Edgar Filing: AMERICAN COMMUNITY PROPERTIES TRUST

june08_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008, OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _________________

Commission file number 1-14369

AMERICAN COMMUNITY PROPERTIES TRUST

(Exact name of registrant as specified in its charter)

MARYLAND

(State or other jurisdiction of incorporation or organization)

52-2058165

(I.R.S. Employer Identification No.)

222 Smallwood Village Center

St. Charles, Maryland 20602

(Address of principal executive offices)(Zip Code)

(301) 843-8600

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 8, 2008, there were 5,229,954 Common Shares, par value $0.01 per share, issued and outstanding

-1-

AMERICAN COMMUNITY PROPERTIES TRUST

FORM 10-Q

JUNE 30, 2008

TABLE OF CONTENTS

		Page Number

PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Statements of Income for the Six Months Ended June 30, 2008 (Unaudited) and June 30, 2007 (Unaudited)	3

	Consolidated Statements of Income for the Three Months Ended June 30, 2008 (Unaudited) and June 30, 2007 (Unaudited)	4

	Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007 (Audited)	5

	Consolidated Statement of Changes in Shareholders' Equity for the Six Months Ended June 30, 2008 (Unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 (Unaudited) and June 30, 2007 (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations for the Six and Three Months Ended June 30, 2008 and 2007	21

Item 4.	Controls and Procedures	31

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	32

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Submission of Matters to a Vote of Security Holders	32

Item 5.	Other Information	32

Item 6.	Exhibits	32

	Signatures	33

-2-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands, except per share amounts)
(Unaudited)


	2008			2007

Revenues
Rental property revenues	$	30,937		$	29,832
Community development-land sales		5,997			5,969
Homebuilding-home sales		2,982			5,214
Management and other fees, substantially all from related entities		380			506
Reimbursement of expenses related to managed entities		762			893
Total revenues		41,058			42,414

Expenses
Rental property operating expenses		14,917			15,114
Cost of land sales		4,725			4,356
Cost of home sales		2,300			3,816
General, administrative, selling and marketing		6,049			5,368
Depreciation and amortization		5,042			4,581
Expenses reimbursed from managed entities		762			893
Total expenses		33,795			34,128

Operating income		7,263			8,286

Other income (expense)
Interest and other income		362			890
Equity in earnings from unconsolidated entities		331			1,845
Interest expense		(8,556	)		(9,337	)
Minority interest in consolidated entities		(1,321	)		(1,557	)

(Loss) income before provision for income taxes		(1,921	)		127
(Benefit) provision for income taxes		(550	)		288

Net loss	$	(1,371	)	$	(161	)

Loss per share
Basic and Diluted	$	(0.26	)	$	(0.03	)
Weighted average shares outstanding
Basic and Diluted		5,212			5,210
Cash dividends per share	$	-		$	0.20
The accompanying notes are an integral part of these consolidated statements.

-3-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(In thousands, except per share amounts)
(Unaudited)


	2008			2007

Revenues
Rental property revenues	$	15,538		$	15,422
Community development-land sales		4,951			2,214
Homebuilding-home sales		738			2,126
Management and other fees, substantially all from related entities		192			243
Reimbursement of expenses related to managed entities		381			422
Total revenues		21,800			20,427

Expenses
Rental property operating expenses		7,579			7,758
Cost of land sales		3,822			1,440
Cost of home sales		583			1,530
General, administrative, selling and marketing		3,179			2,905
Depreciation and amortization		2,445			2,397
Expenses reimbursed from managed entities		381			422
Total expenses		17,989			16,452

Operating income		3,811			3,975

Other income (expense)
Interest and other income		188			338
Equity in earnings from unconsolidated entities		163			172
Interest expense		(4,324	)		(4,720	)
Minority interest in consolidated entities		(162	)		(185	)

Loss before benefit for income taxes		(324	)		(420	)
Benefit for income taxes		(146	)		(235	)

Net loss	$	(178	)	$	(185	)

Loss per share
Basic and Diluted	$	(0.03	)	$	(0.03	)
Weighted average shares outstanding
Basic and Diluted		5,213			5,210
Cash dividends per share	$	-		$	0.10
The accompanying notes are an integral part of these consolidated statements.

-4-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
	As of June 30, 2008 (Unaudited)			As of December 31, 2007 (Audited)
ASSETS
ASSETS:
Investments in real estate:
Operating real estate, net of accumulated depreciation	$	161,035		$	164,352
of $155,130 and $150,292, respectively
Land and development costs		93,076			84,911
Condominiums under construction		2,287			4,460
Rental projects under construction or development		2,488			853
Investments in real estate, net		258,886			254,576

Cash and cash equivalents		22,131			24,912
Restricted cash and escrow deposits		21,451			20,223
Investments in unconsolidated real estate entities		6,509			6,528
Receivable from bond proceeds		3,489			5,404
Net accounts receivable		2,082			2,676
Deferred tax assets		34,494			34,075
Property and equipment, net of accumulated depreciation		1,026			1,045
Deferred charges and other assets, net of amortization of
$3,162 and $2,764 respectively		9,593			11,285
Total Assets	$	359,661		$	360,724

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse debt	$	278,085		$	279,981
Recourse debt		29,127			25,589
Accounts payable and accrued liabilities		23,816			24,874
Deferred income		3,088			3,214
Accrued current income tax liability		14,327			14,620
Total Liabilities		348,443			348,278

SHAREHOLDERS' EQUITY:
Common shares, $.01 par value, 10,000,000 shares authorized, 5,229,954 shares issued and outstanding as of June 30, 2008 and December 31, 2007		52			52
Treasury stock, 67,709 shares at cost		(376	)		(376	)
Additional paid-in capital		17,520			17,377
Retained deficit		(5,978	)		(4,607	)
Total Shareholders' Equity		11,218			12,446

Total Liabilities and Shareholders' Equity	$	359,661		$	360,724
The accompanying notes are an integral part of these consolidated balance sheets.

