, December 31,
1999 1998
------------- -----------
(Unaudited) (Audited)
CASH AND CASH EQUIVALENTS
Unrestricted $ 1,518 $ 2,903
Restricted 951 1,167
-------- --------
2,469 4,070
-------- --------
ASSETS RELATED TO INVESTMENT PROPERTIES
Operating properties, net of accumulated
depreciation of $23,041 and $22,703,
respectively 37,351 37,178
Investment in unconsolidated rental property
partnerships, net of deferred income of
$1,699 and $1,804, respectively 6,184 7,613
Investment in unconsolidated commercial
property partnerships 4,535 4,535
Other receivables, net of reserves of
$206 and $204, respectively 2,882 2,786
-------- --------
50,952 52,112
-------- --------
ASSETS RELATED TO COMMUNITY DEVELOPMENT
Land and development costs
Puerto Rico 26,656 26,515
St. Charles, Maryland 27,457 26,932
Notes receivable on lot sales and other 4,276 4,236
-------- --------
58,389 57,683
-------- --------
ASSETS RELATED TO HOMEBUILDING
Investment in joint venture 1,006 1,145
-------- --------
1,006 1,145
-------- --------
OTHER ASSETS
Receivables and other 2,728 2,690
Property, plant and equipment, less accumulated
depreciation of $1,805 and $1,753,
respectively 499 466
-------- --------
3,227 3,156
-------- --------
Total assets $116,043 $118,166
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1999 1998
------------- ------------
(Unaudited) (Audited)
LIABILITIES RELATED TO INVESTMENT PROPERTIES
Recourse debt $ 882 $ 2,723
Non-recourse debt 38,547 38,662
Accounts payable and accrued liabilities 3,455 3,036
-------- --------
42,884 44,421
-------- --------
LIABILITIES RELATED TO COMMUNITY DEVELOPMENT
Recourse debt 42,270 42,013
Accounts payable and accrued liabilities 2,114 2,207
Deferred income 235 337
-------- --------
44,619 44,557
-------- --------
OTHER LIABILITIES
Accounts payable and accrued liabilities 5,842 6,620
Notes payable and capital leases 291 234
Accrued income tax liability - current 767 305
Accrued income tax liability - deferred 4,898 5,296
-------- --------
11,798 12,455
-------- --------
Total liabilities 99,301 101,433
-------- --------
SHAREHOLDERS' EQUITY
Common shares, $.01 par value, 10,000,000
shares authorized, 5,191,544 shares
issued and outstanding 52 52
Additional paid-in capital 17,275 17,275
Retained earnings (585) (594)
-------- --------
Total shareholders' equity 16,742 16,733
-------- --------
Total liabilities and shareholders' equity $116,043 $118,166
======== ========
The accompanying notes are an integral part
of these consolidated balance sheets.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9 $ 1,001
Adjustments to reconcile net income to net cash
provided by (used by) operating activities:
Depreciation and amortization 500 471
Benefit for deferred income taxes (398) (629)
Equity in earnings from unconsolidated
partnerships and developer fees (283) (243)
Distributions from unconsolidated partnerships 1,761 1,750
Cost of sales-community development 708 3,608
Equity in earnings from homebuilding
joint venture (161) (262)
Distributions from homebuilding joint venture 300 --
Changes in other assets and liabilities (228) 3,188
------- -------
Net cash provided by operating activities 2,208 8,884
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in land development (1,374) (2,229)
Change in investments related to unconsolidated
rental property partnerships (49) 135
Change in restricted cash 216 (1,628)
Additions to rental operating properties, net (624) (458)
Acquisitions of other assets (120) 272
------- -------
Net cash used in investing activities (1,951) (3,908)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from debt financing 1,186 1,588
Payment of debt (2,828) (7,400)
Cash distributions to Interstate
General Company L.P. -- 835
------- -------
Net cash used in financing activities (1,642) (4,977)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,385) (1)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,903 2,127
------- -------
CASH AND CASH EQUIVALENTS, MARCH 31 $ 1,518 $ 2,126
======= =======
The accompanying notes are an integral part
of these consolidated statements.
<PAGE>
AMERICAN COMMUNITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
(1) ORGANIZATION
American Community Properties Trust ("ACPT" or the "Company") was
formed on March 17, 1997 as a real estate investment trust under Article 8
of the Maryland Trust Law. ACPT was formed to succeed to most of
Interstate General Company L.P.'s ("IGC" or "Predecessor") real estate
operations.
On October 5, 1998 IGC transferred to ACPT the common shares of four
subsidiaries that collectively comprised the majority of the principal real
estate operations and assets of IGC. In exchange, ACPT issued to IGC
5,207,954 common shares of ACPT, all of which were distributed ("the
Distribution") to the partners of IGC. IGC distributed to its partners the
5,207,954 shares of common stock of ACPT, resulting in the division of
IGC's operations into two companies. The shares were distributed on a
basis of one ACPT share for every two IGC Units and a proportionate share
to IGC's general partners.
ACPT's operations are carried out through American Rental Properties
Trust ("American Rental"), American Rental Management Company ("American
Management"), American Land Development U.S., Inc. ("American Land") and
IGP Group Corp. ("IGP Group") and their subsidiaries.
American Rental
IGC expects to complete its transfer to American Rental of its
partnership interests in United States investment properties in 1999. The
partnership interests in 13 investment apartment properties ("U.S.
Apartment Partnerships") will be held by American Rental indirectly through
American Housing Properties L.P. ("American Housing"), a Maryland
partnership, in which American Rental will have a 99% limited partner
interest and American Housing Management Company, a wholly owned subsidiary
of American Rental, will have a 1% general partner interest. The transfer
of the general partner interest in two partnerships requires limited
partner approval and HUD approval for one partnership, which have not yet
been obtained. Therefore, IGC has assigned to ACPT beneficial ownership in
two of these partnerships and the cash distributions in the other. ACPT
has agreed to indemnify IGC against any losses it may suffer as a result of
being the general partner and IGC will be obligated to remit to ACPT any
cash received from these three partnerships. To avoid termination of the
partnership for tax purposes, sixty percent of the general partners'
interest in four additional partnerships will not be transferred to ACPT
until October 7, 1999. Where control does not exist in these cases, the
cost method of accounting is used.
