-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VLex6nrF62kG5rNft/8ZW3XHkLr3vJf9m4cJ9S/ZRUIIcU8F6vN2YmZDGQ22qjYi Q2UZwQZg83J7kyOhWb4UMg== 0001065645-99-000022.txt : 19990514 0001065645-99-000022.hdr.sgml : 19990514 ACCESSION NUMBER: 0001065645-99-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN COMMUNITY PROPERTIES TRUST CENTRAL INDEX KEY: 0001065645 STANDARD INDUSTRIAL CLASSIFICATION: LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES) [6552] IRS NUMBER: 522058165 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14369 FILM NUMBER: 99620610 BUSINESS ADDRESS: STREET 1: 222 SMALLWOOD VILLAGE CENTER CITY: ST. CHARLES STATE: MD ZIP: 20602 BUSINESS PHONE: 3018438600 MAIL ADDRESS: STREET 1: 222 SMALLWOOD VILLAGE CENTER CITY: ST. CHARLES STATE: MD ZIP: 20602 10-Q 1 3/31/99 10-Q FOR ACPT 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 ------------------------------------------------------- (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 ------------------------ 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 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. 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. 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. 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. 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. 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. 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 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 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 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 -- -- (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. 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:
CONSOLIDATED STATEMENT OF INCOME: Three Months Ended March 31, ------------------- 1999 1998 ---- ---- 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 ====== ====== BALANCE SHEET IMPACT: Increase Increase Balance (Decrease) Balance (Decrease) March 31, in Reserves December 31, in Reserves 1999 1999 1998 1998 --------- ----------- ------------ ----------- 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 $ -- ====== ===== ====== =====
(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: (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. (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 (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. 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. 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. 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 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. 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. 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. 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. 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 EX-27 2 3/31/99 FINANCIAL DATA SCHEDULE FOR ACPT
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 2,469 0 8,146 (206) 54,113 0 2,304 1,805 116,043 0 (81,990) 0 0 0 16,742 116,043 1,067 4,823 708 1,630 1,952 4 1,063 72 63 9 0 0 0 9 .00 .00 Balance includes $951 of restricted cash.
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