-5-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share amounts)



	Common Shares							Additional
			Par		Treasury			Paid-in		Retained
	Number		Value		Stock			Capital		Deficit			Total
Balance December 31, 2007 (Audited)		5,229,954	$	52	$	(376	)	$	17,377	$	(4,607	)	$	12,446
Net loss		-		-		-			-		(1,371	)		(1,371	)
Amortization of Trustee Restricted Shares		-		-		-			143		-			143
Balance June 30, 2008 (Unaudited)		5,229,954	$	52	$	(376	)	$	17,520	$	(5,978	)	$	11,218

The accompanying notes are an integral part of this consolidated statement.

-6-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(In thousands)
(Unaudited)


	2008			2007

Cash Flows from Operating Activities
Net loss	$	(1,371	)	$	(161	)
Adjustments to reconcile net (loss) income to net cash (used in)
Provided by operating activities:
Depreciation and amortization		5,042			4,581
Distribution to minority interests in excess of basis		1,247			1,827
Benefit for deferred income taxes		(419	)		(2,229	)
Equity in earnings-unconsolidated entities		(331	)		(1,845	)
Distribution of earnings from unconsolidated entities		331			346
Cost of land sales		4,725			4,356
Cost of home sales		2,300			3,816
Stock based compensation expense		100			104
Amortization of deferred loan costs		440			478
Changes in notes and accounts receivable		594			1,095
Additions to community development assets		(12,890	)		(13,661	)
Right of way easement		-			2,000
Homebuilding-construction expenditures		(127	)		(393	)
Deferred income-joint venture		(126	)		(386	)
Changes in accounts payable, accrued liabilities		(1,308	)		(7,000	)
Net cash used in operating activities		(1,793	)		(7,072	)

Cash Flows from Investing Activities
Investment in office building and apartment construction		(1,635	)		(233	)
Change in investments - unconsolidated entities		19			1,513
Change in restricted cash		(1,228	)		(2,924	)
Additions to rental operating properties, net		(1,567	)		(4,708	)
Other assets		1,113			863
Net cash used in investing activities		(3,298	)		(5,489	)

Cash Flows from Financing Activities
Cash proceeds from debt financing		1,292			23,339
Payment of debt		(1,911	)		(18,720	)
County Bonds proceeds, net of undisbursed funds		4,176			5,645
Payments of distributions to minority interests		(1,247	)		(1,827	)
Dividends paid to shareholders		-			(1,032	)
Net cash provided by financing activities		2,310			7,405

Net Decrease in Cash and Cash Equivalents		(2,781	)		(5,156	)
Cash and Cash Equivalents, Beginning of Period		24,912			27,459
Cash and Cash Equivalents, End of Period	$	22,131		$	22,303
The accompanying notes are an integral part of these consolidated statements.

-7-

Table of Contents

AMERICAN COMMUNITY PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2008

(Unaudited)

(1)	ORGANIZATION

ACPT is a self-managed holding company that is primarily engaged in the investment of rental properties, property management services, community development, and homebuilding. These operations are concentrated in the Washington, D.C. metropolitan area and Puerto Rico and are carried out through American Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC "), American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group") and their subsidiaries.

ACPT is taxed as a U.S. partnership and its taxable income flows through to its shareholders. ACPT is subject to Puerto Rico taxes on IGP Group’s taxable income, generating foreign tax credits that have been passed through to ACPT’s shareholders. A federal tax regulation has been proposed that could eliminate the pass through of these foreign tax credits to ACPT’s shareholders. Comments on the proposed regulation are currently being evaluated with the final regulation expected to be effective for tax years beginning after the final regulation is ultimately published in the Federal Register. ACPT’s federal taxable income consists of certain passive income from IGP Group, a controlled foreign corporation, distributions from IGP Group and dividends from ACPT’s U.S. subsidiaries. Other than Interstate Commercial Properties (“ICP”), which is taxed as a Puerto Rico corporation, the taxable income from the remaining Puerto Rico operating entities passes through to IGP Group or ALD. Of this taxable income, only the portion of taxable income applicable to the profits, losses or gains on the residential land sold in Parque Escorial passes through to ALD. ALD, ARMC, and ARPT are taxed as U.S. corporations. The taxable income from the U.S. apartment properties flows through to ARPT.

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

Basis of Presentation

The accompanying consolidated financial statements include the accounts of American Community Properties Trust and its majority owned subsidiaries and partnerships, after eliminating all intercompany transactions. All of the entities included in the consolidated financial statements are hereinafter referred to collectively as the "Company" or "ACPT."

The Company consolidates entities that are not variable interest entities as defined by Financial Accounting Standard Board (“FASB”) Interpretation No. 46 (revised December 2003) (“FIN 46 (R)”) in which it owns, directly or indirectly, a majority voting interest in the entity. In addition, the Company consolidates entities, regardless of ownership percentage, in which the Company serves as the general partner and the limited partners do not have substantive kick-out rights or substantive participation rights in accordance with Emerging Issues Task Force Issue 04-05, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights," (“EITF 04-05”). The assets of consolidated real estate partnerships not 100% owned by the Company are generally not available to pay creditors of the Company.

The consolidated group includes ACPT and its four major subsidiaries, American Rental Properties Trust, American Rental Management Company, American Land Development U.S., Inc., and IGP Group Corp. In addition, the consolidated group includes the following other entities:

Alturas del Senorial Associates Limited Partnership		Land Development Associates S.E.
American Housing Management Company		LDA Group, LLC
American Housing Properties L.P.		Milford Station I, LLC
Bannister Associates Limited Partnership		Milford Station II, LLC
Bayamon Garden Associates Limited Partnership		Monserrate Associates Limited Partnership
Carolina Associates Limited Partnership S.E.		New Forest Apartments, LLC
Coachman's Apartments, LLC		Nottingham South, LLC
Colinas de San Juan Associates Limited Partnership		Owings Chase, LLC
Crossland Associates Limited Partnership		Palmer Apartments Associates Limited Partnership
Escorial Office Building I, Inc.		Prescott Square, LLC
Essex Apartments Associates Limited Partnership		St. Charles Community, LLC
Fox Chase Apartments, LLC		San Anton Associates S.E.
Gleneagles Apartments, LLC		Sheffield Greens Apartments, LLC
Headen House Associates Limited Partnership		Torres del Escorial, Inc.
Huntington Associates Limited Partnership		Turabo Limited Dividend Partnership
Interstate Commercial Properties, Inc.		Valle del Sol Associates Limited Partnership
Interstate General Properties Limited Partnership, S.E.		Village Lake Apartments, LLC
Jardines de Caparra Associates Limited Partnership		Wakefield Terrace Associates Limited Partnership
Lancaster Apartments Limited Partnership		Wakefield Third Age Associates Limited Partnership

The Company's investments in entities that it does not control are recorded using the equity method of accounting. Refer to Note 3 for further discussion regarding Investments in Unconsolidated Real Estate Entities.