American Management
IGC transferred to American Management its United States property
management operations. The United States property management operations
provide management services for the U.S. Apartment Partnerships and for
other rental apartments not owned by IGC.
<PAGE>
American Land
IGC transferred to American Land its principal United States property
assets and operations. These included the following:
1. A 100% interest in St. Charles Community LLC which holds
approximately 4,500 acres of land in St. Charles, Maryland. This
constitutes substantially all of the land in St. Charles formerly
held by IGC, except for the land subject to the wetlands
litigation, the 26 remaining single-family lots in Dorchester and
various scattered commercial lots.
2. A 41.0346% interest in Maryland Cable Limited Partnership which
holds receivables from the 1988 sale of IGC's cable television
assets.
3. The Class B IGP interest that represents IGP's rights to income,
gains and losses associated with land in Puerto Rico held by Land
Development Associates, S.E. ("LDA") and designated for
development as saleable property.
4. As part of the asset transfers, IGC conditionally has agreed to
transfer to American Land 14 acres of land in St. Charles that
currently is zoned for commercial use (the "Commercial Parcel")
if and when IGC settles the wetlands litigation on terms approved
by the Board of Directors of IGC's general partner, provided that
IGC shall have received confirmation that the transfer of the
Commercial Parcel (and resulting decrease in the value of IGC's
assets) will not cause the IGC Units to be delisted from AMEX or
the PSE. The Commercial Parcel had a book value of approximately
$1,000,000 at July 28, 1998. If IGC is unable to settle the
wetlands litigation on satisfactory terms or IGC does not receive
confirmation of the continued listing of IGC Units, IGC will
retain the Commercial Parcel. There have been no adjustments
made to the accompanying financial statements to record the
inclusion of the Commercial Parcel.
IGP Group.
IGC transferred to IGP Group its entire 99% limited partnership
interest and 1% general partner interest in Interstate General Properties
Limited Partnership S.E., a Maryland partnership ("IGP") other than the
Class B IGP interest transferred to American Land. IGP's assets and
operations will continue to include:
1. a 100% partnership interest in LDA, a Puerto Rico special
partnership, which holds 285 acres of land in the planned
community of Parque Escorial and 540 acres of land in Canovanas;
2. a 50% partnership interest in Escorial Builders Associates S.E.
("Escorial Builders"), which is engaged in the construction of
condominiums in the planned community of Parque Escorial;
3. a 1% interest in El Monte Properties S.E., a Puerto Rico special
partnership which owns El Monte Mall Complex, a 169,000 square
foot office complex in San Juan, Puerto Rico; and
4. general partner interests in 11 Puerto Rico apartment
partnerships.
<PAGE>
Certain general and administrative costs of IGC were allocated to the
Company, principally based on IGC's specific identification of individual
cost items and otherwise based upon estimated levels of effort devoted by
its general and administrative departments to individual entities or
relative measures of size of the entities based on assets or operating
profit. Such allocated amounts are included in general and administrative
expenses. In the opinion of management, the methods used for allocating
corporate general and administrative expenses and other direct costs are
reasonable.
ACPT is a self-managed holding company that is expected to be taxed as
a partnership. The Company is primarily engaged in the investment of
rental properties, community development and management services. These
operations are concentrated in the Washington, D.C. metropolitan area and
Puerto Rico.
(2) BASIS OF PRESENTATION AND PRINCIPLES OF ACCOUNTING
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. The financial statements for periods prior to October 5,
1998 include the accounts of the Predecessor for the operations and assets
distributed to ACPT as if the Distribution had occurred prior to January 1,
1997. All of the entities included in the consolidated financial
statements are hereinafter referred to collectively as the "Company" or
"ACPT". The assets and liabilities contributed to ACPT were transferred at
their cost basis because of affiliate ownership and common management.
The accompanying consolidated financial statements are unaudited but
include all adjustments (consisting of normal recurring adjustments) which
the Company's management considers necessary for a fair presentation of the
results of operations for the interim periods. Certain account balances in
the 1998 financial statements have been reclassified to conform to the 1999
presentation. The operating results for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for
the year. Net income per share is calculated based on weighted average
shares outstanding. Diluted earnings per share for the three months ended
March 31, 1999 and 1998 does not differ from basic earnings per share.
These unaudited financial statements have been prepared 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 Generally Accepted Accounting
Principles ("GAAP") have been condensed or omitted. While Management
believes that the disclosures presented are adequate to make the
information not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes included
in the Company's Annual Report filed on Form 10-K for the year ended
December 31, 1998.
(3) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," was
issued. This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for
<PAGE>
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure to a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-
denominated forecasted transaction. This statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Although
currently ACPT has no derivative instruments, this statement would apply if
ACPT engages in derivative transactions in future periods.
