American Community Properties APO
October 15, 2001 - 4:57pm EST by
2001 2002
Price: 5.10 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 27 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

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American Community Properties Trust (APO) is an aggressively managed real
estate organization, spun off from Interstate General Company (IGC) in
1998. There are 5,250,000 shares outstanding. Simply put, APO is a gold
mine of first class real estate assets.

When IGC spun off APO, it gave it the majority of its well-developed real
estate -- the properties that were providing strong cash flow. Due to its
charter, APO is required to pay out annually at least 45% of its yearly
taxable profits in the form of dividends, after provision for taxes.

APO is a dynamic, enterprising company that develops large spreads of
residential and commercial ground located in the extended suburbs of
Washington, D.C. (Charles County, Maryland) and the close-in suburbs of
San Juan, Puerto Rico (Carolina and Canovanas). Robert A. Stanger & Co.,
a national appraisal organization, provided net asset value for APO as of
March 31, 1998 of $21.55 per share (see following expanded discussion).
Bear in mind that at $5.10 per share, APO has a current market cap of
approximately $27 million. Stanger's appraisal is three years old.
Without a doubt, the net asset value is higher today. Gross assets are
over $40 per share.

APO's assets can be grouped into the following three separate segments:


The crown jewel of APO's holdings is its 4,500 acres of land zoned for
commercial, retail and residential use in Charles County, Maryland -- St.
Charles, a planned community outside Washington, D.C. and part of the boom
town of Waldorf, Maryland.

Some history: In 1987, IGC sold a portion of its land holdings in
Waldorf, Maryland, to national developer Mel Simon for a 1.2 million sq.
ft. regional mall. The mall, St. Charles Towne Center, opened in 1990 and
has proven to be the magnet which has made Waldorf so extremely successful.
St. Charles Towne Center pulls all the business from St. Mary's County to
the south -- an area where residents previously were forced to travel
almost all the way to Washington, D.C. to shop. It has been Simon's best
performing mall.

Needless to say, St. Charles Towne Center adds greatly to the
attractiveness of the entire area. In Waldorf, APO has both residential and
commercial ground in various stages of development. The cost basis on some
of the land in Waldorf is $40,000 an acre. APO is currently selling it for
as high as $600,000 an acre.

Waldorf has become legend to such an extent that retailers use it to
experiment with new formats. Surrounded by vast shopping options, APO's
residential lots are much more attractive than ever before. And its
commercial ground can only become more valuable.

The newest of APO's developments in St. Charles, Fairway Village, is on the
market. The third of five villages, Fairway Village is a model town
consisting of 1,287 acres surrounding an existing golf course. It has
3,400 lots priced at $45,000. After years of preparing the land for sale to
builders, developing new roads, etc., all expenses are completed and sales
to national home builders are accelerating.


APO has two major projects in Puerto Rico, close to San Juan -- one in
Carolina, the other in Canovanas. Puerto Rico is an exciting anomaly: The
only emerging country operating under the protection of the U.S. legal
system. And unlike other emerging economies, Puerto Rico is booming. The
Wilson family manages and controls APO, and is hard-wired into Puerto Rico
-- having 40 years of major (and in all cases successful) developments of
apartments, shopping centers and office buildings.

In Carolina, within six miles of San Juan's central business district, APO
has a planned community, Parque Escorial, a 432-acre site located at the
intersection of two major highways. (San Juan is as large as the District
of Columbia, plus Bethesda and Silver Spring, Maryland, put together.) The
development is zoned for 2,900 lots -- some with ocean views -- which are
priced at $22,000. It's a developer's dream, due to its proximity to San
Juan and the fact that there is no major competition in its price range.

Parque Escorial also contains an additional 120 acres designated for
commercial and industrial use. Beautifully situated, this land is selling
so quickly that APO has raised prices 30%. Sixty-one of these acres were
sold to WalMart which built a retail center, spending about $5.8 million on
infrastructure at the site. The Puerto Rican properties are higher priced
than their counterparts in the U.S.

The residential development is in full swing in Carolina with sales of
newly built APO condos, office buildings (which are handled on a leaseback
basis), lot sales and commercial ground sales.

In Canovanas, ten miles from San Juan central business district, at Parque
El Commandante, APO has 500 acres of land recently rezoned for commercial
development. (No adjustment for this has yet been made in the $21.50 per
share appraised value of the stock!) The growth in the Canovanas area is
driving APO to develop this land immediately. APO already has a contract to
build a state-of-the-art motion picture studio and sound stage. This is
the first part of a longer term project -- a major entertainment complex
that includes a 22,000 seat amphitheater, theme park and other
entertainment facilities. This will attract world-class talent and
world-class companies to this area of Puerto Rico.

Canovanas is a potential jackpot for APO. The first pricing is at
$300,000 an acre. APO Chairman James Wilson estimates that a "major
portion" of the 500 acres is potentially this valuable. Assuming
two-thirds of the land was sold at that price, the gross income would
approach $100 million.

The strategy at Canovanas is to build and lease all property, thus adding
to the dividend flow. At least 45% of all taxable earnings of APO must be
paid out as dividends, subject to bank covenants.


A third business of APO is apartment building and property management. APO
manages all of its own property, plus a considerable amount for other
firms. Although it has many apartment buildings in the U.S., APO's core
apartment building holdings are in Puerto Rico. The company has a minimum
50% equity in 6,500 units, all good-looking and well-maintained. They are
under-mortgaged and available for condominium conversion.