-8-

Table of Contents

Interim Financial Reporting

These unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The Company has no items of other comprehensive income for any of the periods presented. In the opinion of management, these unaudited financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present a fair statement of results for the interim period. While management believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2007. The operating results for the three months ended June 30, 2008, and 2007, are not necessarily indicative of the results that may be expected for the full year. Net income (loss) per share is calculated based on weighted average shares outstanding.

Use of Estimates

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

Sales, Profit Recognition and Cost Capitalization

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 66, “Accounting for Sales of Real Estate,” community development land sales are recognized at closing only when sufficient down payments have been obtained and initial and continuing investment criteria have been met, possession and other attributes of ownership have been transferred to the buyer, and ACPT has no significant continuing involvement. Under the provisions of SFAS 66, related to condominium sales, revenues and costs are to be recognized when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not be converted to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the total cost of the project can be reasonably estimated. Accordingly we recognize revenues and costs upon settlement with the homebuyer which doesn’t occur until after we receive use and occupancy permits for the building.

The costs of developing the land are allocated to our land assets and charged to cost of sales as the related inventories are sold using the relative sales value method which rely on estimated costs and sales values. In accordance with SFAS 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects", the costs of acquiring and developing land are allocated to these assets and charged to cost of sales as the related inventories are sold. Within our homebuilding operations, the costs of acquiring the land and construction of the condominiums are allocated to these assets and charged to cost of sales as the condominiums are sold. The cost of sales is determined by the percentage of completion method. The Company considers interest expense on all debt available for capitalization to the extent of average qualifying assets for the period. Interest specific to the construction of qualifying assets, represented primarily by our recourse debt, is first considered for capitalization. To the extent qualifying assets exceed debt specifically identified, a weighted average rate including all other debt is applied. Any excess interest is reflected as interest expense.

Impairment of Long-Lived Assets

ACPT carries its rental properties, homebuilding inventory, land and development costs at the lower of cost or fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." For real estate assets such as our rental properties which the Company plans to hold and use, which includes property to be developed in the future, property currently under development and real estate projects that are completed or substantially complete, we evaluate whether the carrying amount of each of these assets will be recovered from their undiscounted future cash flows arising from their use and eventual disposition. If the carrying value were to be greater than the undiscounted future cash flows, we would recognize an impairment loss to the extent the carrying amount is not recoverable. Our estimates of the undiscounted operating cash flows expected to be generated by each asset are performed on an individual project basis and based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for apartment units, competition, changes in market rental rates, and costs to operate and complete each project. There have been no impairment charges for the six and three months ended June 30, 2008 and 2007.

The Company evaluates, on an individual project basis, whether the carrying value of its substantially completed real estate projects, such as our homebuilding inventory that are to be sold, will be recovered based on the fair value less cost to sell. If the carrying value were to be greater than the fair value less costs to sell, we would recognize an impairment loss to the extent the carrying amount is not recoverable. Our estimates of the fair value less costs to sell are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, comparable sales, demand for commercial and residential lots and competition. The Company performed similar reviews for land held for future development and sale considering such factors as the cash flows associated with future development expenditures. Should this evaluation indicate an impairment has occurred, the Company will record an impairment charge equal to the excess of the historical cost over fair value less costs to sell. There have been no impairment charges for the six and three months ended June 30, 2008 and 2007.

Depreciable Assets and Depreciation

The Company's operating real estate is stated at cost and includes all costs related to acquisitions, development and construction. The Company makes assessments of the useful lives of our real estate assets for purposes of determining the amount of depreciation expense to reflect on our income statement on an annual basis. The assessments, all of which are judgmental determinations, are as follows:

-9-

Table of Contents

·	Buildings and improvements are depreciated over five to forty years using the straight-line or double declining balance methods,

·	Furniture, fixtures and equipment are depreciated over five to seven years using the straight-line method,

·	Leasehold improvements are capitalized and depreciated over the lesser of the life of the lease or their estimated useful life,

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

Operating Real Estate

The table below presents the major classes of depreciable assets as of June 30, 2008 and December 31, 2007 (in thousands):

	June 30,		December 31,
	2008		2007
	(Unaudited)		(Audited)

Building	$	265,538	$	265,115
Building improvements		10,494		10,414
Equipment		14,621		13,603
		290,653		289,132
Less: Accumulated depreciation		155,130		150,292
		135,532		138,840
Land		25,512		25,512
Operating properties, net	$	161,035	$	164,352

Other Property and Equipment

In addition, the Company owned other property and equipment of $1,026,000 and $1,045,000, net of accumulated depreciation of $2,451,000 and $2,294,000 respectively, as of June 30, 2008 and December 31, 2007 respectively.

Depreciation

Total depreciation expense was $5,042,000 and $4,581,000 for the six months ended June 30, 2008 and 2007, respectively, and $2,445,000 and $2,397,000 for the three months ended June 30, 2008 and 2007, respectively.

Impact of Recently Issued Accounting Standards

SFAS 157 and 159

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 157 defines fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. On February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which amends FAS No. 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on January 1, 2008, this standard applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On January 1, 2009, the standard will also apply to all other fair value measurements.

SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value election is designed to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 was effective for the Company beginning January 1, 2008. The implementation of SFAS 157 and 159 did not have a material impact on our financial statements.