(4) INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
Housing Partnerships
The following information summarizes financial data and principal
activities of unconsolidated housing partnerships which the Company
accounts for under the equity method. The information is presented to
segregate the two projects undergoing condominium conversion from the
operating properties (in thousands):
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY FINANCIAL POSITION:
Total Assets
March 31, 1999 $ 94,958 $ 15,757 $110,715
December 31, 1998 98,823 14,662 113,485
Total Non-Recourse Debt
March 31, 1999 106,327 16,941 123,268
December 31, 1998 107,097 15,055 122,152
Total Other Liabilities
March 31, 1999 9,854 3,482 13,336
December 31, 1998 10,024 3,818 13,842
Total Equity
March 31, 1999 (21,223) (4,666) (25,889)
December 31, 1998 (18,298) (4,211) (22,509)
Company's Investment
March 31, 1999 6,184 -- 6,184
December 31, 1998 7,613 -- 7,613
SUMMARY OF OPERATIONS:
Total Revenue
Three Months Ended March 31, 1999 6,779 7 6,786
Three Months Ended March 31, 1998 6,881 83 6,964
Net Income (Loss)
Three Months Ended March 31, 1999 308 (456) (148)
Three Months Ended March 31, 1998 310 (286) 24
Company's recognition of equity in
earnings and developer fees
Three Months Ended March 31, 1999 283 -- 283
Three Months Ended March 31, 1998 243 -- 243
<PAGE>
Projects
Operating Under Condo
Properties Conversions Total
---------- ----------- -----
SUMMARY OF CASH FLOWS:
Cash flows from operating activities
Three Months Ended March 31, 1999 1,786 (2,369) (583)
Three Months Ended March 31, 1998 1,817 (404) 1,413
Company's share of cash flows
from operating activities
Three Months Ended March 31, 1999 621 (1,185) (564)
Three Months Ended March 31, 1998 711 (202) 509
Operating cash distributions
Three Months Ended March 31, 1999 4,242 -- 4,242
Three Months Ended March 31, 1998 4,451 -- 4,451
Company's share of operating
cash distributions
Three Months Ended March 31, 1999 1,761 -- 1,761
Three Months Ended March 31, 1998 1,750 -- 1,750
The unconsolidated rental properties partnerships as of March 31, 1999
include 17 partnerships owning 4,159 rental units in 20 apartment complexes
owned by Alturas Del Senorial Associates Limited Partnership, Bannister
Associates Limited Partnership, Bayamon Gardens Associates Limited
Partnership, Brookside Gardens Limited Partnership, Carolina Associates
Limited Partnership, Colinas de San Juan Associates Limited Partnership,
Crossland Associates Limited Partnership, Essex Apartments Associates
Limited Partnership, Huntington Associates Limited Partnership, Jardines de
Caparra Associates Limited Partnership, Lakeside Apartments Limited
Partnership, Monserrate Associates Limited Partnership, Monte de Oro
Associates Limited Partnership, New Center Associates Limited Partnership,
San Anton Associates Limited Partnership, Turabo Limited Dividend
Partnership and Valle del Sol Limited Partnership. The Company holds a
general partner interest in these partnerships and generally shares in zero
to 5% of profits, losses and cash flow from operations until such time as
the limited partners have received cash distributions equal to their
capital contributions. Thereafter, the Company generally shares in 50% of
cash distributions from operations. Pursuant to the partnership
agreements, the general partners of the unconsolidated partnerships are
prohibited from selling or refinancing the apartment complexes without
majority limited partner approval. Due to the absence of control and non-
majority ownership, these partnerships are accounted for under the equity
method of accounting.
During 1997, the rental complexes owned by Monte de Oro and New Center
were refinanced to provide distributions to their partners and funds to
convert the rental units into condominiums. Rental revenues started to
decline in 1997 as the units were vacated in preparation for conversion.
Homebuilding Joint Venture
The Company holds a 50% joint venture interest in Escorial Builders
S.E. Escorial Builders was formed in 1995 to purchase lots from the
Company and construct homes for resale. It purchased land to construct 118
units in 1997 and land to construct 98 units in 1996. The profit on these
lots are deferred until sold by Escorial Builders to a third party. The
Company's share of the income (loss) and its investment are included with
<PAGE>
ACPT's assets related to homebuilding in the accompanying consolidated
financial statements. The following tables summarize Escorial Builders'
financial information (in thousands):
SUMMARY OF FINANCIAL POSITION:
AS OF
----------------------------
March 31, December 31,
1999 1998
------------- ------------
Total assets $ 4,908 $ 9,396
Total liabilities 2,897 7,107
Total equity 2,011 2,289
Company's investment 1,006 1,145
SUMMARY OF OPERATIONS:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
---- ----
Total revenue $ 5,269 $ 2,187
Net income 321 524
Company's recognition of
equity in earnings 161 262
SUMMARY OF OPERATING CASH FLOWS:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
---- ----
Cash flows from operating activities $ 4,226 $ 633
Company's share of cash flows
from operating activities 2,113 316
Operating cash distributions 600 --
Company's share of operating
cash distributions 300 --
Commercial Land Lease Partnership
In December 1998, the Company obtained a limited partner interest in
ELI, S.E. ("ELI"), a partnership formed for the purpose of constructing a
building to lease to the State Insurance Fund of Puerto Rico. ACPT
contributed the land in exchange for 48% of future income generated by the
thirty year lease of the building and $700,000 of reimbursement for
development costs. The following tables summarize ELI's financial
information (in thousands):
SUMMARY OF FINANCIAL POSITION:
AS OF
----------------------------
March 31, December 31,
1999 1998
------------- ------------
Total assets $32,417 $31,475
Total liabilities 28,425 27,482
Total equity 3,992 3,993
Company's investment 4,535 4,535
SUMMARY OF OPERATIONS:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
---- ----
Total revenue $ -- $ --
Net loss (1) --
Company's recognition of
equity in losses -- --
SUMMARY OF OPERATING CASH FLOWS:
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
---- ----
Cash flows from operating activities $(2,493) $ --
Company's share of cash flows
from operating activities (997) --
Operating cash distributions -- --
Company's share of operating
cash distributions -- --
<PAGE>
(5) DEBT
The Company's outstanding debt is collateralized primarily by land,
land improvements, housing, receivables, investments in partnerships, and
rental properties. The following table summarizes the indebtedness of the
Company at March 31, 1999 and December 31, 1998 (in thousands):
Outstanding
Maturity Interest --------------------------
Dates Rates (a) March 31, December 31,
From/To From/To 1999 1998
-------- --------- ------------- ------------
Related to community
development:
Recourse debt Demand/ P+1%/ (b,c) $42,270 $42,013
08-02-09 10.0%
Related to investment
properties:
Recourse debt Demand 9.25% (d) 882 2,723
Non-recourse debt 10-01-19/ 6.85%/ 38,547 38,662
10-01-28 8.5%
General:
Recourse debt 03-01-00/ 9.44%/ 291 234
01-01-04 18.5% ------- -------
Total debt $81,990 $83,632
======= =======
(a) P = Prime lending interest rate.
