UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





(Mark
One)


/X/
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
              
              FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007
              
              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
              (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)





Securities
registered pursuant to Section 12(b) of the Act:





TITLE
      OF EACH CLASS
              Common
      Shares, $.01 par value
            NAME
      OF EACH EXCHANGE ON WHICH REGISTERED
              American
      Stock Exchange





Securities
registered pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Exchange Act.Yes / /No /x/





Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act.Yes / /No
/x/





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
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.          /
/


-1-


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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.


Large
accelerated filer  / /     Accelerated
filer  / /     Non-accelerated filer  /
/      Smaller Reporting Company /x/





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).    Yes  /
/    No  /x/





As of
June 30, 2007 the aggregate market value of the common shares held by
non-affiliates of the registrant, based on the closing price reported on the
American Stock Exchange on that day of $20.41, was $50,432,130.  As of
March 1, 2008, there were 5,229,954 common shares outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Proxy Statement of American Community Properties Trust to be filed with
the Securities and Exchange Commission with respect to the 2008 Annual Meeting
of Shareholders, to be held on June 4, 2008, are incorporated by reference into
Part III of this report.


-2-


AMERICAN
COMMUNITY PROPERTIES TRUST





2007
Form 10-K Annual Report





TABLE OF CONTENTS











PagePART IItem
      1.
            Business
            4Item
      1A.
            Risk Factors
            21Item
      1B.
            Unresolved Staff Comments
            25Item
      2.
            Properties
            25Item
      3.
            Legal Proceedings
            25Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            26Item
      4A.
            Executive Officers of the Registrant
            26PART IIItem
      5.
            Market for the Company's Common Equity, Related Shareholder
      Matters and Issuer Purchases of Equity Securities
            28Item
      6.
            Selected Financial Data
            30Item
      7.
            Management's Discussion and Analysis of Financial Condition
      and Results of Operation
            31Item
      8.
            Financial Statements and Supplementary
    Data
            53Item
      9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            90Item
      9T.
            Controls and Procedures
            90Item
      9B.
            Other Information
            90PART
      IIIItem
      10.
            Trustees, Executive Officers and Corporate
      Governance
            91Item
      11.
            Executive Compensation
            91Item
      12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Shareholder Matters
            91Item
      13.
            Certain Relationships and Related Transactions and Trustee
      Independence
            91Item
      14.
            Principal Accounting Fees and Services
            92PART IVItem
      15.
            Exhibits, Financial Statement Schedules
            92Signatures
            
            95





-3-
 Table of Contents


PART I





ITEM 1.
            BUSINESS


References to "we," "us," "our" or the
"Company" refer to American Community Properties Trust and our business and
operations conducted through our subsidiaries.





GENERAL


On March 17, 1997, American Community
Properties Trust ("ACPT" or the "Company"), a wholly owned subsidiary of
Interstate General Company L.P. ("IGC" or "Predecessor"), was formed as a real
estate investment trust under Title 8 of the Corporations and Associates Article
of the Annotated Code of Maryland (the "Maryland REIT Law").  ACPT was
formed to succeed to most of IGC's real estate assets.


On October 5, 1998, IGC transferred to
ACPT the common shares of four subsidiaries that collectively comprised 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 to
the partners of IGC.


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, additional
distributions from IGP Group including Puerto Rico taxes paid on behalf of ACPT,
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. multifamily rental
properties flows through to ARPT.





ARPT


ARPT holds partnership interests in 21
multifamily rental properties ("U.S. Apartment Properties") indirectly through
American Housing Properties L.P. ("AHP"), a Delaware limited partnership, in
which ARPT has a 99% limited partner interest and American Housing Management
Company, a wholly owned subsidiary of ARPT, has a 1% general partner
interest.





ARMC


ARMC performs property management
services in the United States for the U.S. Apartment Properties and for one
other rental apartment not owned by ACPT.





ALD


ALD owns and operates the assets of
ACPT's United States community development operations. These include the
following:


1.
            a
      100% interest in St. Charles Community LLC ("SCC LLC") which holds
      approximately 4,000 acres of land in St. Charles,
  Maryland;


2.
            the
      Class B interest in Interstate General Properties Limited Partnership
      S.E., a Maryland limited partnership ("IGP"), that represents IGP's rights
      to income, gains and losses associated with the balance of the residential
      land in Parque Escorial in Puerto Rico held by Land Development
      Associates, S.E. ("LDA"), a wholly owned subsidiary of IGP;
      and


3.
            a
      50% interest, through SCC LLC, in a land development joint venture, St.
      Charles Active Adult Community, LLC
(“AAC”).





-4-
 Table of Contents


IGP
Group


IGP Group owns and operates the assets
of ACPT's Puerto Rico division indirectly through a 99% limited partnership
interest and 1% general partner interest in IGP excluding the Class B IGP
interest transferred to ALD. IGP's assets and operations include:


1.
            a
      100% partnership interest in LDA, a Puerto Rico special partnership which
      holds 120 acres of land in the planned community of Parque Escorial and
      490 acres of land in Canovanas;


2.
            general
      partner interests in 9 multifamily rental properties (“Puerto Rico
      Apartment Properties”), and a limited partner interest in 1 of the 9
      partnerships;


3.
            a
      100% ownership interest in Escorial Office Building I, Inc. (“EOBI”),
      through LDA and IGP, a Puerto Rico corporation that holds the operations
      of a three-story, 56,000 square foot office
  building;


4.
            a
      100% ownership interest in ICP, an entity that holds the partnership
      interest in El Monte Properties S.E.
(“EMP”);


5.
            a
      limited partnership interest in ELI, S.E. ("ELI"), that holds a 45.26%
      share in the future cash flow generated from a 30-year lease of an office
      building to the State Insurance Fund of the Government of Puerto Rico;
      and


6.
            an
      indirect 100% ownership interest, through LDA and IGP, in Torres del
      Escorial, Inc. ("Torres"), a  Puerto Rico corporation organized
      to build 160 condominium units.





In July 2007, J. Michael Wilson filed a
Form 13 D/A announcing the Wilson family’s intentions to obtain an investor for
a potential management buyout of the company. Accordingly, the Board of Trustees
formed a Special Committee of Independent Trustees to take such actions on
behalf of the Trust related to or airsing in connection with any such potential
transactions.





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.  Set forth below is a brief description of these businesses
within each of our segments.





U.S.
SEGMENT:





INVESTMENT
IN RENTAL PROPERTIES





Multifamily Rental
Properties


ACPT, indirectly through ARPT and AHP,
holds interests in 21 U.S. Apartment Properties that own and operate apartment
facilities in Maryland and Virginia. The U.S. Apartment Properties include a
total of 3,366 rental units. Each of the U.S. Apartment Properties is financed
by a non-recourse mortgage whereby the owners are not jointly and severally
liable for the debt.  The U.S. Department of Housing and Urban
Development ("HUD") provides rent subsidies to the projects for residents of 973
apartment units. In addition, 110 units are leased pursuant to HUD's Low Income
Housing Tax Credit ("LIHTC") program, and 139 other units are leased under
income guidelines set by the Maryland Community Development Administration. The
remaining 2,144 units are leased at market rates.





The Company continues to believe that
its investments in suburban multifamily rental properties will provide long-term
value.  Suburban multifamily capitalization rates decreased for the
third consecutive year to 6.34%, down from 6.44% for 2006 and remain in the
first position relative to other types of real estate investment.1





New Multifamily Rental
Property Construction
 Sheffield
Greens Apartments, which began leasing efforts in the first quarter of 2006,
completed the lease-up of the facility in the second quarter 2007. The 252-unit
apartment project consists of nine,
 The Company is currently planning the
construction of a 184 unit luxury apartment complex within St. Charles, called
Gleneagles Apartments.  Gleneagles Apartments is expected to consist
of 1, 2 and 3 bedroom units ranging in size of 905 to 1840 square
feet.  The Company currently anticipates average monthly rents of
approximately $1,625 per unit.  Pre-leasing efforts are currently
scheduled to commence during the second quarter of 2008, with delivery of the
initial units within the complex during the first quarter of
2009.  The Company has submitted for building permits, and currently
anticipates final approval from Charles County by the third quarter of
2008.  Construction of the project is expected to begin promptly after
the permits are issued.  The Company is also currently in the process
of obtaining a HUD insured loan for this project which is expected to close
within 60 days of receiving the County’s approval of the
plat.





1




-5-
 Table of Contents


Multifamily Rental Property
Acquisitions


The following table sets forth the name
of each entity owning U.S. Apartment Properties; the number of rental units in
the property; the percentage of all units held by U.S. Apartment Properties; the
project cost; the percentage of such units under lease; and the expiration date
and maximum benefit for any subsidy contract:





Number
      of
            
            
            
            
            
            12/31/2007
            
            
            Occupancy
            
            
            Expiration
            
            
            MaximumApartment
            
            
            Percentage
      of
            
            
            Project
      Cost (A)
            
            
            at
            
            
            Of
      Subsidy
            
            
            SubsidyU.S.
      APARTMENTS PROPERTIES
            
            Units
            
            
            Portfolio
            
            
            (in
      thousands)
            
            
            12/31/2007
            
            
            Contract
            
            
            (in
      thousands)Consolidated
      PartnershipsBannister
            
            
            167
            
            
            
            5
            %
            
            $
            9,736
            
            
            
            94
            %
            
            N/A
            
            
            $
            -41
            
            
            
            1
            %
            
            
            
            
            
            
            
            
            
            2008
            
            
            
            521Coachman's
            
            
            104
            
            
            
            3
            %
            
            
            7,997
            
            
            
            97
            %
            
            N/A
            
            
            
            -Crossland
            
            
            96
            
            
            
            3
            %
            
            
            3,358
            
            
            
            92
            %
            
            N/A
            
            
            
            -Essex
            
            
            496
            
            
            
            15
            %
            
            
            21,037
            
            
            
            98
            %
            
            2008
            
            
            
            4,488Fox
      Chase
            
            
            176
            
            
            
            5
            %
            
            
            8,969
            
            
            
            97
            %
            
            N/A
            
            
            
            -Headen
      House
            
            
            136
            
            
            
            4
            %
            
            
            8,582
            
            
            
            97
            %
            
            2008
            
            
            
            1,641Huntington
            
            
            204
            
            
            
            6
            %
            
            
            10,115
            
            
            
            96
            %
            
            2008
            
            
            
            2,421Lancaster
            
            
            104
            
            
            
            3
            %
            
            
            6,002
            
            
            
            96
            %
            
            N/A
            
            
            (B)Milford
      Station I
            
            
            200
            
            
            
            6
            %
            
            
            13,165
            
            
            
            91
            %
            
            N/A
            
            
            
            -Milford
      Station II
            
            
            50
            
            
            
            1
            %
            
            
            1,861
            
            
            
            96
            %
            
            N/A
            
            
            
            -New
      Forest
            
            
            256
            
            
            
            8
            %
            
            
            15,412
            
            
            
            93
            %
            
            N/A
            
            
            
            -Nottingham
      South
            
            
            85
            
            
            
            3
            %
            
            
            3,049
            
            
            
            89
            %
            
            N/A
            
            
            
            -Owings
      Chase
            
            
            234
            
            
            
            7
            %
            
            
            15,749
            
            
            
            95
            %
            
            N/A
            
            
            
            -Palmer
            
            
            96
            
            
            
            3
            %
            
            
            9,138
            
            
            
            91
            %
            
            N/A
            
            
            
            -56
            
            
            
            2
            %
            
            
            
            
            
            
            
            
            
            2008
            
            
            
            709Prescott
      Square
            
            
            73
            
            
            
            2
            %
            
            
            4,738
            
            
            
            92
            %
            
            N/A
            
            
            
            -Sheffield
      Greens
            
            
            252
            
            
            
            7
            %
            
            
            25,854
            
            
            
            93
            %
            
            N/A
            
            
            
            -Village
      Lake
            
            
            122
            
            
            
            3
            %
            
            
            8,010
            
            
            
            91
            %
            
            N/A
            
            
            
            -Wakefield
      Terrace
            
            
            164
            
            
            
            5
            %
            
            
            11,325
            
            
            
            93
            %
            
            N/A
            
            
            
            -40
            
            
            
            1
            %
            
            
            
            
            
            
            
            
            
            2011
            
            
            
            525Wakefield
      Third Age (Brookmont)
            
            
            104
            
            
            
            3
            %
            
            
            5,552
            
            
            
            95
            %
            
            N/A
            
            
            
            -3,256
            
            
            
            96
            %
            
            
            189,649
            
            
            
            
            
            
            
            
            
            
            
            10,305Unconsolidated
      PartnershipsBrookside
      Gardens
            
            
            56
            
            
            
            2
            %
            
            
            2,694
            
            
            
            98
            %
            
            N/A
            
            
            (C)Lakeside
      Apartments
            
            
            54
            
            
            
            2
            %
            
            
            4,130
            
            
            
            98
            %
            
            N/A
            
            
            (C)110
            
            
            
            4
            %
            
            
            6,8243,366
            
            
            
            100
            %
            
            $
            196,473
            
            
            
            
            
            
            
            
            
            
            $
            10,305





(A)
            Project
      costs represent total capitalized costs for each respective property as
      per Schedule III "Real Estate and Accumulated Depreciation" in Item 8 of
      this 10-K.


(B)
            Not
      subsidized, however, 54 units are subject to household income restrictions
      set by the Maryland Community Development Administration
      (“MCDA”).


(C)
            Not
      subsidized, but all units are set aside for low to moderate income tenants
      over certain age limitations under provisions set by the LIHTC
      program.