SFAS 141R

On December 4, 2007, the FASB issued Statement No. 141R, “Business Combinations” (“SFAS 141R”). This statement changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and delays when restructurings related to acquisitions can be recognized. The standard is effective for fiscal years ending after December 15, 2008 and will only impact the accounting for acquisitions we make after its adoption, except for certain amendments related to income taxes related to acquisitions which will apply to business combinations with acquisition dates before the effective dates of SFAS 141R.

-10-

Table of Contents

SFAS 160

On December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 replaces the concept of minority interest with noncontrolling interests in subsidiaries. Noncontrolling interests will now be reported as a component of equity in the consolidated statement of financial position. Earnings attributable to noncontrolling interests will continue to be reported as a part of consolidated earnings; however, SFAS 160 requires that income attributable to both controlling and noncontrolling interests be presented separately on the face of the consolidated income statement. In addition, SFAS 160 provides that when losses attributable to noncontrolling interests exceed the noncontrolling interest’s basis, losses continue to be attributed to the noncontrolling interest as opposed to being absorbed by the consolidating entity. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact of the adoption of SFAS 160 on its consolidated financial statements. However, the provisions of SFAS 160 are directly applicable to the Company’s currently reported minority interest in consolidated entities and, accordingly, will change the presentation of the Company’s financial statements when implemented.

EITF Issue No. 06-08

In November 2006, the Emerging Issues Task force of the FASB (“EITF”) reached a consensus on EITF Issue No. 06-08, “Applicability of a Buyer’s Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums” (“EITF 06-08”). EITF 06-08 requires condominium sales to meet the continuing investment criterion in FAS No. 66 in order for profit to be recognized under the percentage-of-completion method. EITF 06-08 was effective for the Company beginning January 1, 2008. The implementation of EITF 06-08 did not have a material impact on our financial statements.

(3)	INVESTMENT IN UNCONSOLIDATED REAL ESTATE ENTITIES

The Company accounts for investments in unconsolidated real estate entities that are not considered variable interest entities under FIN 46(R) in accordance with SOP 78-9 "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock". For entities that are considered variable interest entities under FIN 46(R), the Company performs an assessment to determine the primary beneficiary of the entity as required by FIN 46(R). The Company accounts for variable interest entities in which the Company is not a primary beneficiary and does not bear a majority of the risk of expected loss in accordance with the equity method of accounting.

The Company considers many factors in determining whether or not an investment should be recorded under the equity method, such as economic and ownership interests, authority to make decisions, and contractual and substantive participating rights of the partners. Income and losses are recognized in accordance with the terms of the partnership agreements and any guarantee obligations or commitments for financial support. The Company's investments in unconsolidated real estate entities accounted for under the equity method of accounting currently consists of general partnership interests in two limited partnerships which own apartment properties in the United States; a limited partnership interest in a limited partnership that owns a commercial property in Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited liability company.

Apartment Partnerships

The unconsolidated apartment partnerships as of June 30, 2008 and 2007 included Brookside Gardens Limited Partnership (“Brookside”) and Lakeside Apartments Limited Partnership (“Lakeside”) which collectively represent 110 rental units. We have determined that these two entities are variable interest entities under FIN 46(R). However, the Company is not required to consolidate the partnerships due to the fact that it is not the primary beneficiary and does not bear the majority of the risk of expected losses. The Company holds a nominal (1% or less) economic interest in Brookside and Lakeside but, as a general partner, we have significant influence over operations of these entities that is disproportionate to our economic ownership. In accordance with SOP 78-9 and APB No. 18, these investments are accounted for under the equity method. The Company is exposed to losses consisting of our net investment, loans and unpaid fees for Brookside of $239,000 and $231,000 and for Lakeside of $163,000 and $172,000 as of June 30, 2008 and December 31, 2007, respectively. All amounts are fully reserved. Pursuant to the partnership agreement for Brookside, the Company, as general partner, is responsible for providing operating deficit loans to the partnership in the event that it is not able to generate sufficient cash flows from its operating activities.

-11-

Table of Contents

Commercial Partnerships

The Company holds a limited partner interest in a commercial property in Puerto Rico that it accounts for under the equity method of accounting. ELI, S.E. ("ELI"), is a partnership formed for the purpose of constructing a building for lease to the State Insurance Fund of the Government of Puerto Rico. ACPT contributed the land in exchange for $700,000 and a 27.82% ownership interest in the partnership's assets, equal to a 45.26% interest in cash flow generated by the thirty-year lease of the building.

On April 30, 2004, the Company purchased a 50% limited partnership interest in El Monte Properties, S.E. ("El Monte") from Insular Properties Limited Partnership ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family, a related party. In December 2004, a third party buyer purchased El Monte for $20,000,000, $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds from the sale of the real estate were distributed to the partners. As a result, the Company received $2,500,000 in cash and recognized $986,000 of income in 2004. The gain on sale was reduced by the amount of the seller's note which is subject to future subordination. In January 2005, El Monte distributed the notes to the partners whereby the Company received a $1,500,000 note. The Company determined that the cost recovery method of accounting was appropriate for this transaction and accordingly, deferred revenue recognition on this note until cash payment was received. In January 2007, the Company received $1,707,000, equal to the full principal amount due plus all accrued interest outstanding and, accordingly, recognized $1,500,000 of equity in earnings from unconsolidated entities and $207,000 of interest income. The Company has no required funding obligations and management expects to wind up El Monte’s affairs during 2008.

Land Development Joint Venture

In September 2004, the Company entered into a joint venture agreement with Lennar Corporation for the development of a 352-unit, active adult community located in St. Charles, Maryland. The Company manages the project's development for a market rate fee pursuant to a management agreement. In September 2004, the Company transferred land to the joint venture in exchange for a 50% ownership interest and $4,277,000 in cash. The Company's investment in the joint venture was recorded at 50% of the historical cost basis of the land with the other 50% recorded within our deferred charges and other assets. The proceeds received are reflected as deferred revenue. The deferred revenue and related deferred costs will be recognized into income as the joint venture sells lots to Lennar. In March 2005, the joint venture closed a non-recourse development loan, which was amended in June 2006, December 2006 and again in October 2007. Included within these amendments, the maximum borrowings outstanding on the facility were reduced to $5.0 million. For the October 2007 amendment, the development loan was modified to provide a one-year delay in development of the project, as to date, lot development has outpaced sales. Per the terms of the loan, both the Company and Lennar provided development completion guarantees. In the six and three months ended June 30, 2008, the joint venture did not sell any lots. In the six and three months ended June 30, 2007, the joint venture sold 30 and 16 lots to Lennar and recognized $655,000 and $363,000 in deferred revenue, off-site fees and management fees and $218,000 and $125,000 of deferred costs, respectively.