(b) Approximately $15,127,000 of this debt requires additional
interest payments on each annual anniversary date. The amount
due is 1% of the outstanding balance in 1998 and 1999, and
increases 1/2% each year thereafter, through 2003.
(c) Approximately $187,000 of this debt is payable on demand.
(d) All recourse debt, related to investment properties, is payable
on demand.
ACPT's loans contain various financial, cross-collateral, cross-
default, technical and restrictive provisions; the most significant of
which requires the Company, combined with IGC, to maintain a ratio of
aggregate liabilities to tangible net worth of no greater than three to
one. ACPT alone must maintain a ratio of seven and one-half to one. The
material negative covenants require ACPT to obtain prior approval before
incurring any liens on its assets or incurring any additional indebtedness.
ACPT is prohibited from making distributions in excess of the minimum
distributions required by ACPT's Declaration of Trust without prior lender
approval. Lender approval is also required prior to LDA making cash
distributions in excess of distributions to pay income taxes on LDA
generated taxable income unless certain cash flow conditions exist that
provide adequate working capital for debt service and operations for the
following twelve months. Lender approval is required prior to ACPT making
any guarantee or loan out of the normal course of business. ACPT is
prohibited from selling or disposing substantially all of its assets
outside the ordinary course of business or entering into any significant
new line of business. LDA may not enter into any transaction with any
affiliate out of the normal course of business and for terms less favorable
than would be obtained in an arm's-length transaction without prior lender
approval. Prior approval is also required for any change in the ownership
of LDA, any amendments to LDA's partnership agreement, or any merger,
reorganization or acquisition of LDA.
<PAGE>
As of March 31, 1999, the $42,270,000 of recourse debt related to
community development assets is fully collateralized by substantially all
of the community development assets. Approximately $15,127,000 of this
amount is further secured by investments in apartment rental partnerships.
As of March 31, 1999, recourse investment property debt is secured by
cash receipts received by the Company pursuant to the terms of a sales
contract. The non-recourse investment properties debt is collateralized by
apartment projects and secured by FHA or the Maryland Housing Fund.
Mortgage notes payable of $7,079,000 have stated interest rates of 7.5% and
7.75%; however, after deducting interest subsidies provided by HUD, the
effective interest rate over the life of the loans is 1%.
(6) RELATED PARTY TRANSACTIONS
Certain officers, directors and a general partner, IBC, of IGC and
certain officers and trustees of the Company have ownership interests in
various entities that conducted business with the Company during the last
two years. The financial impact of the related party transactions on the
accompanying financial statements are reflected below:
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME:
Three Months Ended
March 31,
-------------------
1999 1998
---- ----
<S> <C> <C> <C>
Community Development - Land Sales (A)
Homebuilding joint venture $ 538 $ 296
====== ======
Cost of Land Sales
Homebuilding joint venture $ 439 $ 236
====== ======
Management and Other Fees (B)
Unconsolidated subsidiaries $ 518 $ 613
Affiliate of IBC, general partner of IGC 87 84
Affiliate of James Michael Wilson, trustee, former IGC director,
Thomas B. Wilson, trustee, former IGC director, and
James J. Wilson, IGC director 40 38
Affiliate of James Michael Wilson, trustee, former IGC director,
Thomas B. Wilson, trustee, former IGC director, James J. Wilson,
IGC director, and an Affiliate of IBC, general partner of IGC 14 17
------ ------
$ 659 $ 752
====== ======
Interest and Other Income
Unconsolidated subsidiaries $ 50 $ 12
Affiliate of IGC former director 35 43
------ ------
$ 85 $ 55
====== ======
General and Administrative Expense
Affiliate of IBC, general partner of IGC (C1) $ 91 $ 89
Reserve additions and other write-offs-
Affiliate of IBC, general partner of IGC (B1) -- 58
Unconsolidated subsidiaries (B1) 4 5
Reimbursement to IBC for ACPT's share of J. Michael Wilson's salary 23 23
Reimbursement of administrative costs-IGC (C6) (37) --
James J. Wilson, IGC director (C3,C5) 125 43
------ ------
$ 206 $ 218
====== ======
Interest Expense
Unconsolidated subsidiaries $ 17 $ --
IGC (C4) 64 57
------ ------
$ 81 $ 57
====== ======
<PAGE>
<CAPTION>
BALANCE SHEET IMPACT:
Increase Increase
Balance (Decrease) Balance (Decrease)
March 31, in Reserves December 31, in Reserves
1999 1999 1998 1998
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Assets Related to Rental Properties
Receivables, all unsecured and due on demand-
Unconsolidated subsidiaries $2,705 $ 4 $2,646 $ 19
Affiliate of IBC, general partner
of IGC 44 -- 84 (110)
Affiliate of James Michael Wilson, trustee,
former IGC director and James J. Wilson, IGC
director 16 -- 7 --
------ ----- ------ -----
$2,765 $ 4 $2,737 $ (91)
====== ===== ====== =====
Assets Related to Community Development
Notes receivable and accrued interest-
Affiliate of a former IGC Interest 10%
director, secured by land payments per month
$27,000, matures
April 1, 1999 (A1) $1,914 $ -- $1,970 $ 43
====== ===== ====== =====
Other Assets
Receivables - All unsecured
Affiliate of IBC, general partner demand
of IGC, and Thomas B. Wilson,
trustee, former IGC director $ 2 $ -- $ 5 $ --
IBC, general partner of IGC demand 45 -- 32 --
IGC demand 38 -- 98 --
------ ----- ------ -----
$ 85 $ -- $ 135 $ --
====== ===== ====== =====
Liabilities Related to Community Development
Notes payable
IGC (C4) $7,651 $ -- $7,500 $ --
====== ===== ====== =====
Accounts payable
Whitman, Requardt (C2) $ 220 $ -- $ 139 $ --
====== ===== ====== =====
Other Liabilities
IGC (C7) $2,188 $ -- $2,188 $ --
====== ===== ====== =====
</TABLE>
(A) Land Sales
The Company sells land to affiliates and non-affiliates with similar
terms. The sales prices to affiliates are based on third party appraisals,
payable in cash or a combination of a 20% cash down payment and a note for
the balance. The notes receivable are secured by deeds of trust on the
land sold, and bear an interest rate equal to those charged at that time
for land sales. The notes mature in one year or mature in five or less
years with annual amortizations. As circumstances dictate, the maturity
dates and repayment terms of the notes receivable due from affiliates or
non-affiliates have been modified. Any sales transactions that vary from
these terms are described below:
<PAGE>
(1) The notes receivable due from an affiliate of a former IGC
director did not bear interest until certain infrastructure
improvements were completed. This infrastructure was delayed and
the interest commencement dates modified. These delays created
the additional discount reflected above.