-6-
 Table of Contents


The
following table sets forth the operating results, mortgage balances and our
economic interest in the U.S. Apartment Properties by location ($ amounts in
thousands, all other figures are actual):


U.S.
      APARTMENT PROPERTIES
            
            Number
      of Apartment Units
            
            
            Operating
      Revenues
            
            
            Operating
      Expenses (a)
            
            
            Non-Recourse
      Mortgage Outstanding
            
            
            Economic
      Interest Upon Liquidation (b)Consolidated
      PartnershipsCharles
      County, MarylandBannister
            
            
            208
            
            
            $
            2,561
            
            
            $
            1,118
            
            
            $
            12,501
            
            
            
            100.0
            %Coachman's
            
            
            104
            
            
            
            1,695
            
            
            
            687
            
            
            
            10,883
            
            
            
            95.0
            %Crossland
            
            
            96
            
            
            
            1,188
            
            
            
            555
            
            
            
            4,091
            
            
            
            60.0
            %Fox
      Chase
            
            
            176
            
            
            
            2,293
            
            
            
            883
            
            
            
            12,840
            
            
            
            99.9
            %Headen
      House
            
            
            136
            
            
            
            1,634
            
            
            
            625
            
            
            
            6,914
            
            
            
            75.5
            %Huntington
            
            
            204
            
            
            
            2,432
            
            
            
            1,533
            
            
            
            9,218
            
            
            
            50.0
            %Lancaster
            
            
            104
            
            
            
            1,462
            
            
            
            683
            
            
            
            8,491
            
            
            
            100.0
            %New
      Forest
            
            
            256
            
            
            
            3,971
            
            
            
            1,520
            
            
            
            22,717
            
            
            
            99.9
            %Palmer
            
            
            152
            
            
            
            1,874
            
            
            
            789
            
            
            
            6,746
            
            
            
            75.5
            %Sheffield
      Greens
            
            
            252
            
            
            
            3,700
            
            
            
            1,871
            
            
            
            26,945
            
            
            
            100.0
            %Village
      Lake
            
            
            122
            
            
            
            1,604
            
            
            
            649
            
            
            
            9,205
            
            
            
            95.0
            %Wakefield
      Terrace
            
            
            204
            
            
            
            2,283
            
            
            
            1,085
            
            
            
            10,041
            
            
            
            75.5
            %Wakefield
      Third Age (Brookmont)
            
            
            104
            
            
            
            1,280
            
            
            
            558
            
            
            
            7,295
            
            
            
            75.5
            %Baltimore
      County, MarylandMilford
      Station I
            
            
            200
            
            
            
            1,907
            
            
            
            1,036
            
            
            
            10,491
            
            
            
            100.0
            %Milford
      Station II
            
            
            50
            
            
            
            399
            
            
            
            284
            
            
            
            1,345
            
            
            
            100.0
            %Nottingham
      South
            
            
            85
            
            
            
            639
            
            
            
            478
            
            
            
            2,560
            
            
            
            100.0
            %Owings
      Chase
            
            
            234
            
            
            
            2,427
            
            
            
            1,302
            
            
            
            12,376
            
            
            
            100.0
            %Prescott
      Square
            
            
            73
            
            
            
            785
            
            
            
            479
            
            
            
            3,590
            
            
            
            100.0
            %Henrico
      County, VirginiaEssex
            
            
            496
            
            
            
            4,282
            
            
            
            2,757
            
            
            
            14,025
            
            
            
            50.0
            %
            (c)Total
      Consolidated
            
            
            3,256
            
            
            
            38,416
            
            
            
            18,892
            
            
            
            192,274Unconsolidated
      PartnershipsCharles
      County, MarylandBrookside
      Gardens
            
            
            56
            
            
            
            318
            
            
            
            271
            
            
            
            1,241
            
            
            
            
            
            (d)Lakeside
            
            
            54
            
            
            
            493
            
            
            
            262
            
            
            
            1,952
            
            
            
            
            
            (e)Total
      Unconsolidated
            
            
            110
            
            
            
            811
            
            
            
            533
            
            
            
            3,193Grand
      Total
            
            
            3,366
            
            
            $
            39,227
            
            
            $
            19,425
            
            
            $
            195,467




(a)
                Amounts
      exclude management fees eliminated in
  consolidation.
 (b)
                Surplus
      cash from operations and proceeds from sale or liquidation are allocated
      based on the economic interest except those identified by additional
      description.
 (c)
                Upon
      liquidation, the limited partners have a priority distribution equal to
      their unrecovered capital.  As of December 31, 2007, the
      unrecovered limited partner capital for Essex was
      $1,890,000.  The Company’s receivable of $2,958,000 is the
      second priority of proceeds from the sale or liquidation on the
      property.  Until the limited partners have recovered their
      capital contributions, any surplus cash is distributed first to the
      limited partners up to $100,000, then a matching $100,000 to the general
      partner, with any remaining split between the general partner and the
      limited partners.
 (d)
                The
      allocation of profits and surplus cash, as per the partnership agreement,
      is based on a complex waterfall calculation.  The Company’s
      share of the economic ownership is
immaterial.
 (e)
                The
      allocation of profits and surplus cash, as per the partnership agreement,
      is based on a complex waterfall calculation.  The Company is
      currently eligible to receive $363,000 in distributions related to the
      payment of a development fee.  This amount receives priority
      over return of equity to the partners but is subordinate to a $3,000 per
      year preferred return to the minority partners.  Upon settlement
      of all priority items, balance is split 70% to the company and 30% to the
      minority partners.
 -7-
 Table of Contents


Government
Regulation


HUD subsidies are provided principally
under Section 8 of the National Housing Act. Under Section 8, the government
pays to the applicable apartment partnership the difference between market
rental rates (determined in accordance with government procedures) and the rate
the government deems residents can afford.  In compliance with the
requirements of Section 8, ARMC screens residents for eligibility under HUD
guidelines. Subsidies are provided under contracts between the federal
government and the owners of the apartment properties.


Subsidy contracts for ACPT's U.S.
Apartment Properties are scheduled to expire between 2008 and 2011. ACPT
currently intends to seek the renewal of expiring subsidy contracts for its
properties based on the most advantageous options available at the time of
renewal. Please refer to the table shown on page 7 for the expiration dates and
amounts of subsidies for the respective properties. We initiate the HUD contract
renewal process annually. For contracts where we have elected five-year terms,
we are limited to increases based on an Operating Cost Adjustment Factor
(“OCAF”).  At the end of the five-year term, or annually if a
five-year term is not elected, we will have six options for renewing Section 8
contracts depending upon whether we can meet the eligibility
criteria.  Historically, we have met the criteria necessary to renew
our Section 8 contracts.


Cash flow from projects whose mortgage
loans are insured by the Federal Housing Authority ("FHA"), or financed through
the housing agencies in Maryland or Virginia (the "State Financing Agencies")
are subject to guidelines and limits established by the apartment properties'
regulatory agreements with HUD and the State Financing Agencies.


Our regulatory contracts with HUD
and/or the mortgage lenders generally require that certain escrows be
established as replacement reserves.  The balance of the replacement
reserves are available to fund capital improvements as approved by HUD or the
mortgage lender.  As of December 31, 2007, a total of $3.5 million was
designated as replacement reserves for the consolidated U.S. Apartment
Partnerships.


HUD has received congressional
authority to convert expired contracts to resident-based vouchers. This would
allow residents to choose where they wish to live, which may include the
dwelling unit in which they currently reside.  If these vouchers
result in our tenants moving from their existing apartments, this may negatively
impact the income stream of certain properties. However, we intend to continue
to maintain our properties in order to preserve their values and retain
residents to the greatest extent possible.


The federal government has virtually
eliminated subsidy programs for new construction of low and moderate income
housing by profit-motivated developers such as ACPT.  Any new
multifamily rental properties developed by ACPT in the U.S. are expected to
offer market rate rents.





Competition


ACPT's investment properties that
receive rent subsidies are not subject to the same market conditions as
properties charging market rate rents. The Company's subsidized units average
annual occupancy of approximately 98%.  ACPT's apartments in St.
Charles that have market rate rents are impacted by the supply and demand for
competing rental apartments in the area, as well as the local housing market.
Our occupancy rates for our market rate properties typically range from 90% to
99%.  When for-sale housing becomes more affordable due to lower
mortgage interest rates or softening home prices, this can adversely impact the
performance of rental apartments. Conversely, when mortgage interest rates rise
or home prices increase, the market for apartment rental units typically
benefits.  With the recent subprime mortgage crisis, the Company has
seen new homeowners who can no longer afford the increases in their adjustable
rate mortgages return to the rental market.


The Company has historically been the
only source for multifamily apartment living in the St. Charles and surrounding
Waldorf areas.  In the spring of 2008, Archstone-Smith is expected to
open “Westchester at the Pavilions,” a luxury apartment community in St.
Charles.  We believe that rents within this new facility will be
higher than those currently charged for the Company’s
apartments.  However, it is unclear if and to what extent occupancy at
our higher end fair market properties will be impacted by the addition of these
units into the St. Charles market.





-8-
 Table of Contents


PROPERTY
MANAGEMENT


ACPT, indirectly through ARMC, operates
a property management business in the Washington, D.C. metropolitan area,
Baltimore, Maryland and in Richmond, Virginia. ARMC earns fees from the
management of 3,654 rental apartment units. ACPT holds an ownership interest in
3,366 units managed by ARMC.  Management fees for these 3,366 units
are based on a percentage of rents ranging from 4% to 6.5%. The management
contracts for these properties have terms of one or two years and are
automatically renewed upon expiration but, may be terminated on 30 days notice
by either party. ARMC is entitled to receive an aggregate incentive management
fee of $40,000 annually from two of the properties that it manages, as well as
the potential to receive an incentive management fee of $100,000 from another
property that it manages.  The payment of these fees is subject to the
availability of surplus cash. Management and other fees earned from properties
included within the consolidated financial statements are eliminated in
consolidation. Management fees for the other managed apartment property owned by
a third party equal 3% of rents. Effective February 28, 2007, the Company’s
management agreement with one of these managed apartment properties, G.L.
Limited Partnership, was terminated upon the sale of the apartment property to a
third party.





COMMUNITY
DEVELOPMENT


ACPT, indirectly through ALD, owns
approximately 3,950 undeveloped acres in the planned community of St. Charles,
which is comprised of a total of approximately 9,100 acres (approximately 14
square miles) located in Charles County, Maryland, 23 miles southeast of
Washington, D.C.  The land in St. Charles is being developed by ACPT
and its subsidiaries for a variety of residential uses, including single-family
homes, townhomes, condominiums and apartments, as well as commercial and
industrial uses.


St. Charles is comprised of five
separate villages: Smallwood Village (completed), Westlake Village
(substantially completed), Fairway Village (currently under development), Piney
Reach (undeveloped except for certain infrastructure improvements) and Wooded
Glen (undeveloped except for certain infrastructure improvements). Each of the
developed villages consists of individually planned neighborhoods, and includes
schools, churches, recreation centers, sports facilities, and a shopping center.
Other amenities include parks, lakes, hiking trails and bicycle paths. St.
Charles also has an 18-hole public golf course in its Fairway Village community.
Each community is planned for a mix of residential housing, including detached
single-family homes, townhomes, multiplex units and rental apartments. Typical
lot sizes for detached homes range from 6,000 to 8,000 square feet.


The development of St. Charles as a
planned unit development ("PUD") began in 1972 when Charles County approved a
comprehensive PUD agreement for St. Charles. This master plan allows for the
construction of 24,730 housing units and approximately 1,390 acres of commercial
and industrial development. As of December 31, 2007, there were more than 11,000
completed housing units in St. Charles, including Carrington neighborhood, which
began prior to 1972 and are not included in the PUD. In addition, there are
schools, recreation facilities, commercial, office and retail space in excess of
4.4 million square feet in St. Charles.  ACPT, through outside
planners, engineers, architects and contractors, obtains necessary approvals for
land development, plans individual neighborhoods in accordance with regulatory
requirements, constructs roads, utilities and community facilities. ACPT
develops lots for sale for detached single-family homes, townhomes, apartment
complexes, and commercial and industrial development.


Fairway Village, named for the existing
18-hole public golf course it surrounds, is under development. The master plan
provides for 3,346 dwelling units on 1,612 acres, including a business park and
a 68-acre village center. Opened in 1999, development of Fairway Village
continues to progress as evidenced by the 78 lots settled in 2007 and the 129
completed lots in backlog as of December 31, 2007. All settlements made in 2007
were the result of the March 2004 agreement with Lennar Corporation (“Lennar”)
discussed below.  Since inception of Fairway Village, builders have
settled 628 fully developed lots in the first thirteen parcels.  In
addition to lots in backlog, infrastructure construction has started on the next
68 single family lots and 148 townhome lots, with completion expected by the end
of 2008.  Some of this lot development is being completed in order for
the Company to have access to the parcel designated for our Gleneagles Apartment
complexes. Additional parcels are in the engineering phase.


The last two villages, Wooded Glen and
Piney Reach, comprise approximately 3,000 acres, and are planned for development
near the completion of Fairway Village. The County Commissioners must approve
the total number and mix of residential units before development can
begin.  There can be no assurances that the total 24,730 units in St.
Charles' master plan can be attained within the remaining acreage currently
owned.


The Company continues to look for
opportunities to purchase land for future development.  However, there
can be no assurance that the Company will be able to locate additional land
suitable for future development.


As of December 31, 2007, 35.66 acres of
developed commercial land and 129 residential lots were available for
delivery.