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

-12-

Table of Contents

							Land
							Development
	Apartment			Commercial			Joint
	Properties			Property			Venture		Total
	(in thousands)
Summary Financial Position:
Total Assets
June 30, 2008	$	4,874		$	27,512		$	12,555	$	44,941
December 31, 2007		4,980			27,379			12,397		44,756
Total Non-Recourse Debt
June 30, 2008		3,150			22,960			4,879		30,989
December 31, 2007		3,189			22,960			4,722		30,871
Total Other Liabilities
June 30, 2008		976			144			743		1,863
December 31, 2007		976			147			741		1,864
Total Equity
June 30, 2008		748			4,408			6,933		12,089
December 31, 2007		815			4,272			6,934		12,021

Company's Investment, net (1)
June 30, 2008		-			4,681			1,828		6,509
December 31, 2007		(1	)		4,701			1,828		6,528

Summary of Operations:
Total Revenue
Six Months Ended June 30, 2008	$	418		$	1,789		$	-	$	2,207
Six Months Ended June 30, 2007		401			1,821			3,609		5,831
Three Months Ended June 30, 2008		210			893			-		1,103
Three Months Ended June 30, 2007		231			912			1,735		2,878
Net Income
Six Months Ended June 30, 2008		(67	)		909			-		842
Six Months Ended June 30, 2007		(97	)		937			3		843
Three Months Ended June 30, 2008		(32	)		453			-		421
Three Months Ended June 30, 2007		(58	)		469			3		414
Company's recognition of equity in earnings
Six Months Ended June 30, 2008		-			331			-		331
Six Months Ended June 30, 2007		(1	)		346			-		345
Three Months Ended June 30, 2008		-			163			-		163
Three Months Ended June 30, 2007 (2)		(1	)		173			-		172

Summary of Cash Flows:
Cash flows from operating activities
Six Months Ended June 30, 2008		49			977			1		1,027
Six Months Ended June 30, 2007		50			845			3,149		4,044
Three Months Ended June 30, 2008		44			58			7		109
Three Months Ended June 30, 2007		16			(17	)		1,791		1,790
Company's share of cash flows from operating activities
Six Months Ended June 30, 2008		-			442			1		443
Six Months Ended June 30, 2007		1			382			1,575		1,958
Three Months Ended June 30, 2008		-			26			4		30
Three Months Ended June 30, 2007		1			(8	)		896		889
Operating cash distributions
Six Months Ended June 30, 2008		-			773			-		773
Six Months Ended June 30, 2007		-			794			-		794
Three Months Ended June 30, 2008		-			386			-		386
Three Months Ended June 30, 2007		-			383			-		383
Company's share of operating cash distributions
Six Months Ended June 30, 2008		-			351			-		351
Six Months Ended June 30, 2007		-			360			-		360
Three Months Ended June 30, 2008		-			175			-		175
Three Months Ended June 30, 2007		-			174			-		174

-13-

Table of Contents

Notes:

(1) Represents the Company's net investment, including assets and accrued liabilities in the consolidated balance sheet for

unconsolidated real estate entities.

(2) Excludes collection of the El Monte note receivable, resulting in recognition of $1.5 million as Equity in Earnings, see Note 6.

(4)

DEBT

The Company's outstanding debt is collateralized primarily by land, land improvements, receivables, investment properties, investments in partnerships, and rental properties. The following table summarizes the indebtedness of the Company at June 30, 2008 and December 31, 2007 (in thousands):

Maturity

Interest

Outstanding as of

Dates

Rates

June 30,

December 31,

From/To

2008

2007

(Unaudited)

(Audited)

Recourse Debt

Community Development (a), ( b), (c), (d)

08-31-09/03-01-23

4%/8%

28,925

25,490

General obligations (e)

06-01-09/01-01-12

Non-interest

bearing/8.10%

202

Total Recourse Debt

29,127

25,589

Non-Recourse Debt

Investment Properties (f)(g)

04-30-09/08-01-47

4.95%/10%

278,085

279,981

Total debt

307,212

305,570

a)	As of June 30, 2008, $26,027,000 of the community development recourse debt relates to the general obligation bonds issued by the Charles County government as described in detail under the heading "Financial Commitments" in Note 5.

On April 14, 2006, the Company closed a three year $14,000,000 revolving acquisition and development line of credit loan (“the Revolver”) secured by a first lien deed of trust on property located in St. Charles, MD. The maximum amount of the loan at any one time is $14,000,000. The facility includes various sub-limits on a revolving basis for amounts to finance apartment project acquisitions and land development in St. Charles. The terms require certain financial covenants to be calculated annually as of December 31, including a tangible net worth to senior debt ratio for ALD and a minimum net worth test for ACPT. As of June 30, 2008 no amounts were outstanding on the Revolver.

On September 1, 2006, LDA secured a revolving line of credit facility. The line of credit bears interest at a fluctuating rate equivalent to the LIBOR Rate plus 200 basis points (4.68% at June 30, 2008). The Company recently extended the maturity date for this facility from August 31, 2008 to August 31, 2009. As part of the extension, the Company agreed to an increased rate equal to the LIBOR Rate plus 225 basis points beginning July 1, 2008, a reduction of the overall facility from $15,000,000 to $10,000,000 and to use the credit facility for the development of infrastructure in Parque Escorial and Parque El Comandante. The outstanding balance of this facility on June 30, 2008, was $1,775,000.