(B) Management and Other Services
The Company provides management and other support services to its
unconsolidated subsidiaries and other related entities in the normal course
of business. These fees are typically collected on a monthly basis, one
month in arrears. These receivables are unsecured and due upon demand.
Certain partnerships experiencing cash shortfalls have not paid timely. As
such, these receivable balances are reserved until satisfied or the
prospects of collectibility improves. Decreases to the reserves for other
than routine cash payments are discussed below:
(1) The collectibility of management fee receivables are evaluated
quarterly. Any increase or decrease in the reserves are reflected
as additional expenses or recovery of such expenses.
(C) Other
Other transactions with related parties are as follows:
(1) The Company rents executive office space and other property from
affiliates both in the United States and Puerto Rico pursuant to
leases that expire through 2005. In management's opinion, all
leases with affiliated persons are on terms generally available
from unaffiliated persons for comparable property.
(2) Thomas J. Shafer became a director of IGMC and a trustee of ACPT
in 1998 after his retirement from Whitman, Requardt, where he was
a Senior Partner. Whitman, Requardt provides engineering services
to ACPT. In management's opinion, services performed are on terms
available to other clients.
(3) James J. Wilson, as a former general partner of IGP, was entitled
to priority distributions made by each housing partnership in
which IGP is the general partner up until the Distribution Date.
If IGP received a distribution which represents 1% or less of a
partnership's total distribution, Mr. Wilson received the entire
distribution. If IGP received a distribution which represents
more than 1% of a partnership's total distribution, Mr. Wilson
received the first 1% of such total.
(4) Pursuant to the terms of IGC's restructuring, IGC retained a note
receivable due from LDA. In addition to the portion of interest
incurred on this note payable to IGC that was expensed, interest
costs of $100,000 and $127,000 were allocated to land development
and capitalized in the first three months of 1999 and 1998,
respectively.
(5) Fees paid to James J. Wilson pursuant to a consulting and
retirement agreement. Effective October 5, 1998, the consulting
agreement provides for annual cash payments for the first two
years of $500,000 and annual cash payments for eight years
thereafter of $200,000. At Mr. Wilson's request, these payments
are made to IGC.
<PAGE>
(6) During the transition period after the Distribution, the Company
has provided land development, accounting, tax, human resources,
payroll processing and other miscellaneous administrative support
services to IGC. After the transition period, ACPT has agreed to
continue to provide human resources, payroll processing and tax
services to IGC on a cost reimbursement basis.
(7) Reflects ACPT's obligation to reimburse IGC for the taxes that
were generated by Puerto Rico source income prior to the
Distribution date. This obligation accompanied the Puerto Rico
assets that were transferred to ACPT during IGC's restructuring.
(7) SEGMENT INFORMATION
The U.S. operations and Puerto Rico operations are managed as separate
profit centers. The U.S. operations include investments in rental
properties, community development and management services. The Puerto Rico
operations include investments in rental properties, investments in
commercial properties, community development, management services and
homebuilding through a joint venture.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The following
presents the segment information for the three months ended March 31, 1999
and 1998 (in thousands):
United Puerto Inter-
States Rico Segment Total
------ ------ ------- -------
1999:
Total revenues $ 3,154 $ 1,697 $ (28) $ 4,823
Interest income 17 182 (28) 171
Interest expense 832 254 (23) 1,063
Depreciation and amortization 457 43 -- 500
Income taxes 63 -- -- 63
Income before income taxes and
minority interest 66 112 (4) 174
Net (loss) income (99) 112 (4) 9
Total assets 73,098 47,384 (4,439) 116,043
Additions to long lived assets 794 580 -- 1,374
1998:
Total revenues $ 4,329 $ 5,557 $ (98) $ 9,788
Interest income 2 194 (98) 98
Interest expense 746 262 (98) 910
Depreciation and amortization 434 37 -- 471
Income taxes -- 283 -- 283
Income before income taxes and
minority interest 394 1,253 (122) 1,525
Net income 309 814 (122) 1,001
Total assets 68,284 45,778 (2,779) 111,283
Additions to long lived assets 1,037 1,192 -- 2,229
<PAGE>
(8) REIT COMPLIANCE
American Rental Properties Trust ("ARPT"), as a new REIT, has one
taxable year to comply with certain REIT rules which it currently does not
meet, including ownership of more than 50% of the REIT shares by less than
five individuals ("The 5/50 test"). Management is currently pursuing
raising additional capital through a preferred or common share private
offering. Other options available are for the Wilson Group, the majority
owners, to sell a specified number of shares or contribute them to a
charitable trust. ARPT has until July 1, 1999 to comply with the 5/50
test. If it does not comply, ARPT will become taxed as a U.S. C
corporation which could have a negative impact on the Company's future
earnings and will not be allowed to reapply for REIT status for five years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General:
Historically, the Company's financial results have been significantly
affected by the cyclical nature of the real estate industry. Accordingly,
the Company's historical financial statements may not be indicative of
future results.