-9-
 Table of Contents


The
following table is a summary of the land inventory available in St. Charles as
of December 31, 2007:


Lot
      Type
                Estimated
      Number of Lots
                Approximate
      Acreage
                Entitlements
                Estimated
      Expected Date of Sale
                Estimated
      Aggregate Sales PriceSMALLWOOD
      VILLAGECommercial,
      Retail, Office:Henry
      Ford Circle
                Commercial
                8
                8.89
                A
                2008
      - 2009
                $1.8
      - $2.0 millionIndustrial:Industrial
      Park North Tract 21, Parcel F
                Light
      Industrial
                1
                4.18
                A
                TBD
                TBDIndustrial
      Park North Tract 23, Parcel A
                Light
      Industrial
                1
                1.95
                A
                TBD
                TBDWESTLAKE
      VILLAGECommercial,
      Retail, Office:Town
      Center Parcel A3
                Restaurant,
      Office, Retail
                4
                7.76
                A
                2008
      - 2012
                $6
      millionTown
      Center Parcel A3 Lot 3
                Restaurant,
      Office Retail
                1
                1.50
                A
                Internal
      Use
                N/AParcel
      M
                Office,
      Retail
                1
                2.61
                A
                2008
                $300,000Hampshire
      Commercial Parcel Q
                Commercial
                1
                13.31
                C
                TBD
                $
      2.1 millionFAIRWAY
      VILLAGEResidential
      Lots:Sheffield
      Parcel I
                SF
      Attached
                8
                20.12
                A
                2008
                *Sheffield
      Parcel G/M1
                SF
      Detached
                121
                32.15
                A
                2008
      – 2009
                *Sheffield
      Parcel J
                SF
      Attached
                148
                34.30
                B
                2008
      - 2010
                *Gleneagles
      Parcel A
                Multi-Family
                120
                12.40
                B
                Internal
      Use
                N/AGleneagles
      Parcel B
                Multi-Family
                184
                13.00
                B
                Internal
      Use
                N/AGleneagles
      Parcel D
                SF
      Detached
                68
                28.40
                B
                2008
      - 2009
                *Gleneagles
      Parcel E
                SF
      Detached
                117
                53.70
                B
                2009
      - 2010
                *Gleneagles
      Parcel C
                SF
      Attached
                128
                21.20
                B
                2010
      - 2011
                *Gleneagles
      Parcel F
                SF
      Detached
                84
                31.00
                B
                2009
      - 2010
                *Gleneagles
      South Neighborhood
                SF
      Attached
                194
                25.00
                C
                2011
      - 2013
                *Gleneagles
      South Neighborhood
                SF
      Detached
                642
                224.40
                C
                2010
      - 2013
                *Gleneagles
      South Neighborhood
                Multi-Family
                165
                14.00
                C
                Internal
      Use
                N/ACommercial,
      Retail, Office:Middle
      Business Park Parcel D
                Office,
      Commercial
                14
                42.15
                B
                TBD
                TBDFairway
      Village Center
                Retail,
      Commercial
                1
                93.90
                B
                TBD
                TBDMiddle
      Business Park Parcel B
                Office,
      Commercial
                4
                32.85
                B
                TBD
                TBDMiddle
      Business Park Parcel C
                Office,
      Commercial
                3
                16.16
                B
                TBD
                TBDVILLAGE
      OF WOODED GLENResidential
      Parcels
                TBD
                7,155
                1810.40
                D
                TBD
                TBDWooded
      Glen Village Center
                Retail,
      Commercial
                1
                30.00
                C
                TBD
                TBDVILLAGE
      OF PINEY REACHResidential
      Parcels
                TBD
                2,921
                666.60
                D
                TBD
                TBDPiney
      Reach Village Center
                Retail,
      Commercial
                1
                37.30
                C
                TBD
                TBDPiney
      Reach Industrial Park
                Industrial
                1
                76.18
                C
                2009
                $13.0
      millionPiney
      Reach Industrial Park
                Industrial
                66
                506.59
                C
                TBD
                TBD(A)
      Sites are fully developed and ready for sale(B)
      Completed master plan approval including all entitlements and received
      preliminary site plan approval for development(C)
      Completed master plan approval including all entitlements(D)
      Completed master plan approval including all entitlements excluding school
      allocationsTBD
      means To Be Determined.*  Price
      determined as a percentage (generally 30%) of the "Base Selling Price" of
      the new home constructed and sold on the lot per the terms of the sales
      agreement with Lennar Corporation.
 -10-
 Table of
Contents


Customer
Dependence


In March
2004, the Company executed development and purchase agreements with Lennar’s
homebuilding subsidiary to develop and sell approximately 1,950 residential
lots, consisting of approximately 1,359 single-family lots and 591 town home
lots in Fairway Village (the “Lennar Agreements”).  The Lennar
Agreements require the homebuilder to provide $20,000,000 of letters of credit
to secure the purchase of the lots.  The letters of credit will be
used as collateral for major infrastructure loans from the Charles County
Commissioners of up to $20,000,000 and will be reduced as the Company repays the
principal of these loans.  As security for the Company’s obligations
to Lennar, a junior lien was placed on the residential portion of Fairway
Village. For each lot sold in Fairway Village, the Company will deposit $10,300
in an escrow account to fund the principal payments due to the Charles County
Commissioners at which time the lot is released from the junior
lien.  Under the Lennar Agreements, the Company is responsible for
making developed lots available to Lennar on a monthly basis, and subject to
availability, the builder is required to purchase a minimum of 200 residential
lots developed by the Company per year.  Based on 200 lot sales per
year, it is estimated that settlements will take place through 2015; however,
the continued slowing of the new homes sales market in the United States, and
more specifically in the Washington D.C. suburban areas, has adversely impact
Lennar’s willingness or ability to take down 200 lots per year.  In
December 2007, the Company executed an amendment to the Lennar Agreements (the
“December Amendment”) whereby the Company agreed to accept 51 lot settlements in
December 2007 as satisfaction of Lennar’s lot takedown requirement for 2007,
resulting in 78 total lots taken down by Lennar during 2007.


According
to the terms of the Lennar Agreements, the final selling price of the lots will
be calculated based on 30% of the base sales price of homes sold by the
builder.  As part of the December Amendment to the Lennar Agreements,
the Company agreed to temporarily reduce the final lot price for 100 lots (51
taken down in December 2007 and 49 which Lennar has agreed to take before June
1, 2008) from 30% to 22.5% of the base price of the home sold on the lot, with
guaranteed minimum prices of $78,000 per single family lot and $68,000 per
townhome lot.  Currently new townhomes in Fairway Village are priced
between $330,000 and $400,000 while single family homes in Fairway Village are
priced between $390,000 and $500,000.


In
September 2004, the Company entered into a joint venture agreement with Lennar
for the development of a 352-unit, active adult community located in St.
Charles, Maryland; and transferred land to the joint venture in exchange for a
50% ownership interest and $4,277,000 in cash.  Lennar and the Company
each have an equal interest in the cash, earnings and decision making concerning
the joint venture. The joint venture's operating agreement calls for the
development of 352 lots.  Delivery of these lots began in the fourth
quarter of 2005.  The Company manages the project's development for a
market rate fee pursuant to a management agreement.  However, the
joint venture has ceased development activities for one year, as to date, lot
development has outpaced sales.


Revenues
from Lennar include residential land sales as well as certain management
fees.  Total revenues from Lennar within our U.S. segment were
$9,663,000 for the year ended December 31, 2007 which represents 18% of the U.S.
segment's revenue and 11% of our total year-to-date consolidated
revenue.  No other customers accounted for more than 10% of our
consolidated revenue for the year ended December 31, 2007.  Loss of
all or a substantial portion of our land sales, as well as the joint venture's
land sales, to Lennar would have a significant adverse effect on our financial
results until such lost sales could be replaced.  If such an event
were to occur, there would be no assurance that the lost volume would be
replaced timely and on comparable terms.





-11-
 Table of Contents


Government
Approvals


The St. Charles master plan has been
incorporated into Charles County's comprehensive zoning plan. In addition, the
Charles County government (the “County”) has agreed to provide sufficient water
and sewer connections for the balance of the housing units to be developed in
St. Charles.  Specific development plans for each village in St.
Charles are subject to approval of the County Planning Commission. Such
approvals have previously been received for the villages of Smallwood, Westlake
and Fairway. Approvals have not yet been sought on the final two
villages.


In 2001, the Charles County
Commissioners enacted the Adequate Public Facilities Policy.  This
policy limits the number of residential building permits issued to the amount of
school allocations calculated in a given period.


Under a
settlement agreement reached between ACPT and the County in 2001, the County
provided guaranteed school allocations to St. Charles for 898 new dwelling
units.  The County subsequently granted allocations for an additional
200 dwelling units in 2005, 300 for 2006, 300 for 2007 and in January of 2008,
the County granted us an additional 300 units for 2008.  To date, we
have recorded 898 dwelling units with the County leaving us with a balance of
1,096 school allocations available for new dwelling units.  School
allocations are used when the Company records the subdivision plats with the
County.  The Company anticipates using 452 allocations in 2008 related
to additional lot development and beginning construction of Gleneagles
multifamily housing.


Under the
settlement agreement, the County agreed to utilize a base line assumption of 200
school allocations per year, however, there are no guarantees that additional
allocations will be granted in future years.  Under the settlement
agreement, the County will also provide sewer connection for the next 2,000
units in Fairway Village at fees that will be $1,608 less per unit than the fee
charged to builders outside of St. Charles.  As of December 31, 2007,
approximately 1,425 of the 2,000 units remained.  Our agreement
reached with the County also provides for the possibility of the Company's being
allowed to annex additional contiguous land to St. Charles.


Pursuant to the settlement agreement
the Company agreed to accelerate the construction of two major roadway links to
the County’s road system. Also, as part of the agreement, the County agreed to
issue general obligation public improvement bonds to finance $20,000,000 of this
construction guaranteed by letters of credit provided by Lennar.  As of
December 31, 2007, the Charles County Commissioners have issued three separate
Consolidated Public Improvement Bonds (the “Bonds”) totaling $20,000,000 on
behalf of the Company.  The Bonds bear an interest rate between 4% and
8% and call for semi-annual interest payments and annual principal payments and
mature in fifteen years. The Bond Repayment agreements with the County stipulate
the borrowing and repayment provisions for the funds advanced.  Total
cost of the construction project is estimated at approximately
$31,138,000.


The complete terms of the
settlement are contained in an Amended Order in Docket 90 before the County
Commissioners of Charles County, a Consent Judgment in the Circuit Court, an
Indenture, and a Settlement Agreement.


In August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is planned to house a minor
league baseball stadium and entertainment complex. Under the terms of the MOU,
the Company donated 42 acres of land in St. Charles to the County on December
31, 2005. The Company also agreed to expedite off-site utilities, storm-water
management and road construction improvements that will serve the entertainment
complex and future portions of St. Charles so that the improvements will be
completed concurrently with the entertainment complex. The County will be
responsible for infrastructure improvements on the site of the complex. In
return, the County will issue the general obligation bonds to finance the
infrastructure improvements. In March 2006 and 2007, $4,000,000 and $3,000,000
of bonds were issued for this project, respectively.   In March
2008, we anticipate the issuance of an additional $3,000,000 will be issued
related to completion of required stadium improvements.  As per the
stipulations provided for in the Bond Repayment agreement with the County, the
funds for this project will be repaid by ACPT over a 15-year period. In
addition, the County agreed to increase the base line assumption from 200 to 300
school allocations per year commencing with the issuance of these bonds and
continuing until such bonds are repaid in full.





Competition


Competition among residential
communities in Charles County is intense. Currently, there are approximately 30
subdivisions competing for new homebuyers within a five-mile radius of St.
Charles. The largest competing housing developments are Charles Crossing, a
451-unit project being developed by a local developer; Charles Retreat,
approximately 400 active adult units being developed by Slenker Land
Corporation; Avalon, a 264-unit project being developed by Centex Homes; and
Autumn Hills, a 390-unit project being developed by Elm Street
Development.  Smaller projects are being developed by more than 20
other developers. The marketplace attracts major national and regional
homebuilders. In this very price sensitive market, ACPT continues to position
St. Charles to provide affordable building lots and homes while offering more
amenities than the competition.  A limited number of school allocation
permits in Charles County has slowed the growth of new residential construction.
We believe the guaranteed school allocations discussed above provide the Company
with a competitive edge.





-12-
 Table of Contents


Environmental
Impact


Management believes that the St.
Charles master plan can be completed without material adverse environmental
impact and in compliance with governmental regulations. In preparation for
immediate and future development, Phase I Environmental Site Assessments have
been prepared for substantially all of the undeveloped parcels. Historically,
the land has been used for farming, sand and gravel mining and forestry and no
significant environmental concerns were found. Jurisdictional determinations for
wetlands have been approved by the Army Corps of Engineers for the Sheffield
Neighborhood as well as parts of the Gleneagles Neighborhood in Fairway Village,
the current phase of residential development.  Management has
developed an Environmental Policy Manual and has established an Environmental
Review Committee and an Environmental Coordination Officer to anticipate
environmental impacts and avoid regulatory violations. However, development can
be delayed while local, state and federal agencies are reviewing plans for
environmentally sensitive areas.


The ongoing process of land development
requires the installation, inspection and maintenance of erosion control
measures to prevent the discharge of silt-laden runoff from areas under
construction.  The capital expenditures for these environmental
control facilities varies with the topography, proximity to environmental
features, soil characteristics, total area denuded and duration of
construction.


In 2007, we spent nearly $80,000 for
these costs.  As land development continues, an annual cost of
approximately $100,000 can be expected.





ECONOMIC
AND DEMOGRAPHIC INFORMATION


Based on
figures prepared by the Charles County Department of Planning and Growth
Management ("DPGM"), the population of Charles County grew to 124,145 in 2000,
up from 101,000 in 1990, and is projected to increase at a rate of 2% per year,
reaching a total of 182,000 by 2020.  Charles County was the ninth
fastest growing county in the state between the 1990 and 2000 census with an
average annual growth rate during that period of 1.77%. The median household
income in Charles County was $80,179 in 2006.  Building permit
activity for new structures decreased 24% to 1,971 permits issued in Charles
County in 2007 compared to 2,602 permits issued in 2006.





PUERTO
RICO SEGMENT:





INVESTMENT
IN RENTAL PROPERTIES





Multifamily Rental
Properties


ACPT,
indirectly through IGP, holds interests in 9 Puerto Rico partnerships, which
collectively own and operate a total of 12 multifamily rental facilities in
Puerto Rico (“Puerto Rico Apartment Properties”). The Puerto Rico Apartment
Properties own a total of 2,653 rental units, all of which receive rent
subsidies from HUD and are financed by non-recourse mortgages.




-13-
 Table of Contents





Number
      of
            
            
            Percentage
            
            
            12/31/2007
            
            
            Occupancy
            
            Expiration
            
            MaximumApartment
            
            
            of
            
            
            Project
      Cost (B)
            
            
            at
            
            Of
      Subsidy
            
            SubsidyP.
      R. APARTMENTS PROPERTIES
            
            Units
            
            
            Portfolio
            
            
            (in
      thousands)
            
            
            12/31/2007
            
            Contract
            
            (in
      thousands)Consolidated
      PartnershipsSan
      Anton
            
            
            184
            
            
            
            7
            %
            
            $
            5,562
            
            
            
            100
            %
            2010
            
            $
            1,316Monserrate
      Associates
            
            
            304
            
            
            
            11
            %
            
            
            12,853
            
            
            
            100
            %
            2009
            
            
            2,568Alturas
      del Senorial
            
            
            124
            
            
            
            5
            %
            
            
            5,126
            
            
            
            99
            %
            2009
            
            
            1,039Jardines
      de Caparra
            
            
            198
            
            
            
            7
            %
            
            
            8,076
            
            
            
            100
            %
            2010
            
            
            1,582Colinas
      de San Juan
            
            
            300
            
            
            
            11
            %
            
            
            12,645
            
            
            
            100
            %
            2011
            
            
            2,048Bayamon
      Garden
            
            
            280
            
            
            
            11
            %
            
            
            14,200
            
            
            
            100
            %
            2011
            
            
            2,022Vistas
      del Turabo
            
            
            96
            
            
            
            4
            %
            
            
            3,560
            
            
            
            100
            %
            2021
            
            
            704Monserrate
      Tower II (A)
            
            
            304
            
            
            
            11
            %
            
            
            13,539
            
            
            
            100
            %
            2020
            
            
            2,478Santa
      Juana (A)
            
            
            198
            
            
            
            7
            %
            
            
            8,128
            
            
            
            100
            %
            2020
            
            
            1,660Torre
      De Las Cumbres (A)
            
            
            155
            
            
            
            6
            %
            
            
            7,102
            
            
            
            99
            %
            2020
            
            
            1,310De
      Diego (A)
            
            
            198
            
            
            
            8
            %
            
            
            8,086
            
            
            
            100
            %
            2020
            
            
            1,618Valle
      del Sol
            
            
            312
            
            
            
            12
            %
            
            
            15,853
            
            
            
            100
            %
            2008
            
            
            2,4632,653
            
            
            
            100
            %
            
            $
            114,730
            
            
            
            
            
            
            
            $
            20,808





(A)
            This
      property is owned by Carolina Associates L.P., a Maryland limited
      partnership in which IGP holds a 50%
interest.