On April 2, 2008, the Company secured a two-year, $3,600,000 construction loan for the construction of a commercial restaurant/office building within the O’Donnell Lake Restaurant Park. The facility is secured by the land along with any improvements constructed and bears interest at Wall Street Journal published Prime Rate (5.0% at June 30, 2008). At the end of the two-year construction period, the Company may convert the loan to a 5 year permanent loan, amortized over a 30 year period at a fixed interest rate to be determined. As of June 30, 2008, $1,123,000 was outstanding under this facility leaving $2,477,000 available to fund completion of the building.

e)	The general recourse debt outstanding as of June 30, 2008, is made up of various capital leases outstanding within our U.S. and Puerto Rico operations, as well as installment loans for vehicles and other miscellaneous equipment.

The non-recourse debt related to the investment properties is collateralized by the multifamily rental properties and the office building in Parque Escorial. As of June 31, 2008, approximately $74,179,000 of this debt is secured by the Federal Housing Administration ("FHA") or the Maryland Housing Fund.

On May 12, 2008, IGP agreed to provide a fixed charge and debt service guaranty related to the Escorial Office Building I, Inc (“EOB”) mortgage. The fixed charge and debt service guaranty requires IGP to contribute capital in cash in such amounts required to cause EOB to comply with the related financial covenants. The guarantee will remain in full force until EOB has complied with the financial covenants for four consecutive quarters.

The Company’s loans contain various financial, cross collateral, cross default, technical and restrictive provisions. As of June 30, 2008, the Company was in compliance with the financial covenants and the other provisions of its loan agreements.

-14-

Table of Contents

(5)	COMMITMENTS AND CONTINGENT LIABILITIES

Financial Commitments

Pursuant to an agreement reached between ACPT and the Charles County Commissioners in 2002, the Company agreed to accelerate the construction of two major roadway links to the Charles County (the "County") road system. As part of the agreement, the County agreed to issue general obligation public improvement Bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by letters of credit provided by Lennar as part of a residential lot sales contract for 1,950 lots in Fairway Village. The Bonds were issued in three installments with the final $6,000,000 installment issued in March 2006. The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate for total Bonds issued to date of 5.1%, and call for semi-annual interest payments and annual principal payments and mature in fifteen years. Under the terms of bond repayment agreements between the Company and the County, the Company is obligated to pay interest and principal on the full amount of the Bonds; as such, the Company recorded the full amount of the debt and a receivable from the County representing the undisbursed Bond proceeds to be advanced to the Company as major infrastructure development within the project occurs. As of June 30, 2008, all of the bond proceeds had been used to fund the specified development. As part of the agreement, the Company will pay the County a monthly payment equal to one-sixth of the semi-annual interest payments and one-twelfth of the annual principal payment due on the Bonds. The County also requires ACPT to fund an escrow account from lot sales that will be used to repay this obligation.

In August 2005, the Company signed a memorandum of understanding ("MOU") with the Charles County Commissioners regarding a land donation that is now the site of a minor league baseball stadium and entertainment complex which opened in May of 2008. Under the terms of the MOU, the Company donated 42 acres of land in St. Charles to the County on December 31, 2005. The Company also agreed to expedite off-site utilities, storm-water management and road construction improvements that will serve the entertainment complex and future portions of St. Charles so that the improvements will be completed concurrently with the entertainment complex. The County will be responsible for infrastructure improvements on the site of the complex. In return, the County agreed to issue general obligation bonds to finance the infrastructure improvements. In March 2006, $4,000,000 of bonds were issued for this project, with an additional $3,000,000 issued in both March 2007 and March 2008. As of June 30, 2008, $3,489,000 of these bond proceeds are recorded as a receivable and available to fund the related infrastructure. The funds provided by the County for this project will be repaid by ACPT over a 15-year period. In addition, the County agreed to issue an additional 100 school allocations a year to St. Charles commencing with the issuance of bonds.

During 2006, the Company reached an agreement with Charles County whereby the Company receives interest payments on any undistributed bond proceeds held in escrow by the County. The agreement covers the period from July 1, 2005 through the last draw made by the Company.

As of June 30, 2008, ACPT is guarantor of $22,990,000 of surety bonds for the completion of land development projects with Charles County; substantially all are for the benefit of the Charles County Commissioners.

Consulting Agreement and Arrangement

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

Guarantees

ACPT and its subsidiaries typically provide guarantees for another subsidiary's loans. In many cases more than one company guarantees the same debt. Since all of these companies are consolidated, the debt or other financial commitment made by the subsidiaries to third parties and guaranteed by ACPT, is included within ACPT's consolidated financial statements. As of June 30, 2008, ACPT has guaranteed $26,027,000 of outstanding debt owed by its subsidiaries. IGP has guaranteed $1,775,000 of its subsidiaries' outstanding debt. The guarantees will remain in effect until the debt service is fully repaid by the respective borrowing subsidiary. The terms of the debt service guarantees outstanding range from one to nine years. In addition to debt service guarantees, both the Company and Lennar provided development completion guarantees related to the St. Charles Active Adult Community Joint Venture. We do not expect any of these guarantees to impair the individual subsidiary or the Company's ability to conduct business or to pursue its future development plans.

Legal Matters

In late November 2006, several subsidiaries of the Company (LDA, IGP and IGP Group) were named in a lawsuit filed by Jalexis, Inc. (“Jalexis”). The lawsuit claims damages for more than $15 million allegedly suffered due to faulty subsoil conditions in a piece of land within the master plan of Parque Escorial (“Lot I-13W”). Settlement of Lot I-13W occurred on April 29, 2005 under an option agreement dated April 19, 2004. Jalexis purchased Lot I-13W from LDA for approximately $7.5 million, which represented 12% of our total consolidated revenues for 2005. In the purchase agreement, LDA did not make any representations or warranties with regard to the soil and subsoil conditions as Lot I-13W was sold to Jalexis “as is” and “where is”. On June 5, 2008, the Company entered into a right of first offer agreement with Jalexis, providing Jalexis with the right to make the first offer on future land sales within certain Offered Properties as defined by the agreement. On June 6, 2008, the plaintiff dismissed with prejudice the complaint contained in the lawsuit. All parties involved in the case signed a stipulation in which each party agreed to relieve one another mutually and in perpetuity of any and all claims which they might have against one another arising from the facts alleged in the present lawsuit.