For the Three Months Ended March 31, 1999 and 1998
Community Development Operations.
Community development land sales revenue decreased $4,894,000 to
$1,067,000 during the three months ended March 31, 1999, compared to sales
of $5,961,000 during the three months ended March 31, 1998. The decrease
was attributable to residential lot sales in Puerto Rico of $4,000,000
which were sold to a homebuilder in bulk during the first three months of
1998, with no comparable sale in 1999. The gross profit margin for the
three months ended March 31, 1999 decreased to 33%, as compared to 39% in
the same period of 1998. This decrease was due primarily to the sales mix.
During the first three months of 1999, recognition of deferred income on
lots sold to the homebuilding joint venture consisted of 50% of the sales
revenue compared to 5% in the first quarter of 1998. The gross margins on
these sales are less than those produced by other residential, commercial
or industrial lot sales.
Rental Property Revenues and Operating Results.
Rental property revenues, net of operating expenses, increased 6% to
$1,398,000 for the three months ended March 31, 1999, as compared to
$1,313,000 in the same period in 1998. The increase is primarily
attributable to a 2% increase in rental revenues and a 4% decrease in
operating expenses. The increase in rental revenues is a result of a
reduction in vacancies and an increase in rental rates. The decrease in
operating expenses is a result of a decrease in overhead and timing
difference of utility costs.
<PAGE>
Equity in Earnings from Partnerships and Developer Fees.
Equity in earnings decreased 11% to $448,000 during the first three
months of 1999, as compared to $505,000 during the first three months of
1998. The decrease is primarily attributable to a decrease of earnings
generated from the homebuilding joint venture as a result of an increase in
the estimated costs to complete, offset in part by an increase in earnings
from rental partnerships during the first three months of 1999, as compared
to the first three months of 1998, .
Management and Other Fees.
Management and other fees decreased 16% to $823,000 in the first three
months of 1999, as compared to $976,000 in the same period in 1998. This
decrease is primarily due to a $100,000 reduction in fees earned from the
refinancing of certain apartment complexes and a $100,000 reduction of
incentive fees earned during the first three months of 1999 as compared to
the first three months of 1998.
Interest Expense.
Interest expense increased 17% to $1,063,000 during the three months
ended March 31, 1999, as compared to $910,000 for the three months ended
March 31, 1998. This increase is primarily attributable to a $5,483,000
increase in outstanding debt from March 31, 1999 as compared to March 31,
1998.
General and Administrative Expense.
General and administrative expenses decreased 10% to $1,438,000 for
the three months ended March 31, 1999, as compared to $1,600,000 for the
same period of 1998. This reduction is primarily attributable to a
decrease in bad debt expense and municipal and other taxes and reduced
operating expenses as a result of management's continued focus on cost
efficiency.
Liquidity and Capital Resources
Cash and cash equivalents were $1,518,000 and $2,903,000 at March 31,
1999 and December 31, 1998, respectively. This decrease was attributable
to $1,951,000 and $1,642,000 used in investing and financing activities,
respectively, offset by $2,208,000 provided by operating activities. The
cash outflow for investing activities was primarily attributable to land
improvements put in place for future land sales. During the first quarter
1999, $2,828,000 of debt repayments were made as compared to $1,186,000 of
debt advances received. The cash inflow from operating activities was
primarily attributable to land sales and distributions from unconsolidated
partnerships.
The Company has historically met its liquidity requirements
principally from cash flow generated from residential and commercial land
sales, property management fees, distributions from residential rental
partnerships and from bank financing providing funds for development and
working capital. The Company has sufficient loans and other sources of
working capital in place to develop the projects currently underway in St.
Charles and Parque Escorial.
<PAGE>
The Company's principal demands for liquidity are expected to be the
continued funding of its current debt service, development costs in Fairway
Village and Parque Escorial and other normal operating costs. The Company
does not expect to generate cash flows in excess of its existing
obligations. Management is pursuing additional capital which can be used
by ACPT to fund new community development projects, reduce payables and
provide for other working capital needs. Such sources of funding may
include, but are not limited to, secured or unsecured financings, private
or public offerings of debt or equity securities and proceeds from sales of
properties. The Company's anticipated cash provided by operations, new and
existing financing facilities, and extension or refinancing of $14,702,000
of loans that are due in the next twelve months are expected to satisfy the
Company's financial requirements for the next year. However, there are no
assurances that adequate funds will be generated.
Debt Summary
Substantially all of ACPT's assets are encumbered by $43,443,000 of
recourse debt and $38,547,000 of non-recourse debt. The non-recourse debt
is attributable to the mortgages of consolidated rental property
partnerships. The significant terms of ACPT's other debt financing
arrangements are shown below (dollars in thousands):
Balance
Maximum Interest Maturity Outstanding
Borrowings Rate Date 3/31/99
---------- -------- -------- -----------
Banc One-term loan $11,000 P+2.5% 7/31/04 $8,335
Banc One-development loan 4,000 P+2.5% 7/31/04 2,814
Banc One-remediation loan 5,000 P+2.5% 7/31/04 3,978
First Bank-term loan 6,084 P+1.5% 6/30/99 5,584
First Bank-construction loan 8,350 P+1.5% 12/31/00 3,021
RG-Premier Bank 1,652 P+1.5% 9/30/99 1,652
Citibank 882 (a) demand 882
Washington Savings Bank 1,317 9.5% 9/30/99 1,024
Banco Popular 5,600 P+1.0% 7/30/99 5,600
Annapolis National Bank 2,460 P+1.0% 12/22/00 2,424
Interstate General Company L.P. 7,651 P+1.5% 8/02/09 7,651
Other miscellaneous 555 Various Various 478
------- -------
$54,551 $43,443
======= =======
(a) Interest is calculated at 250 basis points over the cost of
funds, 9.25% at March 31, 1999.