(B)
            Project
      costs represent total capitalized costs for each respective property as
      per Schedule III "Real Estate and Accumulated Depreciation" in Item 8 of
      this 10-K.







-14-
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The table
below sets forth the operating results, mortgage balances and our economic
interest in the Puerto Rico Apartment Properties by location ($ amounts in
thousands, all other figures are actual):





P.R.
      APARTMENT PROPERTIES
            
            Number
      of Apartment Units
            
            
            Operating
      Revenues
            
            
            Operating
      Expenses (a)
            
            
            Non-Recourse
      Mortgage Outstanding
            
            
            Economic
      Interest Upon Liquidation (b)Consolidated
      PartnershipsCarolina,
      Puerto RicoMonserrate
      Associates
            
            
            304
            
            
            $
            2,624
            
            
            $
            1,346
            
            
            $
            7,110
            
            
            
            52.50
            %Monserrate
      Tower II (c)
            
            
            304
            
            
            
            2,597
            
            
            
            1,312
            
            
            
            9,995
            
            
            
            50.00
            %
            (e)San
      Anton
            
            
            184
            
            
            
            1,466
            
            
            
            897
            
            
            
            4,157
            
            
            
            49.50
            %San
      Juan, Puerto RicoAlturas
      Del Senorial
            
            
            124
            
            
            
            1,095
            
            
            
            530
            
            
            
            3,502
            
            
            
            50.00
            %Colinas
      San Juan
            
            
            300
            
            
            
            2,090
            
            
            
            845
            
            
            
            9,499
            
            
            
            50.00
            %De
      Diego (c)
            
            
            198
            
            
            
            1,715
            
            
            
            845
            
            
            
            5,531
            
            
            
            50.00
            %
            (e)Torre
      de Las Cumbres (c)
            
            
            155
            
            
            
            1,381
            
            
            
            661
            
            
            
            5,135
            
            
            
            50.00
            %
            (e)Caguas,
      Puerto RicoSanta
      Juana (c)
            
            
            198
            
            
            
            1,888
            
            
            
            937
            
            
            
            7,130
            
            
            
            50.00
            %
            (e)Vistas
      Del Turabo (f)
            
            
            96
            
            
            
            688
            
            
            
            343
            
            
            
            961
            
            
            
            50.00
            %
            (d)
      (e)Bayamon,
      Puerto RicoBayamon
      Garden (f)
            
            
            280
            
            
            
            2,106
            
            
            
            839
            
            
            
            9,289
            
            
            
            50.00
            %
            (d)
      (e)Jardines
      De Caparra
            
            
            198
            
            
            
            1,694
            
            
            
            847
            
            
            
            6,328
            
            
            
            50.00
            %
            (e)Valle
      Del Sol
            
            
            312
            
            
            
            2,501
            
            
            
            835
            
            
            
            10,578
            
            
            
            50.00
            %
            (d)
      (f)Total
      Consolidated
            
            
            2,653
            
            
            $
            21,845
            
            
            $
            10,237
            
            
            $
            79,215





(a)
            Amounts
      exclude management fees eliminated in
  consolidation.


(b)
            Surplus
      cash from operations and proceeds from sale or liquidation are allocated
      based on the economic interest except those identified by additional
      description


(c)
            Owned
      by Carolina Associates


(d)
            Upon
      liquidation, the limited partners have a priority distribution equal to
      their uncovered capital.  As of December 31, 2007, the
      unrecovered limited partner capital in Bayamon Garden, Valle Del Sol and
      Vistas Del Turabo were $952,000, $779,000, and $618,000
      respectively.


(e)
            In
      addition to normal operating receivables between the Company and the
      Puerto Rico Apartment Properties, the Company has a receivable for
      incentive management fees of $59,000 for Bayamon Gardens, $12,000 for
      Jardines de Caparra, $22,000 for Torre de Las Cumbres, $28,000 for De
      Diego Apartments, $28,000 for Santa Juana Apartments and $42,000 for
      Monserrate Towers II.  The Company also has a receivable for
      working capital loan of $29,000 for Vistas del Turabo.  This
      receivable would receive priority upon liquidation of the interests of
      this partnership.


(f)
            In
      addition to the receivable noted in (c) above, the Company has a note
      receivable from Valle del Sol amounting $928,000.  This
      receivable is the result from unsecured development cost loans made to the
      Partnership to cover acquisition and construction costs of the rental
      property in excess of the permanent financing.  Pursuant to the
      terms of the Partnership agreement, the note is non-interest bearing and
      is payable only by proceeds from mortgage refinancing, partial
      condemnations, sales of easements or similar interests or proceeds from
      sale of the properties, but only after the payment of the debt and
      liabilities due to outsiders and expenses of
  liquidation.


(g)
            Distributions
      from these partnerships are limited to an annual amount of $10,000 and
      $118,000 for Vistas Del Turabo and Bayamon Gardens,
      respectively.




-15-
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Commercial Rental
Properties


In
September 2005, the Company commenced the operations of its first commercial
rental property in the community of Parque Escorial, known as Escorial Building
One, in which it holds a 100% ownership interest.   Escorial
Building One is a three-story building with approximately 56,000 square feet of
office space for lease.  The Company moved its Puerto Rico corporate
office to the new facility in the third quarter of 2005 and, as of December 31,
2007, leases approximately 20% of the building.  As of December 31,
2007, 38% of the office space was leased.  On December 10, 2007, the
Company signed a letter of intent with a new tenant to lease 33% of Escorial
Office Building One.  The lease will commence 10 days following
completion of tenant improvements which is anticipated for the third quarter
2008.  The Company continues to focus on leasing the balance of
available space in Escorial Office Building One.


In December 1998, LDA transferred title
of a seven-acre site in Parque Escorial's office park to ELI on which a 150,000
square foot building was constructed. ELI is a special partnership in which LDA
holds a 45.26% interest in future cash flow generated by the building
lease.  The building is leased to the State Insurance Fund of Puerto
Rico, a government agency, for 30 years, at the end of which the lessee can
acquire it for $1.  For income tax and book purposes, the lease is
considered a finance lease; therefore, the lease payments are treated as
mortgage payments.  A significant portion of the lease payments
consist of interest due from a government agency which, when received by ELI, is
tax-free.  The tax-free status stays intact when ELI distributes its
income to LDA.





Government
Regulation


HUD subsidies are provided principally
under Section 8 of the National Housing Act. Under Section 8, the government
pays to the applicable apartment partnership the difference between market
rental rates (determined in accordance with government procedures) and the rate
the government deems residents can afford.  In compliance with the
requirements of Section 8, IGP screens residents for eligibility under HUD
guidelines. Subsidies are provided under contracts between the federal
government and the owners of the Puerto Rico Apartment Properties.


Subsidy contracts for the Puerto Rico
apartment properties are scheduled to expire between 2008 and 2021. HUD has in
the past approved new subsidy contracts set at five-year terms, renewable
annually.  Please refer to the tables shown above for the expiration
dates and amounts of subsidies for the respective properties. We initiate the
HUD contract renewal process annually. For contracts where we have elected
five-year terms, we are limited to increases based on the OCAF
factor.  At the end of the five-year term, or annually if a five-year
term is not elected, we will have six options for renewing Section 8 contracts
depending upon whether we can meet the eligibility
criteria.  Historically, we have met the criteria necessary to renew
our Section 8 contracts.


Cash flow from projects whose mortgage
loans are insured by the FHA or financed through the housing agency in Puerto
Rico (the "Puerto Rico Financing Agency,") is subject to guidelines and limits
established by the apartment properties' regulatory agreements with HUD and the
Puerto Rico Financing Agency.  Two of the regulatory agreements also
require that if cash from operations exceeds the allowable cash distributions,
the surplus must be deposited into restricted escrow accounts held by the
mortgagee and controlled by HUD or the Puerto Rico Financing Agency. Funds in
these restricted escrow accounts may be used for maintenance and capital
improvements with the approval of HUD and/or the Puerto Rico Finance
Agency.


Our regulatory contracts with HUD
and/or the mortgage lenders generally require that certain escrows be
established as replacement reserves and debt service reserves.  The balance
of the replacement reserves are available to fund capital improvements as
approved by HUD or the mortgage lender.  The balance of the debt service
reserves is restricted for the purposes of making mortgage payments in limited
circumstances.  As of December 31, 2007, a total of $3.4 million was
designated as replacement reserves and $3.3 million as debt service reserves for
the consolidated PR Apartment Partnerships.


Two of our partnerships are limited
distribution partnerships in that annual distributions cannot exceed certain
pre-determined amounts.  For Vistas Del Turabo, distributions are
limited to $10,000 per year.  For Bayamon Gardens, distributions are
limited to $118,000 per year.  Any surplus cash generated by these
properties must be deposited in a residual receipts account, that with HUD
approval, can be used for repairs to the property.


HUD has received congressional
authority to convert expired contracts to resident-based vouchers. This would
allow residents to choose where they wish to live, which may include the
dwelling unit in which they currently reside.  If these vouchers
result in our tenants moving from their existing apartments, this may negatively
impact the income stream of certain properties. However, we intend to continue
to maintain our properties in order to preserve their values and retain
residents to the extent possible.


The
federal government has virtually eliminated subsidy programs for new
construction of low and moderate income housing by profit-motivated developers
such as ACPT. As a result, no new construction of multifamily rental properties
is expected in Puerto Rico.





-16-
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Competition


The Puerto Rico apartment properties
all receive rent subsidies and are therefore not subject to the same market
conditions as properties charging market rate rents.  Average annual
occupancy for the Puerto Rico apartment properties is approximately
99%.





PROPERTY
MANAGEMENT


IGP earns fees from the management of
2,653 rental apartment units in the Puerto Rico Apartment Properties that are
based on a percentage of rents ranging from 2.85% to 9.25%.  The
management contracts for these properties have terms of three years and are
customarily renewed upon expiration.  IGP is also entitled to receive
up to an aggregate of $192,000 annually in certain incentive management fees
with respect to six properties owned by the Puerto Rico apartment
partnerships.  The payment of these fees is subject to availability of
surplus


cash.
Management and other fees earned from properties included within the
consolidated financial statements are eliminated in consolidation.


In addition, IGP currently manages 918
rental apartments owned by a non-profit entity, which acquired the units from
IGP in 1996 under the provisions of the Low Income Housing Preservation and
Resident Home Ownership Act (also known as "LIHPRHA").  The management
agreements for these properties expire March 15, 2010.





COMMUNITY
DEVELOPMENT


The Puerto Rico segment’s community
development assets consist of more than 600 acres of developed and undeveloped
land in the master planned communities of Parque Escorial in Carolina, Puerto
Rico and Parque El Comandante in Canovanas, Puerto Rico. The land in Parque
Escorial is being developed by the Company and its subsidiaries for a variety of
residential uses, including condominiums as well as commercial and industrial
uses.


The master plan for Parque Escorial was
approved in 1994.  It includes the construction of 2,700 dwelling
units of various types on 282 acres and the development of 145 acres for
commercial, office and light industrial uses. The commercial site is anchored by
a Wal-Mart and Sam's Club, each consisting of 125,000 square feet.  In
April 2005, the Company sold 7.2 commercial acres of land to a third party
developer who rezoned the land from commercial to residential use and is
currently constructing condominium units on this parcel.  The rezoning
has no impact on the number of units allowed under the Parque Escorial master
plan.  LDA has developed and sold 255 acres in this community, and
continues to own 120 acres of developed and undeveloped land.  Parque
Escorial is located approximately six miles from the central business district
in San Juan, Puerto Rico.


Site improvements for the first three
residential phases, comprising 2,252 units, are substantially completed and
either sold to third party homebuilders or used by the Company’s homebuilding
operations for the construction of condominiums by the Company.  The
next residential phase, at the Hill Top in Parque Escorial, comprising
approximately of 216 units, is in the beginning stage of infrastructure
development leaving the last phase of 232 units for development in the
future.  There were no commercial land sales in backlog as of December
31, 2007.


ACPT
indirectly holds a 100% interest in LDA, which in 1989 acquired the 427-acre
site of the former El Comandante Race Track in Carolina, PR.  LDA also
owns approximately 490 acres adjacent to the new El Comandante Race Track in
Canovanas, PR.  At present, LDA is in the process of obtaining zoning
approvals to convert the property into a master plan mixed-use community, Parque
El Comandante, as we did in Parque Escorial. As part of the rezoning process in
Parque El Commandante, in December 2007, a government agency requested the
preparation of an Environmental Impact Statement which will be submitted during
the first quarter of 2008.





-17-
 Table of Contents


The
following table is a summary of the land inventory available in Puerto Rico as
of December 31, 2007:





Current
      Zoning
            Lot
      Type
            Estimated
      Number of Units/Parcels
            Approximate
      Acreage
            Entitlements
            Expected
      Date of Sale
            Estimated
      Asking Sales PricePARQUE
      ESCORIALOffice
      Park:Lot
      IV-3b
            Office
            Office
            1
            2.7
            A
            To
      be held
            N/AResidential:Hilltop
      Phase I - 216 units
            Residential
            Residential
            216
            21.19
            B
            TBD
            N/AHilltop
      Phase II - 232 units
            Residential
            Residential
            232
            95.81
            B
            TBD
            N/APARQUE
      EL COMANDANTEMixed-use
      Lots:Phase
      I - Quarry Site
            Residential
            Mixed-use
      commercial
            TBD
            50.79
            C
            2008
      – 2009
            $25
      millionPhase
      II - Route 66 North
            Agricultural
            Mixed-use
            TBD
            165.83
            C
            TBD
            TBDResidential
      Lots:Phase
      I - Quarry Site
            Commercial
            Residential
            TBD
            26.11
            C
            TBD
            TBDPhase
      III - Route 66 South
            Agricultural
            Residential
            TBD
            209.14
            C
            TBD
            TBDPhase
      IV - Out-Parcel
            Agricultural
            Residential
            TBD
            38.85
            C
            2008
      - 2009
            $3.0
      - 4.0 million(A)
      Sites are fully developed and ready for sale(B)
      Completed master plan approval including all entitlements and received
      preliminary site plan approval for development(C)
      Proposed master plan





Government
Approvals


Parque Escorial's master plan has been
approved but specific site plans are subject to the planning board review and
approval.  Recently, the Company obtained approval from the natural
resources department of Puerto Rico for the infrastructure development of 216
Hill Top residential units.