There have been no other material changes to the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

-15-

Table of Contents

The Company and/or its subsidiaries have been named as defendants, along with other companies, in tenant-related lawsuits. The Company carries liability insurance against certain types of claims that management believes meets industry standards. To date, payments made to the plaintiffs of the settled cases were covered by our insurance policy. The Company believes it has strong defenses to the claims, and intends to continue to defend itself vigorously in these matters.

In the normal course of business, ACPT is involved in various pending or unasserted claims. In the opinion of management, these are not expected to have a material impact on the financial condition or future operations of ACPT.

(6)	RELATED PARTY TRANSACTIONS

Certain officers and trustees of ACPT conduct business with or have ownership interests in various entities that conduct business with the Company. The financial impact of the related party transactions on the accompanying consolidated financial statements is reflected below (in thousands):

CONSOLIDATED STATEMENT OF INCOME:		Six Months Ended						Three Months Ended
		June 30,						June 30,
		2008			2007			2008			2007
Management and Other Fees
Unconsolidated subsidiaries with third party partners	(A)	$	21		$	21		$	11		$	11
Affiliates of J. Michael Wilson, CEO and Chairman			-			43			-			-
		$	21		$	64		$	11		$	11

Rental Property Revenues	(B)	$	30		$	28		$	15		$	14

Interest and Other Income
Unconsolidated real estate entities with third party partners		$	4		$	4		$	2		$	2

General and Administrative Expense
Reserve additions (reductions) and other write-offs-
Unconsolidated real estate entities with third party partners	(A)	$	(9	)	$	11		$	13		$	7
Reimbursement to IBC for ACPT's share of J. Michael Wilson's compensation			207			195			103			97
Reimbursement of administrative costs-
Affiliates of J. Michael Wilson, CEO and Chairman			(10	)		(13	)		(5	)		(7	)
Reimbursement of legal fees to attorney for J. Michael Wilson	(C3)					48						48
Consulting Fees
James J. Wilson, IGC Chairman and Director	(C1)		100			100			50			50
Thomas J. Shafer, Trustee	(C2)		30			30			15			15
		$	318		$	371		$	176		$	210

BALANCE SHEET:		Balance			Balance
		June 30,			December 31,
		2008			2007
Other Assets
Receivables - All unsecured and due on demand
Unconsolidated Subsidiaries		$	8		$	-
Affiliate of J. Michael Wilson, CEO and Chairman			14			5
Total		$	22		$	5

Other Liabilities
Payable due to Affiliate of J. Michael Wilson, CEO and Chairman		$	74		$	-

-16-

Table of Contents

(A) Management and Other Services

The Company provides management and other support services to its unconsolidated subsidiaries and other affiliated entities in the normal course of business. The fees earned from these services are typically collected on a monthly basis, one month in arrears. Receivables are unsecured and due on demand. Certain partnerships experiencing cash shortfalls have not paid timely. Generally, receivable balances of these partnerships are fully reserved, until satisfied or the prospect of collectibility improves. The collectibility of management fee receivables is evaluated quarterly. Any increase or decrease in the reserves is reflected accordingly as additional bad debt expenses or recovery of such expenses.

At the end of February 2007, G.L. Limited Partnership, which was owned by affiliates of J. Michael Wilson, was sold to a third party. Accordingly, we are no longer the management agent for this property effective March 1, 2007. Management fees generated by this property accounted for less than 1% of the Company’s total revenue.

(B) Rental Property Revenue

On September 1, 2006, the Company, through one of its Puerto Rican subsidiaries, Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson Family. The lease provides for 1,842 square feet of office space to be leased by CWT for five years at $19.00 per rentable square foot. The

company provided CWT with an allowance of $9,000 in tenant improvements which are being amortized over the life of the lease. On February 25, 2008, CWT exercised its rights under the lease and provided six months written notice of its intention to terminate the lease, effective August 24, 2008. The lease agreement is unconditionally guaranteed by Interstate Business Corporation (“IBC”), a company owned by the J. Michael Wilson Family.

Other transactions with related parties are as follows:

1)	Represents fees paid to James J. Wilson pursuant to a consulting and retirement agreement. At Mr. Wilson's request, payments are made to Interstate Waste Technologies, Inc.

2)	Represents fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting agreement.

In second quarter 2007, The Independent Trustees concluded that certain legal fees and expenses incurred by J. Michael Wilson related to seeking a strategic partner would be reimbursed by the Company. The Independent Trustees authorized the Company to fund up to $225,000 of such costs, $48,000 of which were incurred in the second quarter 2007.

Related Party Acquisitions

El Monte

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

In December 2004, a third party buyer purchased El Monte for $20,000,000: $17,000,000 in cash and $3,000,000 in two notes of $1,500,000 each that bear an interest rate of prime plus 2%, with a ceiling of 9%, and mature on December 3, 2009. The net cash proceeds from the sale of the real estate were distributed to the partners. As a result, the Company received $2,500,000 in cash and recognized $986,000 of income in 2004. El Monte distributed a $1,500,000 note to the Company in January 2005. On January 24, 2007, the Company received $1,707,000 as payment in full of the principal balance and all accrued interest related to the El Monte note receivable. Accordingly, in 2007 the Company recorded $1,500,000 as equity in earnings and $207,000 as interest income.