Outlook
American Rental Properties Trust ("ARPT"), as a new REIT, has one
taxable year to comply with certain REIT rules which it currently does not
meet, including ownership of more than 50% of the REIT shares by less than
five individuals ("The 5/50 test"). Management is currently pursuing
raising additional capital through a preferred or common share private
offering. Other options available are for the Wilson Group, the majority
owners, to sell a specified number of shares or contribute them to a
charitable trust. ARPT has until July 1, 1999 to comply with the 5/50
test. If it does not comply, ARPT will become taxed as a U.S. C
corporation which could have a negative impact on the Company's future
earnings and will not be allowed to reapply for REIT status for five years.
<PAGE>
Year 2000
What is Year 2000?:
The Year 2000 ("Y2K") issue exists because many computer systems and
applications and other electronically controlled systems and equipment
currently use two-digit fields to designate a year. As the century date
occurs, date sensitive systems with this deficiency may recognize the year
2000 as 1900 or not at all. This inability to recognize or properly treat
the year 2000 can cause the systems to process critical financial and
operations information incorrectly.
ACPT has assessed and continues to assess the impact of the Y2K issue
on its reporting systems and operations.
Current ACPT State of Readiness:
The systems and applications that can affect ACPT's operations due to
the Y2K issue are its financial reporting and billing systems and those
electronically controlled systems and equipment installed at the commercial
and residential properties managed by ACPT, many of which ACPT holds an
ownership interest. These systems include four accounting/billing
applications, two time and attendance applications and the computer network
systems which they are installed on and the telephone, security, elevator,
HVAC, and other like systems installed at ACPT properties. Of secondary
importance are those administrative systems and equipment not directly
involved in revenue production but can still minimally impact ACPT
operations.
The four software financial applications employed by ACPT are
certified by their respective publishers to be Y2K compliant. Active
testing to verify the Y2K compliance of the companies financial systems
will be conducted in the second quarter of 1999. "Dummy" companies will be
setup in the critical systems with dates forwarded to beyond 2000 for these
tests.
The U.S. and Puerto Rico operations rely on separate time and
attendance systems for payroll processing. The U.S. payroll system
utilizes the services of a third party provider and is certified Y2K
compliant by the provider. Puerto Rico payroll processing is performed in-
house and was upgraded to a Y2K compliant system in December 1998. The
direct deposit function of the Puerto Rico payroll system relies on a third
party component provided by Banco Popular of Puerto Rico and is not Y2K
compliant. Banco Popular was scheduled to provide a Y2K update of the
direct deposit interface by December 1998 but is behind schedule and has
yet to do so. It is expected that Banco Popular will have the update
delivered by June 1999.
The hardware component of ACPT's financial systems consists of
industry standard PC operating systems, servers, desktop computers, and
networking hardware. These systems have been evaluated and verified to be
Y2K compliant.
The non-IT related electronically controlled systems installed at ACPT
owned and managed properties are currently being inventoried and evaluated
for Y2K exposure. This evaluation is expected to be completed by June 30,
1999. Once the extent of Y2K exposure is determined for these systems,
costs will be ascertained and procedures implemented to bring non-compliant
<PAGE>
systems into Y2K compliance. Since it has already been determined that a
majority of these systems are not "date sensitive" and do not perform data
logging, it is expected that Y2K exposure and related costs in this area
will be minimal.
The administrative applications (word processing, spreadsheet,
messaging, etc.) utilized by ACPT have been certified by the various
publishers and verified to be Y2K compliant.
Third Party Impact on Company Operations:
ACPT performs all financial and revenue production procedures in house
with the exception of U.S. rental payment processing. Failure to timely
process and deposit tenant payments indirectly impacts the Company's cash
flow. Statements of Y2K compliance have been requested from those vendors
supplying these services to ACPT.
Of the administrative procedures, U.S. payroll processing and the
Puerto Rico direct deposit function is performed by third party vendors. A
statement of Y2K compliance has been obtained from the U.S. payroll vendor
and ACPT considers Y2K exposure with U.S. payroll processing to be minimal.
Currently Y2K non-complaint, the Puerto Rico direct deposit function is
expected to be compliant by July 1999. Y2K non-compliance of the Puerto
Rico direct deposit function is not considered detrimental to company
operations.
With the exception of rental payment processing, the Company does not
foresee any adverse impact to company fiscal operations due to third party
non-compliance.
Costs to Achieve Y2K Compliance:
Because of ACPT's almost exclusive use of "off the shelf" applications
and hardware and that the Company maintains service maintenance agreements
on all critical business systems, costs to achieve Y2K compliance have been
nominal. Y2K upgrades for the companies financial and billing systems have
been included with standard system updates as part of the normal
maintenance procedures.
ACPT does not separately track the internal costs incurred for the Y2K
project, these costs are principally related payroll costs for the
companies information systems and property management groups. The costs
for the financial departments to perform the scheduled tests of the
accounting and billing systems for Y2K compliance has not been ascertained,
though it is expected that these costs will be nominal.
Risks of ACPT's Y2K Issues:
The failure of one or all of ACPT's financial systems for more than a
few days would create a hardship on Company operations. Failure of the
basic accounting systems will affect the companies general ledger, accounts
payable, accounts receivable, and reporting functions. Of utmost
importance is the correct operation of the company's property management
systems. Failure of these systems could have a negative impact on ACPT's
cash flow from these rental operations.