Parque El Comandante is in the planning
stage and will require significant government approvals throughout the
development process.  The master plan approval process is generally an
18 to 24 month process and the Company is approximately halfway through this
process.  However, there can be no assurance that approvals for such
development will be obtained, or if obtained, that the Company will be able to
successfully develop such land.





Competition


The Company believes that the scarcity
of developable land in the San Juan metropolitan area creates a favorable market
for condominium unit sales at Parque Escorial. Competition for condominium unit
sales is expected primarily from condominium projects in areas that the Company
believes to be similar or less desirable than Parque Escorial.  Nearby
projects provide for larger units, which are more costly than our
units.  There are no projects in Parque Escorial offering units that
are the same size, quality and in the same price range as our
units.  In addition, no other community developers are currently
developing projects similar to Parque Escorial in the area.




-18-
 Table of Contents


Environmental
Impact
 Management
of ACPT believes that the Parque Escorial master plan can be completed without
material adverse environmental impact and in compliance with government
regulations.  All of the necessary agencies have endorsed Parque
Escorial's environmental impact statement.  Wal-Mart has provided
mitigation for 12 acres of wetlands impacted by its development of the shopping
center site and other land.  An erosion and sedimentation control plan
must be obtained prior to construction.  This plan specifies the
measures to be taken to prevent the discharge of silt-laden runoff from areas
under construction. In 2007, we did not incur any of these
costs.  Once we begin development of the next phase, we expect to
incur an estimated $10,000 per year during the development period.  We
are in the planning stage of Parque El Comandante and will not have estimates
for such costs until we are further in the design stage.





HOMEBUILDING


During the first quarter of 2004, IGP
formed a wholly owned subsidiary, Torres del Escorial, a Puerto Rico
corporation, to construct and sell a 160-unit residential project within the
Parque Escorial master plan community.  The project consists of four
towers with 40 units in each tower.  The construction of the
four-tower condominium complex was completed in December 2006.  As of
December 31, 2007, 139 units were delivered.  The rest of the project
remains for sale in 2008.  There was 1 unit under contract as of
December 31, 2007.  This option is backed by a $6,000 deposit and
sales contract.  In 2007, the Puerto Rico real estate market suffered
its worst year in the last three decades; however, we continued to sell units in
Torres del Escorial at favorable prices, but at a slower than anticipated
pace.





Competition


The
Company believes that competition related to homebuilding is similar to
competition related to community development.  Refer to previous
discussion for details.





ECONOMIC
AND DEMOGRAPHIC INFORMATION


Puerto
Rico has a population of approximately 3.9 million, and the Puerto Rico Planning
Board projects the population will continue to grow. Construction in the
residential sector has shifted from single-family homes to multi-family
dwellings such as walk-up condominiums. As of the date of filing this report, we
were informed that the 2007 Economic Report to the Governor was not
available.  As presented in the 2006 Economic Report to the Governor,
for the fiscal year ended June 30, 2006, per capita personal income was $12,997
with an average family income of $41,592. The economy of Puerto Rico registered
growth in constant dollars of 0.7% in 2006.





-19-
 Table of Contents


GENERAL





Employees


ACPT had 252 full-time employees as of
December 31, 2007, 114 in the United States and 138 in Puerto
Rico.  In Puerto Rico, 34 employees, or 13% of the Company’s total
workforce, were subject to a Collective Bargaining Agreement which expired in
February 2007, and was currently under negotiations as of December 31, 2007.
Employees performing non-supervisory services through the Company's property
management operations receive salaries funded by the properties.





Available
Information


ACPT files annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). These filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document the Company files at the SEC's public reference room located
at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room.


Our
principal Internet address is www.acptrust.com. We make available, free of
charge, on or through www.acptrust.com our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and any
amendments to those reports, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.  Copies of the Company's Annual Report or Code of Ethics for
Senior Financial Officers can be requested at no cost by writing to the
following address or telephoning us at the following telephone
number:





American
Community Properties Trust


222
Smallwood Village Center


St.
Charles, MD  20602


Attention:  Director
of Investor Relations


(301)
843-8600








-20-
 Table of Contents





ITEM 1A.
            RISK
      FACTORS


You
should carefully consider the risks described below. These risks are not the
only ones that we may face. Additional risks and uncertainties that we are
unaware of, or that we currently deem immaterial, also may become important
factors that affect us. If any of the following risks occurs, our business,
financial condition or results of operations could be materially and adversely
affected.





National,
regional and local economic and business conditions:


Risk
of reduced demand for residential lots, commercial parcels and multifamily
housing


The real estate industry is sensitive
to changes in economic conditions such as the level of employment, consumer
confidence, availability of financing and interest rate levels as well as other
market conditions such as oversupply or reduction in demand for commercial,
industrial or multifamily rental properties.  In addition, regulatory
changes could possibly alter, among other things, the tax deductibility of
interest paid on home loans.  Adverse changes in any of these
conditions generally, or in the market regions where we operate, could decrease
demand for our residential lots, commercial parcels and homes, which could
adversely affect our revenues and earnings.





Risk
that the real estate market would be unable to recover timely from an economic
downturn in the general economy


·  The real
estate business is a cyclical business.  Currently, weak economic
conditions in the United States and Puerto Rico have substantially slowed home
sales and reduced home sale prices.  Continued significant declines in
the prices for real estate could adversely affect our home and land sales
revenues and margins.  In addition, adverse changes to key economic
indicators such as unemployment rates and inflation could further reduce the
willingness or ability of individuals to purchase new homes which could
adversely affect our operations.





Lack
of availability and creditworthiness of tenants


·  We are
exposed to customer risk. Our performance depends on our ability to collect rent
from our customers. General economic conditions and an increase in unemployment
rates could cause the financial condition of a large number of our tenants to
deteriorate. While no tenant in our wholly owned portfolio accounted for a
significant amount of the annualized rental revenue of these respective
properties at December 31, 2007, our financial position may be adversely
affected by financial difficulties experienced by our tenants, including
bankruptcies, insolvencies or general downturns in business.





The
risk of loss of available financing for both our customers and us


·  Our
business and earnings are also substantially dependent on the ability of our
customers to finance the purchase of our land or homes.  The current
credit crisis in the subprime mortgage markets has increased lender scrutiny and
made it difficult for some potential homebuyers to obtain
financing.  Continued or increasing limitations on the availability of
financing or increases in the cost of such financing could adversely affect our
operations.  Our business and earnings is also substantially dependent
on our ability to obtain financing for our development activities as well as
refinancing our properties' mortgages.  Increases in interest rates,
concerns about the market or the economy, or consolidation or dissolution of
financial institutions could increase our cost of borrowing, reduce our ability
to obtain the funds required for our future operations, and limit our ability to
refinance existing debt when it matures.  Changes in competition,
availability of financing, customer trends and market conditions may impact our
ability to obtain loans to finance the development of our future
communities.





Adverse
changes in the real estate markets, including, among other things:


Competition
with other companies


·  We
operate in a very competitive environment, which is characterized by competition
from a number of other land developers.  Actions or changes in plans
by competitors may negatively affect us.





Reduction
in demand for new construction homes


·  The price
received for residential lots in St. Charles and home sales in Puerto Rico are
impacted by changes in the demand for new construction
homes.  Continued softening of the demand for new homes in these areas
will likely result in reductions in selling prices which would negatively impact
our revenues and gross margins.





-21-
 Table of Contents


Risks
of real estate acquisition and development (including our ability to obtain
governmental approvals for development projects and to complete our current
development projects on time and within budget)


·  Our plans
for the future development of our residential communities can be affected by a
number of factors including time delays in obtaining necessary government
permits and approvals and legal challenges to our planned
communities.


·  The
agreements we execute to acquire properties generally are subject to customary
conditions to closing, including completion of due diligence investigations
which may be unacceptable; acquired properties may fail to perform as we
expected in analyzing our investments; our estimates of the costs or
repositioning or redeveloping acquired properties may be inaccurate; the
development opportunity may be abandoned after expending significant resources.
In connection with our development occupancy rates and rents at the newly
completed property may not meet the expected levels and could be insufficient to
make the property profitable.


·  The
development of our residential communities may be affected by circumstances
beyond our control, including weather conditions, work stoppages, labor
disputes, unforeseen engineering, environmental or geological problems and
unanticipated shortages of or increases in the cost of materials and labor. Any
of these circumstances could give rise to delays in the completion of, or
increase the cost of, developing one or more of our residential
communities.


·  The bulk
of our operations are concentrated in Maryland and Puerto Rico, making us
particularly vulnerable to changes in local economic conditions.  In
addition, if weather conditions, or a natural disaster such as a hurricane or
tornado, were to impact those regions, our results of operations could be
adversely impacted.  Although insurance could mitigate some amount of
losses from a catastrophe in those regions, it might not fully compensate us for
our opportunity costs or our projected results of future operations in those
regions, the market acceptance of which might be different after a
catastrophe.





Risk
of adverse changes in our relationship with significant customers, specifically
Lennar Corporation:


Revenues
from Lennar include residential land sales as well as certain management
fees.  Total revenues from Lennar within our U.S. segment were
$9,663,000 for the year ended December 31, 2007 which represents 18% of the U.S.
segment's revenue and 11% of our total year-to-date consolidated
revenue.  No other customers accounted for more than 10% of our
consolidated revenue for the year ended December 31, 2007.  Loss of
all or a substantial portion of our land sales, as well as the joint venture's
land sales, to Lennar would have a significant adverse effect on our financial
results until such lost sales could be replaced.  We cannot assure you
that any lost sales could be replaced on comparable terms, or at
all.


Although
Lennar is contractually obligated to take 200 lots per year, the market is not
currently sufficient to absorb this sales pace.  Accordingly, Lennar’s
management requested and the Company granted a reduction of the 200 lot
requirement for 2007.   Management agreed to accept a total of 78
lots as satisfaction of their lot takedown requirement for 2007.  In
addition, the Company agreed to a temporary price reduction to 22.5% of the
selling price of the home for 100 lots, 49 of which Lennar agreed purchase prior
to June 1, 2008. Should  Lennar not comply with their obligations
pursuant our amended contract or  there be a reduced demand for our
commercial property our cash flow would be adversely impacted.


Risk
that we would be unable to renew HUD subsidy contracts and the absence of
federal funds on a timely basis to service these contracts


As of
December 31, 2007, we owned an equity interest in and managed for third parties
multifamily rental properties that benefit from governmental programs intended
to provide housing to people with low or moderate incomes. These programs, which
are usually administered by HUD or state housing finance agencies, typically
provide mortgage insurance, favorable financing terms or rental assistance
payments to the property owners.  Historically, there have been delays
in the receipt of subsidy payments which generally occur upon contract renewal
and HUD’s annual budget renewal process.  For those partnerships in
which we serve as General Partner, we may be required to fund operating cash
deficits when these delays occur.  General Partner advances or loans
to the partnerships may then become subject to the repayment provisions required
by the respective partnership agreements which may impede the timing of
repayment.  Furthermore, as a condition of the receipt of assistance
under these programs, the properties must comply with various requirements,
which typically limit rents to pre-approved amounts. If permitted rents on a
property are insufficient to cover costs, our cash flow from these properties
will be negatively impacted, and our management fees may be reduced or
eliminated.





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Risk
that we would be unable to obtain insurance at a reasonable cost


We may
experience economic harm if any damage to our properties is not covered by
insurance.  We carry insurance coverage on our properties of the type
and in amounts that we believe is in line with coverage customarily obtained by
owners of similar properties.  We believe all of our properties are
adequately insured.  However, we cannot guarantee that the limits of
our current policies will be sufficient in the event of a catastrophe to our
properties.  We may suffer losses that are not covered under our
comprehensive liability, fire, extended coverage and rental loss insurance
policies.  If an uninsured loss or a loss in excess of insured limits
should occur, we could lose capital invested in a property, as well as any
future revenue from the property.  We would nevertheless remain
obligated on any mortgage indebtedness or other obligations related to the
property.





Risk
of significant environmental and safety requirements could reduce our
profitability


Our
properties may contain or develop harmful mold, which could lead to liability
for adverse health effects and costs of remediating the problem.  When
excessive moisture accumulates in buildings or on building materials, mold
growth may occur, particularly if the moisture problem remains undiscovered or
is not addressed over a period of time.  Some molds may produce
airborne toxins or irritants.  Concern about indoor exposure to mold
has been increasing as exposure to mold may cause a variety of adverse health
effects and symptoms, including allergic or other reactions.  As a
result, the presence of significant mold at any of our properties could require
us to undertake a costly remediation program to contain or remove the mold from
the affected property.  In a similar manner, the existence of a
significant amount of lead based paint at our properties could result in costly
remediation efforts.  In addition, the presence of significant mold or
lead based paint could expose us to liability from our tenants, employees of our
tenants and others if property damage or health concerns arise.  In
addition, we are required to operate our properties in compliance with fire and
safety regulations, building codes and other land use regulations, as they may
be adopted by governmental agencies and bodies and become applicable to our
properties.  We may be required to make substantial capital
expenditures to comply with those requirements and these expenditures could have
a material adverse effect on our operating results and financial condition, as
well as our ability to make distributions to shareholders.





Risk
of loss of senior management and key employees


We could
be hurt by the loss of key management personnel.  Our future success
depends, to a significant degree, on the efforts of our senior
management.  Our operations could be adversely affected if key members
of senior management cease to be active in our company.





If
the company were to be taxed as a corporation rather than a partnership, this
would have adverse tax consequences for the company with respect to the income
earned from our Puerto Rico operations.


The
Internal Revenue Code provides that publicly traded partnerships like ACPT will,
as a general rule, be taxed as corporations for U.S. federal income tax
purposes, subject to certain exceptions.  We have relied in the past,
and expect to continue to rely on an exception to this general rule for publicly
traded partnerships that earn 90% or more of their gross income for every
taxable year from specified types of “qualifying income,” including dividends.
If we fail to meet this “qualifying income” exception or otherwise determine to
be treated as a corporation for federal income tax purposes, the income we earn
from our Puerto Rico operations would be subject to increased
taxes.