The construction costs for these apartments is approximately $337 million,
some built many years ago, which makes it hard to estimate replacement
values. APO has been refinancing the apartments, which has already freed
several millions of dollars to reduce general corporate obligations and
provided lower rates for remaining debt.

APO values its equity in the apartments at more than the current market
price of the whole company. This portion of APO is a first-class enduring
asset whose value to the company is frequently overlooked. The management
fees received from these apartments cover a major portion of APO's
overhead. This portion of APO represents a long-term source of financial
strength for the company.


Robert A. Stanger & Co., the prestigious and major appraisal firm in
Shrewsbury, New Jersey, provided APO's net asset values as of March 31,
1998, as part of the company's restructuring plan that was filed with the
Securities and Exchange Commission. Stanger's analysis showed a net asset
value for the company of $112 million. Bear in mind that at $5.10 per
share, with 5,250,000 shares outstanding, APO has a market capitalization
of only $27 million.

Following is a simplified version of the Stanger valuations for APO.

ASSET...................NET ASSET VALUE..............VALUE PER SHARE OF APO

U.S. housing
(mostly apartments).....$ 16,770,000............................$ 3.19

Puerto Rican
apartments..............$ 20,322,000............................$ 3.87

Management fees for
U.S. property*..........$ 3,944,000
$10,572,000...........$ 2.01
Management fees for
Puerto Rico property....$ 6,628,000

Land in the U.S.........$ 36,296,000...........................$ 6.91

Land in Puerto Rico.....$ 18,832,000...........................$ 3.58

Receivables + Assets
- liabilities..........$ 8,503,000...........................$ 1.61


Stanger TOTAL**.........$112,455,000...........................$21.55


* Property management fees were valued by Stanger at four times cash flow.

**To simplify Stanger's 12-page analysis to this one-page chart, slight
modifications were made to the numbers that accounts for the slight
variation between Stanger's total value and the total value shown here.

California economist John Kamin, one of the few truly pragmatic men of his
profession, says the only thing he sees as certain in America's financial
future is a shortage of housing -- especially a shortage of residential

APO's U.S. development in St. Charles has two undeveloped village sites
with about 3,000 acres. To be developed following the completion of the
Fairway Village project, this land guarantees APO's future growth.
Currently, it is valued at $37,190,000 before pro rata debt, and over time,
it should become even more valuable. (If this valuation seems high
compared to Stanger's valuation of $21.55 per share, remember that the
Stanger figure is net of debt. Actual gross assets are much higher as
shown in the following table taken from the Stanger valuation.

TOTAL ASSETS................$ 192,000,000

Non-Recourse Debt...........$ 41,000,000

Recourse Debt...............$ 39,000,000

NET ASSETS..................$ 112,000,000

This leverage cuts both ways of course, but in the hands of adroit,
experienced managers it is generally a plus. At the present time, APO is
negotiating an additional $35 million of senior financing that would
mitigate the current recourse debt.


EBITDA is shown in the following table (in millions of dollars):



Remember, there are only 5,250,000 shares outstanding.

The only financial constants for APO are the management fees and the
revenue from rental properties. These are both substantial and annually
recurring sources of income. However, APO's real gold mine is its rich
stockpile of saleable land, much of which is just now coming to market.

APO's rental properties are presently netting $1,300,000 annually or about
$0.25 per share. Management fees are grossing $10,500,000 or about $2.00
per share (netting conceivably about $0.80 per share). This provides APO
with very solid underpinnings. Profit margins on land sales currently are
running from 30-40%. All this gives APO a strong potential for spectacular

A final note about APO's rental properties: The $0.25 per share yearly
income figure does not reflect the future value of this asset. More than
half of APO's rental properties in Puerto Rico will show no income until
the limited partners capital investment has been recouped. In addition,
two of the largest U.S. apartment buildings fall into the same category.

This is just beginning to happen and should produce an increase of
approximately $0.20 per share over the next two years.

Also, it should be noted that the apartments in Puerto Rico are under
governmental rent subsidy with vacancy rates that are almost nil because of
their below market rental rates. When they gradually are converted to
condominiums, APO will realize full market values on these assets which
will increase their income to the company significantly.


APO's current low stock price is a case of major mispricing that can only
be temporary. It is reasonable to expect that in 12-18 months the market
will recognize the company's increasing cash flow record and accord it a
more reasonable stock price of $12-15 per share.

Already two California fund managers, Robert Chapman and Eric Van Der
Porten, have positions in APO. Chapman, whose affiliates own about 500,000
shares, told the Wall St. Journal a few months ago that a recent deal for
part of the 500 acres of commercial land in Canovanas, Puerto Rico, would
bring APO's net asset value up to around $30 per share. In addition,
APO's prime apartments, residential and commercial acreage in the environs
of Washington, D.C. and suburbs of San Juan have continued to appreciate
over the past couple of years as land sales have escalated in price and
velocity, and apartment rentals have surged. Van Der Porten believes that
because of the large settlements on recently completed sales, APO's balance
sheet will be much improved by year end.


Value will always be recognized in the marketplace sooner or later.
Recently, the neglected homebuilder sector was the best performing group
in the entire market. Think of the homebuilders as the engine and the
ancillary industries as the cars of the train. When the engine moves, the
rest of the train always follows. APO, as a primary residential lot
developer, is certainly part of the train. The resulting rising cash
flows will permit APO to refinance sufficient bank debt so it can pay
dividends, and dividends should spark marketplace recognition.
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