<PAGE>
Failure of the various non-IT systems installed at the Company's owned
and managed properties could seriously affect employee/tenant ingress and
egress and could affect environmental conditions at these properties.
ACPT has not obtained insurance specific to Y2K liability issues.
However, after discussions with its insurance carrier, ACPT has determined
that current policies will cover foreseeable material damages due to the
Company's systems Y2K non-compliance.
ACPT's Contingency Plans:
ACPT is evaluating its various Y2K failure scenarios and developing
contingency plans to ensure continued company operations.
Forward-Looking Statements
Certain matters discussed and statements made within this Form 10-Q
are forward-looking statements within the meaning of the Private Litigation
Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties, and other factors that may cause the actual results,
performance or achievements of the company to be different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Although the Company believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Company's
filings with the Securities and Exchange Commission or other public
statements.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate
fluctuations are monitored by the Company's management as an integral part
of the Company's overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on the Company's results of operations.
As of March 31, 1999, there have been no material changes in the
Company's financial market risk since December 31, 1998 as reported in the
Company's Annual Report on Form 10-K.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
St. Charles has been zoned as a planned unit development that allows
construction of approximately 24,730 housing units and 1,390 acres of
commercial and industrial development. The County has agreed to provide
sufficient sewer and water connections for all housing units remaining to
be developed in St. Charles. IGC and SCA are involved in litigation with
the County regarding (1) the level of sewer and water fees that may be
imposed and (2) the level of school construction impact fees that may be
imposed. In addition, IGC and SCA are asserting claims against the County
for the repayment of excessive sewer and water fees and school construction
impact fees paid by them in the past.
<PAGE>
The sewer and water litigation entitled St. Charles Associates Limited
Partnership, et al. v. County Commissioners of Charles County, et al., No.
89-720, Circuit Court for Charles County, Maryland was filed in June 1989
and is continuing. The litigation originally sought a court ruling that the
County was not entitled to impose sewer and water fees at the then-existing
level upon residential units in the St. Charles Communities. That aspect of
the litigation was settled by a Settlement Agreement dated November 1989,
which was confirmed in a Consent Decree entered in March 1990. Subsequent
aspects of the litigation have resulted from disputes over the
interpretation of the Settlement Agreement and Consent Decree. The
principal issues that are presently being contested between the county,
IGC, and SCA are (1) whether a study procured by the County in 1996
justifies the level of sewer and water connection fees which it imposes
upon the St. Charles Communities; (2) whether SCA and IGC are entitled to
an injunction against future excessive sewer and water fees; and (3) to
what degree SCA and IGC are entitled to recover what they regard as
excessive sewer and water fees they have paid in the past. The Circuit
Court has ruled in SCA and IGC's favor that the County's 1996 study did not
comply with the applicable restrictions and that SCA and IGC are entitled
to an injunction against future excessive sewer and water fees. The Court
further ruled that SCA and IGC must pursue claims for excess sewer and
water fees paid in the past in Maryland's Tax Court. The Court's rulings
are on appeal to Maryland's Court of Special Appeals. As a result of IGC's
restructure, St. Charles Community, LLC has been added as an additional
party to that appeal. SCA has commenced an action in Maryland Tax Court,
which is a State administrative agency, to recover what it regards as
excessive sewer and water fees that have been paid in the past. That case
is titled St. Charles Associates Limited Partnership, et al. v. Charles
County, et al., No. 1205, and was filed in February 1997.
SCA's and IGC's claims for the refund of excessive school impact fee
claims paid to the County in the past are being pursued in the Maryland Tax
Court as well, in actions entitled St. Charles Associates Limited
Partnership, et al. v. County Commissioners of Charles County, et al., Case
Nos. 961 (filed March 1994), 1038 (filed October 1994), and 98-MI-0083
(filed February 6, 1998). In those cases SCA and IGC are seeking both
repayment of past excessive school impact fees paid to the County and a
ruling as to the nature of their rights to credits against school impact
fees for school sites that they have donated to the County. On December
15, 1998, the Circuit Court for Charles County, on appeal from a ruling of
the Tax Court, ruled that certain of SCA's and IGC's refund claims had not
been filed on a timely basis. SCA and IGC have appealed that ruling to
Maryland's Court of Special Appeals.
SCA and IGC assigned their rights under the settlement agreement to
St. Charles Community, LLC with respect to the land transferred to St.
Charles Community, LLC, but IGC retained its rights to any repayment or
refund of the water and sewer service and connection fees and school impact
fees with respect to any construction or building activity on the land in
St. Charles prior to the dates of transfer to St. Charles Community, LLC.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN COMMUNITY PROPERTIES TRUST
-----------------------------------
(Registrant)
Dated: May 13, 1999 By: /s/ J. Michael Wilson
----------------- -----------------------------
J. Michael Wilson
Chairman and Chief
Executive Officer
Dated: May 13, 1999 By: /s/ Cynthia L. Hedrick
----------------- -----------------------------
Cynthia L. Hedrick
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,469<F1>
<SECURITIES> 0
<RECEIVABLES> 8,146
<ALLOWANCES> (206)
<INVENTORY> 54,113
<CURRENT-ASSETS> 0
<PP&E> 2,304
<DEPRECIATION> 1,805
<TOTAL-ASSETS> 116,043
<CURRENT-LIABILITIES> 0
<BONDS> (81,990)
0
0
<COMMON> 0
<OTHER-SE> 16,742
<TOTAL-LIABILITY-AND-EQUITY> 116,043
<SALES> 1,067
<TOTAL-REVENUES> 4,823
<CGS> 708
<TOTAL-COSTS> 1,630
<OTHER-EXPENSES> 1,952
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 1,063
<INCOME-PRETAX> 72
<INCOME-TAX> 63
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
<FN>
<F1>Balance includes $951 of restricted cash.
</FN>
</TABLE>