We do not
believe that there would be an increase in the U.S. income taxes that would be
imposed on our U.S. operations if ACPT were not to qualify as a partnership for
U.S. income tax purposes.  However, our classification as a
partnership does permit us to reduce the overall taxes that the Company pays on
the operations of our Puerto Rico subsidiary (because, in ACPT’s current
partnership tax structure, ACPT is taxed in Puerto Rico, but not in the United
States, on those operations).  If we were not to qualify as a
partnership for U.S. tax purposes, the net result would be anincremental increase in
ACPT’s total tax expense on income for operations in Puerto Rico, although it is
not practicable to quantify that potential impact.





The
tax liabilities of our shareholders may exceed the amount of the cash
distributions we make to them.


A
shareholder generally will be subject to U.S. federal income tax on his or her
allocable share of our taxable income, whether or not we distribute that income
to them.  We intend to make elections and take other actions so that,
to the extent possible, our taxable income will be allocated to individual
shareholders in accordance with the cash received by them.  In
addition, we are generally required by our Declaration of Trust to make minimum
aggregate distributions, in cash or property, each year to our shareholders
equal to 45% of our net taxable income, reduced by the amount of Puerto Rico
taxes we pay.




-23-
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If our
income consists largely of cash distributions from our subsidiaries, as
expected, it is likely that we will have sufficient cash to distribute to
shareholders.  There can be no assurance, however, that our income
allocations to the individual shareholders will be respected or that we will be
able to make distributions in any given year that provide each individual
shareholder with sufficient cash to meet his or her federal and state income tax
liabilities with respect to his or her share of our income.  However,
there is pending legislation which may affect the ability to claim foreign tax
credits under Section 901 of the Code.  On November 19, 2007, Notice
2007-95 provided a delay of the effective date of proposed amendments to the
foreign tax credit regulations.  The regulations, with or without
changes, will be effective for tax years beginning after the final regulations
are published in the Federal Register.





A
portion of the proceeds from the sale of our shares may be taxed as ordinary
income.


A
shareholder will generally recognize gain or loss on the sales of our shares
equal to the difference between the amount realized and the shareholder’s tax
basis in the shares sold.  Except as noted below, the gain or loss
recognized by a shareholder, other than a “dealer” in our shares, on the sale or
exchange of shares held for more than one year will generally be taxable as
capital gain or loss.  Capital gain recognized by an individual on the
sale of shares held more than 12 months will generally be taxed at a maximum
rate of 15%.


A portion
of this gain or loss, however, may be taxable as ordinary income under Section
751 of the Code to the extent attributable to so-called “unrealized
receivables,” which term, for this purpose, includes stock in our Puerto Rico
subsidiary to the extent that gain from our sale of that stock would be taxable
to our shareholders as a dividend under Section 1248 of the Code.  The
amount of ordinary income attributable to “unrealized receivables” related to
stock in our Puerto Rico subsidiary will be determined based on the amount of
earnings and profits accumulated by our Puerto Rico subsidiary.  We
will provide to each selling shareholder, at the time we send the K-1 materials,
a table showing the earnings and profits accumulated by our Puerto Rico
subsidiary by year and the average number of our shares outstanding during the
year, so that the shareholder may make a determination of the amount of earnings
and profits allocable to him or her and the amount of ordinary income to be
recognized on the sale.  Although there is no definitive authority on
the question, we believe that it is reasonable to base the allocation on the
earnings and profits accumulated during the period that the shareholder held the
shares that are sold and the percentage of our average number of shares
outstanding that those shares represented.


The
amount of unrealized receivables may exceed the net taxable capital gain that a
shareholder would otherwise realize on the sale of our shares, and may be
recognized even if the shareholder would realize a net taxable capital loss on
the sale.  Thus, a shareholder may recognize both ordinary income and
capital loss upon a sale of our shares.  Accordingly, a shareholder
considering the sale of our shares is urged to consult a tax advisor concerning
the portion of the proceeds that may be treated as ordinary
income.  In addition, the shareholder is required to report to us any
sale of his or her shares, unless the broker effecting the transaction files a
Form 1009-B with respect to the sale transaction.





Investors
should be aware that tax rules relating to the tax basis and holding period of
interests in a partnership differ from those rules affecting corporate stock
generally, and these special rules may impact purchases and sales of our shares
in separate transactions.


The IRS
has ruled that an investor who acquires interests in an entity taxed as a
partnership, like ACPT, in separate transactions must combine those interests
and maintain a single adjusted tax basis for those interests.  Upon a
sale or other disposition of less than all of the shares held by a shareholder,
a portion of the shareholder’s tax basis in all of his or her shares must be
allocated to the shares sold using an “equitable apportionment” method, which
generally means that the tax basis allocated to the shares sold bears the same
relation to the shareholder’s tax basis in all of the shares held as the value
of the shares sold bears to the value of all of the Shares held by the
shareholder immediately prior to the sale.  Furthermore, Treasury
Regulations under Section 1223 of the Code generally provide that if a
shareholder has acquired shares at different times, the holding period of the
transferred shares shall be divided between long-term and short-term capital
gain or loss in the same proportions as the long-term and short-term capital
gain or loss that the shareholder would realize if the all of the shareholder’s
shares were transferred in a fully taxable transaction immediately before the
actual transfer.  The Regulations provide, however, a special rule
that allows a selling shareholder who can identify shares transferred with an
ascertainable holding period to elect to use the actual holding period of the
shares transferred.




-24-
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Thus,
according to the ruling discussed above, a shareholder will be unable to select
high or low basis shares to sell as would be the case with shares of entities
treated as corporations for federal income tax purposes, but, according to the
regulations, may designate specific shares for purposes of determining the
holding period of the shares transferred.  A shareholder electing to
use the actual holding period of shares transferred must consistently use that
identification method for all subsequent sales or exchanges of
shares.  A shareholder considering the purchase of additional shares
or a sale of shares purchased in separate transactions is urged to consult his
or her tax advisor as to the possible consequences of the ruling and the
application of these Treasury Regulations.





ITEM 1B.
            UNRESOLVED
      STAFF COMMENTS


None





ITEM 2.
            PROPERTIES





ACPT owns real property located in the
United States and Puerto Rico.  As of December 31, 2007, the Company
held investments in multifamily and commercial real estate properties, apartment
properties under construction, community development land holdings, and
homebuilding units.  Refer to the tables in Item 1 for additional
information required under this Item 2.





ITEM 3.
            LEGAL
      PROCEEDINGS





Below is a description of all material
litigation that ACPT or any of its subsidiaries are a party to.





Comité Loiza Valley en
Acción, Inc. vs. Cantera Hipódromo, Inc., Carlos Ortiz Brunet, his wife Frances
Vidal; Land Development Associates, S.E.; Integrand Assurance Company; American
International Insurance Company; Et als, No. FPE97-0759(406), Superior
Court of Carolina, Puerto Rico.  On November 24, 1997, Comité Loiza
Valley en Acción, Inc., resident owners of Urbanización Loiza Valley in
Canovanas, Puerto Rico, a neighborhood consisting of 56 houses near the property
owned by LDA, filed a claim in the Superior Court of Carolina, Puerto Rico
against Cantera Hipodromo, Inc. (the “lessee” who operates a quarry on the land
owned by LDA), the owners of the lessee, the lessee’s Insurance Companies and
LDA.  The Plaintiffs allege that as a result of certain explosions
occurring in the quarry, their houses have suffered different types of damages
and they have also suffered physical injuries and mental anguish.  The
damages claimed exceed $11,000,000.  The physical damage to the
property is estimated at less than $1,000,000.  The lease agreement
contains an indemnification clause in favor of LDA.  The lessee has
public liability insurance coverage of $1,000,000 through Integrand Assurance
Company and an umbrella insurance coverage of $2,000,000 through American
International Insurance Company.  Integrand’s legal counsel has
provided the legal defense for all parties to date but in September 2003
declared that the allegations in the complaint regarding public nuisance do not
fall under their policy.  In November 2003, the lessee’s legal counsel
filed a motion in opposition to such allegation.  On January 28, 2005,
the appellate court in Puerto Rico confirmed that the trial court and Integrand
is forced to provide coverage and pay attorneys’ fees to LDA and to Cantera
Hipodromo.  On February 11, 2005, Integrand filed a reconsideration
motion in the appellate court and on February 28, 2005 the same court dismissed
the motion presented by Integrand. On March 17, 2005, Integrand filed a request
of certiorari in the Supreme Court of Puerto Rico and on March 23, 2005, an
opposition to the expedition of the certiorari was filed.  On June 6,
2005, the Supreme Court denied said request.  Hence, LDA is an added
insured on the damage claims in the complaint.  The trial began in
2007 and is expected to continue during the first six months of
2008.





Jalexis, Inc. vs. LDA,
Interstate, IGP, Constructora Santiago Corp; Et als,Civil no FDP060534
(404).


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 settlement agreement,
LDA did not make any representations or warranties with regard to the soil and
subsoil conditions and stipulated Lot I-13W was sold to Jalexis “as is” and
“where is”.  The Company believes that it has a strong defense in this
case.  Depositions for all parties started in November 2007 and are
expected to continue into the first six months of 2008.





-25-
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Due to
the inherent uncertainties of the judicial process, we are unable to either
predict the outcome of or estimate a range of potential loss associated with
this matter. While we intend to vigorously defend this matter and believe we
have meritorious defenses available to us, there can be no assurance that we
would prevail. If this matter is not resolved in our favor, we are insured for
potential losses.  Any amounts that exceed our insurance coverage
could have a material adverse effect on our financial condition and results of
operations.


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 these 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 these ordinary
course 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.





There are
no other proceedings required to be disclosed pursuant to Item 103 of Regulation
S-K.





ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS


No matters were submitted to a vote of
the shareholders during the fourth quarter of the fiscal year ended December 31,
2007.





ITEM 4A.
            EXECUTIVE
      OFFICERS OF THE REGISTRANT


The executive officers of the Company
as of December 31, 2007 are as follows:


Name
            Age
            PositionJ.
      Michael Wilson
            42
            Chairman
      and Chief Executive OfficerEdwin
      L. Kelly
            66
            Vice
      Chairman, President and Chief Operating OfficerCarlos
      R. Rodriguez
            62
            Executive
      Vice PresidentCynthia
      L. Hedrick
            55
            Chief
      Financial Officer, Executive Vice President, Secretary and
      TreasurerPaul
      A. Resnik
            60
            Senior
      Vice President and Assistant SecretaryEduardo
      Cruz Ocasio
            61
            Senior
      Vice President and Assistant SecretaryMatthew
      M. Martin
            32
            Vice
      President and Chief Accounting OfficerJorge
      Garcia Massuet
            69
            Vice
      PresidentHarry
      Chalstrom
            47
            Vice
      PresidentMark
      L. MacFarland
            38
            Vice
      PresidentRafael
      Velez
            51
            Vice
      President





Messrs. Wilson and Kelly are also
members of our Board of Trustees.  Brief biographies of Messrs. Wilson
and Kelly are incorporated by reference to the Company’s Proxy Statement to be
filed with the Commission for its Annual Shareholder’s Meeting to be held in
June 2008.  Biographical information for our other executive officers
is as follows:





Carlos R. Rodriguez was appointed
Executive Vice President of the Company in January 2002 after serving as Senior
Vice President since June 1999.  Prior to that date, he served in
various capacities with the predecessor company and its affiliates.





Cynthia L. Hedrick was appointed
Executive Vice President in January 2006 after serving as Senior Vice President
since June 2002.  She continues to serve the Company as the Chief
Financial Officer and Secretary/Treasurer, a position that she has held since
June 2002.  Ms. Hedrick served as Vice President of the Company from
November 1998 to June 2002 and prior to that date she served as Vice President
of the predecessor company.





-26-
 Table of Contents


Paul A. Resnik was appointed Senior
Vice President of the Company in July 1998.  He served as Senior Vice
President of the predecessor company from 1993-1998.





Eduardo Cruz Ocasio was appointed
Senior Vice President of the Company in June 2002 after serving as Vice
President and Assistant Secretary of the Company since July
1998.  Prior to that date, he served in various capacities with the
predecessor company.





Matthew
M. Martin was appointed Vice President and Chief Accounting Officer in August of
2005.  Prior to joining the Company, he worked for FTI Consulting
serving as a Manager in the Forensic and Litigation Consulting practice from
2002 to 2005.  Prior to joining FTI Consulting, he managed audits for
Arthur Andersen.





Jorge Garcia Massuet was appointed Vice
President of the Company in June 2002.  He has been Vice President of
IGP since January 1999.  He served as Vice President and General
Manager of Fountainebleu Plaza, S.E., a real estate development firm, from
January 1994 to December 1998.





Harry Chalstrom was appointed Vice
President of the Company in January 2004 after serving as Director of Rental
Housing of the Company since November 2002.  Prior to that date, he
worked for Bozzuto Construction Company from 1997 to 2002.  During his
tenure at Bozzuto, he served as a Project Manager for apartment construction
projects.





Mark L. MacFarland was appointed Vice
President of the Company in January 2006 after serving as the Executive Director
of Land Development for the Company since June 2003.  From June 2002 to
June 2003, he worked as a consultant for the Charles County Government working
on numerous capital improvement projects.  Before serving as a consultant,
he worked as an engineer and developer in the power generation
industry.





Rafael Vélez was appointed Vice
President of the Company in January 2006.  Mr. Vélez has been with the
Company since September of 2001 when he was hired as the Chief Accounting
Officer of IGP LP, a wholly owned subsidiary of the Company.  In June
2002, Mr. Vélez was appointed as Vice President of IGP Group and in June 2003
was appointed and currently remains as Vice President, Secretary and
Treasurer.  In June 2004, Mr. Vélez was appointed and currently
remains as Senior Vice President, Chief Financial Officer, Secretary and
Treasurer of IGP LP.  He has more than 30 years experience in public
and private accounting in the Real Estate, Development, Construction and
Property Management Industries.





-27-
 Table of Contents


PART II





ITEM 5.
            MARKET
      FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





The
principal market for our Company’s common shares is the American Stock Exchange
under the symbol "APO. As of the close of business on March 3, 2008, there were
129 shareholders of record of ACPT’s common shares. On March 3, 2008 the closing
price reported by the American Stock Exchange was $19.00.





The table
below sets forth, for the periods indicated, the high and low closing prices of
the Company’s shares as reported in the consolidated reporting system of the
American Stock Exchange Composite, and the dividends declared per common share
for such calendar quarter.