-17-

Table of Contents

(7)	INCOME TAXES

The total amount of unrecognized tax benefits as of June 30, 2008, was $14,611,000. Included in the balance at June 30, 2008, were $42,000 of tax positions that, if recognized, would affect the effective tax rate. A reconciliation of the beginning and ending amount of unrecognized tax benefit (in thousands) is as follows:

Unrecognized tax benefit at beginning of period (December 31, 2007)	$	14,869
Change attributable to tax positions taken during a prior period		(258	)
Change attributable to tax positions taken during the current period		-
Decrease attributable to settlements with taxing authorities		-
Decrease attributable to lapse of statute of limitations		-
Unrecognized tax benefit at end of period (June 30, 2008)	$	14,611

In accordance with our accounting policy, we present accrued interest related to uncertain tax positions as a component of interest expense and accrued penalties as a component of income tax expense on the Consolidated Statement of Income. Our Consolidated Statements of Income for the six months ended June 30, 2008 and 2007, included interest expense of $733,000 and $551,000, respectively and penalties of $38,000 and $72,000, respectively. Our Consolidated Statements of Income for the three months ended June 30, 2008 and 2007, included interest expense of $398,000 and $282,000, respectively and penalties of $14,000 and $14,000, respectively. Our Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007, included accrued interest of $3,546,000 and $2,814,000, respectively and accrued penalties of $1,124,000 and $1,085,000, respectively.

The Company currently does not have any tax returns under audit by the United States Internal Revenue Service or the Puerto Rico Treasury Department. However, the tax returns filed in the Unites States for the years ended December 31, 2004 through 2007 remain subject to examination. For Puerto Rico, the tax returns for the years ended December 31, 2003 through 2007 remain subject to examination. Within the next twelve months, the Company does not anticipate any payments related to settlement of any tax examinations. There is a reasonable possibility within the next twelve months the amount of unrecognized tax benefits will decrease by $567,000 when the related statutes of limitations expire and certain payments are recognized as taxable income.

(8)	SEGMENT INFORMATION

ACPT has two reportable segments: U.S. operations and Puerto Rico operations. The Company's chief decision-makers allocate resources and evaluate the Company's performance based on these two segments. The U.S. segment is comprised of different

components grouped by product type or service, to include: investments in rental properties, community development and property management services. The Puerto Rico segment entails the following components: investment in rental properties, community development, homebuilding and property management services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Customer Dependence

Residential land sales to Lennar within our U.S. segment were $5,691,000 for the six months ended June 30, 2008, which represents 22% of the U.S. segment's revenue and 14% of our total year-to-date consolidated revenue. No other customers accounted for more than 10% of our consolidated revenue for the six months ended June 30, 2008.

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

-18-

Table of Contents

The following presents the segment information for the six and three months ended June 30, 2008 and 2007 (in thousands):

	United			Puerto			Inter-
	States			Rico			Segment			Total
Six Months Ended June 30, 2008 (Unaudited):	($)			($)			($)			($)
Rental property revenues		19,694			11,243			-			30,937
Rental property operating expenses		9,224			5,704			(11	)		14,917
Land sales revenue		5,997			-			-			5,997
Cost of land sales		4,725			-			-			4,725
Home sales revenue		-			2,982			-			2,982
Cost of home sales		-			2,300			-			2,300
Management and other fees		79			314			(13	)		380
General, administrative, selling and marketing expense		4,779			1,273			(3	)		6,049
Depreciation and amortization		3,159			1,883			-			5,042
Operating income		3,883			3,379			1			7,263
Interest income		229			17			(14	)		232
Equity in earnings from unconsolidated entities		-			331			-			331
Interest expense		5,684			2,886			(14	)		8,556
Minority interest in consolidated entities		123			1,198			-			1,321
Loss before benefit for income taxes		(1,682	)		(239	)		-			(1,921	)
Income tax benefit		(419	)		(131	)		-			(550	)
Net loss		(1,263	)		(108	)		-			(1,371	)
Gross profit on land sale		1,272			-			-			1,272
Gross profit on home sales		-			682			-			682
Total assets		261,835			98,195			(369	)		359,661
Additions to long lived assets		2,721			481			-			3,202

	United			Puerto		Inter-
	States			Rico		Segment			Total
Six Months Ended June 30, 2007 (Unaudited):	($)			($)		($)			($)
Rental property revenues		18,706			11,126		-			29,832
Rental property operating expenses		9,489			5,638		(13	)		15,114
Land sales revenue		5,969			-		-			5,969
Cost of land sales		4,356			-		-			4,356
Home sales revenue		-			5,214		-			5,214
Cost of home sales		-			3,816		-			3,816
Management and other fees		208			313		(15	)		506
General, administrative, selling and marketing expense		3,923			1,448		(3	)		5,368
Depreciation and amortization		2,745			1,836		-			4,581
Operating income		4,370			3,915		1			8,286
Interest income		591			226		(55	)		762
Equity in earnings from unconsolidated entities		(1	)		1,846		-			1,845
Interest expense		6,226			3,166		(55	)		9,337
Minority interest in consolidated entities		173			1,384		-			1,557
(Loss) income before (benefit) provision for income taxes		(1,436	)		1,563		-			127
Income tax (benefit) provision		(481	)		769		-			288
Net (loss) income		(955	)		794		-			(161	)
Gross profit on land sale		1,613			-		-			1,613
Gross profit on home sales		-			1,398		-			1,398
Total assets		254,637			102,060		(1,620	)		355,077
Additions to long lived assets		4,519			422		-			4,941

-19-

Table of Contents

	United			Puerto		Inter-
	States			Rico		Segment			Total
Three Months Ended June 30, 2008 (Unaudited):	($)			($)		($)			($)
Rental property revenues		9,895			5,643		-			15,538
Rental property operating expenses		4,650			2,934		(5	)		7,579
Land sales revenue		4,951			-		-			4,951
Cost of land sales		3,822			-		-			3,822
Home sales revenue		-			738		-			738
Cost of home sales		-			583		-			583
Management and other fees		41			157		(6	)		192
General, administrative, selling and marketing expense		2,576			605		(2	)		3,179
Depreciation and amortization		1,497			948		-			2,445
Operating income		2,342			1,468		1			3,811
Interest income		106			9		-			115
Equity in earnings from unconsolidated entities		-			163		-			163
Interest expense		2,921			1,403		-			4,324
Minority interest in consolidated entities		119			43		-			162
(Loss) income before (benefit) provision for income taxes		(579	)		255		-			(324	)
Income tax (benefit) provision		(180	)		34		-			(146	)
Net (loss) income		(399	)		221		-			(178	)
Gross profit on land sale		1,129			-		-			1,129
Gross profit on home sales		-			155		-			155
Total assets		261,835			98,195