Price
      Range of ACPT Shares
            
            
            DividendsHigh
            
            
            Low
            
            
            Declared2007QuarterFourth
            
            $
            25.75
            
            
            $
            17.50
            
            
            $
            -Third
            
            
            27.59
            
            
            
            19.22
            
            
            
            0.10Second
            
            
            20.33
            
            
            
            18.58
            
            
            
            0.10First
            
            
            19.47
            
            
            
            17.64
            
            
            
            0.102006QuarterFourth
            
            $
            20.24
            
            
            $
            17.49
            
            
            $
            0.10Third
            
            
            20.20
            
            
            
            19.40
            
            
            
            0.10Second
            
            
            22.25
            
            
            
            19.75
            
            
            
            0.10First
            
            
            23.25
            
            
            
            19.48
            
            
            
            0.53





Minimum
annual distributions


Under the
terms of the Declaration of Trust of ACPT, the Board of Trustees will make
minimum annual distributions to the shareholders equal to at least 45% of the
net taxable income allocated to the shareholders, reduced by any Puerto Rico
income tax paid by ACPT and any U.S. federal income taxes paid by ARPT with
respect to undistributed capital gains.





Non-required
dividend distributions to shareholders


Dividend
distributions in addition to the required minimum distribution (as stated above)
will be evaluated quarterly and made at the discretion of the Board of
Trustees.  In making such determinations, the Board of Trustees will
take into account various factors, including ACPT's anticipated needs for cash
for future expansion and development, current and anticipated expenses,
obligations and contingencies, and other similar working capital
requirements.





Dividend
Distribution related to our IRS matter


As
announced on March 10, 2006 the Company entered into a closing agreement with
the United States Internal Revenue Service (“IRS”) by which the Company was able
to maintain its publicly traded partnership (“PTP”) status for U.S. federal
income tax purposes.  The details of the closing agreement with the IRS
required that the Company report approximately $5.0 million to shareholders as
taxable income on March 29, 2006.  Under the terms of the Company’s
governing documents, it was required to make minimum annual distributions to the
shareholders equal to at least 45% of net taxable income allocated to
shareholders.  Accordingly, the Board of Trustees declared a dividend of
$0.43 per share, $2,230,000 in the aggregate. The dividend was paid on April 12,
2006 to shareholders of record on March 29, 2006.


-28-
 Table of Contents


The
following graph compares the cumulative 5-year total return to shareholders on
American Community Properties Trust's common stock relative to the cumulative
total returns of the S & P 500 index and the NAREIT Equity index. The graph
assumes that the value of the investment in the company's common stock and in
each of the indexes (including reinvestment of dividends) was $100 on December
31, 2002 and tracks it through December 31, 2007.












12/02
            12/03
            12/04
            12/05
            12/06
            12/07American
      Community Properties Trust
            
            100.00
            149.00
            228.46
            374.83
            387.95
            395.82S&P
      500
            
            100.00
            128.68
            142.69
            149.70
            173.34
            182.87NAREIT
      Equity
            
            100.00
            137.13
            180.44
            202.38
            273.34
            230.45





The
stock price performance included in this graph is not necessarily indicative of
future stock price performance.




-29-
 Table of Contents





ITEM 6.
            SELECTED
      FINANCIAL DATA




The
following table sets forth selected consolidated financial and operating data of
the Company for the five years ended December 31, 2007. The information in the
following table should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 8. Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K.




Year
      Ended December 31,2007
            *
            
            2006
            **
            
            2005
            
            
            2004
            
            
            2003(In
      thousands, except per share and operating data)Income
      Statement Data:Total
      operating revenues
            
            $
            85,376
            
            
            $
            98,163
            
            
            $
            62,313
            
            
            $
            49,011
            
            
            $
            55,506Total
      operating expenses
            
            
            69,294
            
            
            
            73,168
            
            
            
            51,207
            
            
            
            40,932
            
            
            
            47,720Operating
      income
            
            
            16,082
            
            
            
            24,995
            
            
            
            11,106
            
            
            
            8,079
            
            
            
            7,786Income
      (loss) before provision (benefit) for income taxes
            
            
            (848
            )
            
            
            7,485
            
            
            
            6,855
            
            
            
            4,331
            
            
            
            3,901Income
      tax provision (benefit)
            
            
            (307
            )
            
            
            2,894
            
            
            
            (690
            )
            
            
            1,500
            
            
            
            1,596Net
      income (loss)
            
            
            (541
            )
            
            
            4,591
            
            
            
            7,545
            
            
            
            2,831
            
            
            
            2,305Earnings
      per shareBasic
            
            $
            (0.10
            )
            
            $
            0.88
            
            
            $
            1.45
            
            
            $
            0.55
            
            
            $
            0.44Diluted
            
            $
            (0.10
            )
            
            $
            0.88
            
            
            $
            1.45
            
            
            $
            0.55
            
            
            $
            0.44Balance
      Sheet Data:Total
      assets
            
            $
            360,724
            
            
            $
            346,699
            
            
            $
            217,085
            
            
            $
            184,027
            
            
            $
            142,497Recourse
      debt
            
            
            25,589
            
            
            
            29,351
            
            
            
            32,818
            
            
            
            27,192
            
            
            
            24,634Non-recourse
      debt
            
            
            279,981
            
            
            
            270,720
            
            
            
            119,865
            
            
            
            98,879
            
            
            
            70,979Other
      liabilities
            
            
            42,708
            
            
            
            30,774
            
            
            
            29,912
            
            
            
            29,065
            
            
            
            19,031Total
      liabilities
            
            
            348,278
            
            
            
            330,845
            
            
            
            182,595
            
            
            
            155,136
            
            
            
            114,644Shareholders'
      equity
            
            
            12,446
            
            
            
            15,854
            
            
            
            34,490
            
            
            
            28,891
            
            
            
            27,853Cash
      dividends declared and paid per common share
            
            $
            0.30
            
            
            $
            0.83
            
            
            $
            0.40
            
            
            $
            0.35
            
            
            $
            -Operating
      Data:Rental
      apartment units managed at end of period
            
            
            7,225
            
            
            
            7,693
            
            
            
            7,491
            
            
            
            7,406
            
            
            
            7,747Residential
      lots sold
            
            
            78
            
            
            
            135
            
            
            
            94
            
            
            
            70
            
            
            
            88Residential
      lots transferred to homebuilding
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            160
            
            
            
            -Residential
      lots transferred to joint venture
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            352
            
            
            
            -Joint
      venture lots delivered
            
            
            48
            
            
            
            61
            
            
            
            25
            
            
            
            -
            
            
            
            -Residential
      lots transferred to investment property division
            
            
            -
            
            
            
            -
            
            
            
            252
            
            
            
            -
            
            
            
            -Commercial
      and business park acres sold
            
            
            12
            
            
            
            15
            
            
            
            11
            
            
            
            3
            
            
            
            8Homes
      sold
            
            
            29
            
            
            
            78
            
            
            
            32
            
            
            
            55
            
            
            
            124








* The
financial statements as of and for the year ended December 31, 2007 reflect the
adoption of  Financial Accounting Standards Board Interpretation No.
48 “Account for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007
(Refer to Note 2 and 10 of the Consolidated Financial Statements).





**The
financial statements as of and for the year ended December 31, 2006 reflect the
adoption of Emerging Issues Task Force 04-05, “Determining Whether a General
Partner as a Group Controls a Limited Partnership or Similar Entity When The
Limited Partners Have Certain Rights” (“EITF 04-05”) on January 1, 2006
(Refer to Note 2 of the Consolidated Financial Statements).


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ITEM 7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION





FORWARD
LOOKING STATEMENTS


The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing in Item 8 of this report.
Historical results set forth in Selected Financial Information, Management's
Discussion and Analysis of Financial Condition and Results of Operation and the
Financial Statements and Supplemental Data included in Items 6, 7 and 8 should
not be taken as indicative of our future operations.


This Annual Report on Form 10-K
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These include statements about our business
outlook, assessment of market and economic conditions, strategies, future plans,
anticipated costs and expenses, capital spending, and any other statements that
are not historical. The accuracy of these statements is subject to a number of
unknown risks, uncertainties, and other factors that may cause our actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.   Those items are discussed under
“Risk Factors” in Item 1A to this annual report on Form 10-K.





GENERAL


American
Community Properties Trust ("ACPT" or the "Company") is a self managed holding
company that is primarily engaged in investment in multifamily rental
properties, property management services, community development, and
homebuilding through its consolidated subsidiaries. The operations are managed
out of three primary offices: St. Charles, Maryland, Orlando, Florida, and San
Juan, Puerto Rico.


The U.S.
operations are managed through American Rental Management Company ("ARMC"). This
includes the management of apartment properties in which we have an ownership
interest, apartment properties owned by a third party, as well as our community
development operations. American Land Development U.S. Inc. ("ALD") and its
subsidiary own and develop our land holdings in St. Charles, Maryland. St.
Charles is a 9,000 acre planned community consisting of residential, commercial,
recreational and open space land. It has provided the Company and its
predecessor with inventory for the last three decades with expectations of
another three decades. With the aid of outside consultants, we plan, design and
develop the land for sale or use in our own investment portfolio. ALD also has a
50% interest in a land development joint venture formed to develop land for an
active adult community in St. Charles.  American Rental Properties
Trust ("ARPT") and its subsidiaries hold the general and limited partnership
interests in our U.S. apartment property portfolio. The apartment properties are
individually organized into separate entities. ARPT's ownership in these
entities ranges from 0.1% to 100%. We expect to retain the land identified for
future apartment units in St. Charles to expand our apartment investment
portfolio through construction of new multifamily apartment complexes. We also
remain open to construction and acquisition of additional properties that will
add value to our existing investment assets.


The
Puerto Rico operations are managed through Interstate General Properties Limited
Partnership S.E. ("IGP"), a wholly owned subsidiary of IGP Group Corp which is a
wholly owned subsidiary of ACPT. IGP provides property management services to
multifamily rental properties in Puerto Rico in which we have an ownership
interest (“Puerto Rico Apartments”), apartment properties owned by third
parties, our commercial properties, and home-owner associations related to our
planned communities.  IGP also provides management services for our
homebuilding and community development operations. IGP holds the ownership
interests in the Puerto Rico Apartments and two commercial properties. The
Puerto Rico apartments are organized into separate partnerships and receive HUD
subsidies. IGP's ownership in these partnerships ranges from 1% to 52.5%. IGP's
ownership in the commercial properties ranges from 28% to 100%.  Our
community development assets in Puerto Rico, consisting of two planned
communities, are owned by Land Development Associates, S.E.
("LDA").  The first planned community, Parque Escorial, is currently
under development and consists of residential, commercial and recreation land
similar to our U.S. operations but on a smaller scale.  Our second
planned community, Parque El Commandante is currently in the planning
stages.  Our homebuilding operation builds condominiums for sale on
land located in its planned communities.  Each homebuilding project is
organized into separate entities, all wholly owned by IGP and
LDA.  LDA also retained a limited partnership interest in two
commercial buildings in Parque Escorial opened in 2001 and 2005 which were built
on land contributed by LDA.




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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 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.





EXECUTIVE
SUMMARY OF CURRENT YEAR RESULTS


Consolidated
operating revenues are derived primarily from rental revenue, community
development land sales and home sales.  For the year ended December
31, 2007, our consolidated rental revenues increased 12% as compared to the year
ended December 31, 2006.  The increase was primarily attributable to
construction of new units in our United States segment as well as overall rent
increases at comparable properties in both the United States and Puerto Rico
segments.


Community
development land sales for the year ended December 31, 2007 decreased 31% as
compared to the year ended December 31, 2006.  Land sales revenue in
any one period is affected by the mix of lot sizes and, to a greater extent, the
mix between residential and commercial sales.  Land sales, currently
sourced from the United States segment, result in large part from a sales
agreement with Lennar Corporation.  In March 2004, the Company
executed development and purchase agreements with Lennar Corporation to develop
and sell 1,950 residential lots (1,359 single family lots and 591 town home
lots) in Fairway Village in St. Charles, Maryland. The agreements require the
homebuilder to provide $20,000,000 in letters of credit to secure the purchase
of the lots.  A junior lien was placed on the residential portion of
Fairway Village.  The agreements require Lennar to purchase 200
residential lots per year, provided that they are developed and available for
delivery as defined by the development agreement.  The junior lien is
released when the lots are sold and $10,300 of each lot sales proceeds are
placed in an escrow account to repay the principal of the bonds. In December
2007, the Company reached an agreement with Lennar allowing for a reduction in
their lot takedown requirements for 2007, resulting in 78 lots purchased by
Lennar in 2007 as compared to 135 lots taken in 2006.  In addition to
the reduction in number of lots, the December 2007 amendment temporarily reduced
the final selling price of 100 lots (51 taken down in December 2007 and 49 which
Lennar has agreed to take before June 1, 2008) from 30% to 22.5% of the base
price of the home sold on the lot, with guaranteed minimum price of $78,000 per
single family lot and $68,000 per town home lot.


Home
sales for year ended December 31, 2007 decreased 62% as compared to the year
ended December 31, 2006.  Home sales, currently sourced from the
Puerto Rico segment, are impacted by the local real estate
market.  The Puerto Rico real estate market has slowed
substantially.  The reduction of new contracts and the reduced pace of
sales has impacted the Company somewhat, but not to the same extent as the
overall Puerto Rico market decline.  The Company settled 29 units
during 2007 as compared to 78 units closed during 2006.  As of
December 31, 2007, 21 completed units remain within inventory, of which we
currently have 1 unit under contract.  At the current sales pace, the
Company anticipates that the remaining units in Torres will be sold throughout
2008.  We believe that our current pricing remains
competitive.


On a
consolidated basis, the Company reported a net loss of $541,000 for the year
ended December 31, 2007.  The net loss includes a $307,000 benefit for
income taxes, resulting in a consolidated effective tax rate of approximately
36%.  The consolidated effective rate was impacted by accrued
penalties on uncertain tax positions, certain nondeductible permanent items and
a change in the statutory tax rate in the United States segment and double
taxation on a certain non-recurring gain for our Puerto Rico
segment.  For further discussion of these items, see the provision for
income taxes discussion within the United States and Puerto Rico segment
discussion.


Please
refer to the Results of Operations section of Management’s Discussion and
Analysis for additional details surrounding the results of each of our operating
segments.





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NEW
ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF PRESENTATION


In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement
No. 109, “Accounting for
Income Taxes,” and it seeks to reduce the diversity in practice
associated with certain aspects of measurement and recognition in accounting for
income taxes. In addition, FIN 48 requires expanded disclosure with respect to
the uncertainty in income taxes.  We adopted the provisions of FIN 48
on January 1, 2007.  As a result of the implementation of FIN 48, we
recorded a $1,458,000 increase in the net liability for unrecognized tax
positions, which was recorded as a cumulative effect of a change in accounting
principle, reducing the opening balance of retained earnings on January 1,
2007.  See Notes 2 and 10 to the consolidated financial statements for
further discussion.


In June
2005, the FASB ratified 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," or EITF
04-05.  EITF 04-05 provides an accounting model to be used by a
general partner, or group of general partners, to determine whether the general
partner(s) controls a limited partnership or similar entity in light of certain
rights held by the limited partners.  In accordance with the
provisions of EITF 04-05, beginning January 1, 2006 we have included the
following partnerships in our consolidated group: Alturas Del Senorial
Associates Limited Partnership, Bayamon Garden Associates Limited Partnership,
Carolina Associates Limited Partnership S.E., Colinas de San Juan Associates
Limited Partnership, Essex Apartments Associates Limited Partnership, Huntington
Associates Limited Partnership, Jardines de Caparra Associates Limited
Partnership, Monserrate Associates Limited Partnership, San Anton Associates,
Turabo Limited Dividend Partnership and Valle del Sol Associates Limited
Partnership.  Historically, our interests in these partnerships were
recorded using the equity method of accounting.


The
impact of consolidating the financial statements of these partnerships increased
our operating assets and liabilities by $78.5 million and $97.7 million,
respectively, as of January 1, 2006.  The addition to assets is
primarily related to real estate at historical cost, net of accumulated
depreciation of approximately $53.3 million, and the addition to liabilities is
primarily related to non-recourse debt of approximately $98.6 million held by
these limited partnerships.  The Company recorded an overall reduction
to retained earnings of $19.1 million in a manner similar to a cumulative effect
of a change in accounting principle.  The retained earnings impact is
net of a deferred tax asset recorded of $9.8 million related to temporary
differences arising from the negative deficits absorbed by the Company in
consolidation.


With
respect to our accounting for minority interest in our consolidated
partnerships, when consolidated real estate partnerships make cash distributions
or allocate losses to partners in excess of the minority partners' basis in the
property, we generally record a charge equal to the amount of such excess
distribution.





CRITICAL
ACCOUNTING POLICIES


The Securities and Exchange Commission
defines critical accounting policies as those that are most important to the
portrayal of our financial condition and results.  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States, which we refer to as GAAP, requires management to use
judgment in the application of accounting policies, including making estimates
and assumptions.  These judgments affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods.  If our judgment or
interpretation of the facts and circumstances relating to various transactions
had been different, it is possible that different accounting policies would have
been applied resulting in a different presentation of our financial
statements.  Below is a discussion of accounting policies which we
consider critical in that they may require complex judgment in their application
or require estimates about matters which are inherently uncertain.





Sales, Profit Recognition
and Cost Capitalization


Community development land sales are
recognized at closing only when sufficient down payments have been obtained,
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
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
revenue and costs upon settlement with the homebuyer which doesn’t occur until
after we receive use and occupancy permits for the building.




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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. The costs of 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 for
these condominiums is determined by the percentage of completion method, which
relies on total estimated costs and sales values.  Residential and
commercial land sales can be highly cyclical.  Once development is
undertaken, no assurances can be given that the Company will be able to sell the
various developed lots or condominiums in a timely manner.  Failure to
sell such lots and homes in a timely manner could result in significantly
increased carrying costs and erosion or elimination of profit with respect to
any development.  Even though our cost estimates are based on outside
engineers' cost estimates, construction contracts and historical costs, our
actual development and construction costs can exceed estimates for various
reasons, including but not limited to unknown site conditions, rising prices and
changes in government regulations.  Any estimates of such costs may
differ substantially from the actual results of such costs and reduce or
eliminate the future profits with respect to any development.


The Company considers all debt and
related interest expense 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.





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 consisted 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.





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.


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.





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Depreciation of Investments
in Real Estate


The Company's operating real estate is
stated at cost and includes all costs related to acquisitions, development and
construction. We are required to make 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. Our assessments,
all of which are judgmental determinations, of our investments in our real
estate assets are as follows:


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


·
            Furniture,
      fixtures and equipment 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.





Income
Taxes


The Company's complex tax structure
involves foreign source income and multiple entities that file separate
returns.  Due to the complex nature of tax regulations affecting our
entities, our income tax expense and related balance sheet amounts involve
significant management estimates and judgments.





Contingencies


The
Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. These matters are frequently covered by insurance.
If it has been determined that a loss is probable to occur, the estimated amount
of the loss is expensed in the financial statements. While the resolution of
these matters cannot be predicted with certainty, we rely on the advice of our
outside counsel as to the potential and probable outcome of these proceedings
when evaluating any financial statement impact.





Recent Accounting
Pronouncements





SFAS
157 and 159


In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and
in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.”SFAS 157 defines fair
values as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the market
in which the reporting entity transacts. SFAS 157 applies whenever other
standards require assets or liabilities to be measured at fair value and does
not expand the use of fair value in any new circumstances. SFAS 157 establishes
a hierarchy that prioritizes the information used in developing fair value
estimates. The hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, such as the reporting
entity’s own data. SFAS 157 requires fair value measurements to be disclosed by
level within the fair value hierarchy. SFAS 157 is effective for fiscal years
beginning after November 15, 2007.


SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The fair value election is designed to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  SFAS 159 is effective for fiscal years beginning after
November 15, 2007.  The Company believes that the implementation of
SFAS 157 and 159 will 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.





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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
will require condominium sales to meet the continuing investment criterion in
FAS No. 66 in order for profit to be recognized under the
percentage-of-completion method.  EITF 06-08 will be effective for
annual reporting periods beginning after March 15, 2007.  The
cumulative effect of applying EITF 06-08, if any, is to be reported as an
adjustment to the opening balance of retained earnings in the year of
adoption.  The Company believes that the implementation of EITF 06-08
will not have a material impact on our financial statements.





RESULTS
OF OPERATIONS


The
following discussion is based on the consolidated financial statements of the
Company. It compares the components of the results of operations of the Company
by segment for each of the three years ended December 31, 2007, 2006 and
2005.  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. This discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
included elsewhere in this report.





Results
of Operations - U.S. Operations:


For the
year ended December 31, 2007, our U.S. segment generated $9,009,000 of operating
income compared to $15,299,000 of operating income generated by the segment for
the same period in 2006 and $8,287,000 in 2005.  Additional
information and analysis of the U.S. operations can be found below.





Rental
Property Revenues and Operating Expenses - U.S. Operations:


As of
December 31, 2007, nineteen U.S.-based apartment properties, representing 3,256
units, in which we hold an ownership interest qualified for the consolidation
method of accounting.  The rules of consolidation require that we
include within our financial statements the consolidated apartment properties'
total revenue and operating expenses.


As of
December 31, 2007, thirteen of the consolidated properties were market rent
properties, representing 1,856 units, allowing us to determine the appropriate
rental rates.  Even though we can determine the rents, 54 of our units
at one of our market rent properties must be leased to tenants with low to
moderate income. HUD subsidizes three of the properties representing 836 units
and the three remaining properties are a mix of 137 subsidized units and 427
market rent units. HUD dictates the rents of the subsidized units.


Beginning
January 1, 2006, two additional properties, Huntington Associates Limited
Partnership (“Huntington”) and Essex Apartments Associates Limited Partnership
(“Essex”) qualified for consolidation under the new provisions of EITF
04-05.





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Apartment
Construction and Acquisition


A summary
of our significant apartment construction and acquisition activities in 2007,
2006 and 2005 is as follows.  All of the constructed and acquired
properties are operating as market rate properties.





·
            On
      January 31, 2007, the Company completed the construction of the newest
      addition to our rental apartment properties in St. Charles' Fairway
      Village, the Sheffield Greens Apartments (“Sheffield
      Greens”).  The nine building, 252-unit apartment project offers
      1 and 2 bedroom units ranging in size from 800 to 1,400 square
      feet.  Construction activities were started in the fourth
      quarter of 2005 and leasing efforts began in the first quarter of 2006.
      The first five buildings became available for occupancy during the fourth
      quarter of 2006 and the final four buildings were ready for occupancy in
      January 2007.  Leasing efforts have been successful and the
      property was approximately 93% occupied as of December 31,
      2007.


·
            On
      April 28, 2006, the Company acquired two multifamily rental properties,
      Milford Station I LLC and Milford Station II LLC, in Baltimore, Maryland
      containing a combined total of 250 units for approximately
      $14,300,000.


·
            On
      May 23, 2005, the Company acquired the assets of Nottingham Apartments
      LLC, in Baltimore, Maryland containing 85 units for approximately
      $3,000,000.





2007 compared to
2006


For year
ended December 31, 2007, rental property revenues increased $5,911,000 or 18% to
$38,416,000 compared to $32,505,000 for the same period in 2006.  The
increase in rental revenues was primarily the result of additional revenues for
Sheffield Greens Apartments, Milford Station I and Milford Station II which
accounted for approximately $4,470,000 of the difference.  The
increase was also attributable to an overall 4% increase in rents between
periods which is net of a $472,000 increase in vacancies between 2006 and
2007.  The increase in vacancies was primarily attributable to the
lease up of Sheffield.  Now that the lease up is complete and certain
incentive programs at Sheffield are over, occupancy at the other fair market
properties is increasing.


Rental
property operating expenses increased $3,163,000 or 20% for the year ended
December 31, 2007 to $19,235,000 compared to $16,072,000 for the same period of
2006.  The overall increase in rental property operating expenses was
primarily the result of additional expenses for Sheffield Greens Apartments,
Milford Station I and Milford Station II, which accounted for approximately
$2,044,000 of the difference.  The remainder of the increase resulted
from overall inflationary adjustments as well as specific above inflation
increases noted in advertising, concessions granted to residents, office and
maintenance salaries, office expenses, utilities, security expense, snow
removal, rehabilitation of apartment units and real estate taxes.  We
are currently working to reduce all our controllable rental property operating
expenses within our US portfolio.  Specific emphasis includes reducing
advertising and concessions expenses now that Sheffield Greens is leased and
occupancy rates at other our competing properties are increasing, implementing
measures to reduce security expenditures, as well as the cost benefit of a
reduction in management staff.





2006 compared to
2005


For the
year ended December 31, 2006, rental property revenues increased $9,997,000 to
$32,505,000 compared to $22,508,000 for the year ended December 31,
2005.  The increase is primarily due to the impact of EITF 04-05
requiring us to include the results of operations for two apartment properties,
Huntington and Essex, in our consolidation beginning January 1,
2006.  The revenues earned within these two properties in 2006 were
consistent with revenues earned in the prior year.  The increase in
our rental property revenue during 2006 was also the result of our apartment
acquisitions in May 2005 and April 2006 which added $1,693,000 of rental
property revenues.  Other increases in rental property revenues during
2006 included a 6% increase in overall average rents resulting in an additional
$1,329,000 of rental property income, which includes the additional revenue
earned from the January 2006 conversion of one of our subsidized apartment
properties to a market rent property.  The average increase in rents
in 2006 for properties in the Washington DC and Baltimore suburban areas ranged
from 3% to 4%.


The
increase in revenue was also the result of a benefit of $274,000 resulting from
the completion of the amortization of acquired intangible leases for Owings
Chase and Prescott Square purchased in 2004, and the recognition of $200,000 of
rent revenue earned from Sheffield Greens, our newest apartment complex under
construction as of December 31, 2006.


For the
year ended December 31, 2006, rental property operating expenses increased
$5,943,000 to $16,072,000 compared to $10,129,000 for the year ended December
31, 2005.  The increase is primarily the result of the impact of EITF
04-05, which added an additional $3,936,000 in 2006.  The increase in
our rental property operating expenses during 2006 is also the result of our
apartment acquisitions in May 2005 and April 2006 which increased our operating
expenses by $1,010,000 as well as operating expenses of $280,000 incurred by
Sheffield Greens.  Overall, during 2006, our rental property expenses
generally increased approximately 7% on a comparative basis.  The
average increase in expenses in 2006 for properties in the Washington DC and
Baltimore suburban areas was 3%.  The increase in excess of general
inflationary adjustments was attributable to the rehabilitation of our apartment
units, project wide cleaning, grounds and maintenance and utility
rates.


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Community
Development - U.S. Operations:


Land
sales revenue in any one period is affected by the mix of lot sizes and, to a
greater extent, the mix between residential and commercial sales. In March 2004,
the Company executed Development and Purchase Agreements with Lennar Corporation
(the “Lennar Agreements”) to develop and sell 1,950 residential lots (1,359
single-family lots and 591 town home lots) in Fairway Village in St. Charles,
Maryland.  The Lennar Agreements requires the homebuilder to provide
$20,000,000 in letters of credit to secure the purchase of the lots. As security
for the Company’s obligation to develop the lots, a junior lien was placed on
the residential portion of Fairway Village.  The agreements require
Lennar to purchase 200 residential lots per year, provided that they are
developed and available for delivery as defined by the Development
Agreement.  For each lot sold in Fairway Village, the Company must
deposit $10,300 in an escrow account to fund the principal payments due to
Charles County, at which time the lots are released from the junior
lien.  As of December 31, 2007, 1,565 lots remained under the
provisions of the Lennar Agreements.   Assuming a sales pace of
200 lots per year, it is estimated that lot settlements will take place through
2015; however, the continued slowing of the new homes sales market in the United
States, and more specifically in the Washington D.C. suburban areas, has
adversely impact Lennar’s willingness or ability to take down 200 lots per
year.  In December 2007, the Company executed an amendment to the
Lennar Agreements whereby the Company agreed to accept 51 lot settlements in
December 2007 as satisfaction of Lennar’s lot takedown requirement for 2007,
resulting in a total of 78 lots taken down by Lennar during
2007.  This compares to the 135 lots taken down by Lennar in
2006.


Sales are
closed on a lot by lot basis at the time when the builder purchases the lot. The
final selling price per lot sold to Lennar may exceed the guaranteed minimum
price recognized at closing since the final lot price is based on a percentage
of the base price of the home sold on the lot but not less than the guaranteed
minimum price.  As part of the December amendment to the Lennar
Agreements, the Company agreed to temporarily reduce the final lot price for 100
lots, as previously discussed, from 30% to 22.5% of the base price of the home
sold on the lot, with guaranteed minimum prices of $78,000 per single family lot
and $68,000 per townhome lot. Additional revenue exceeding the guaranteed
minimum take down price per lot will be recognized upon Lennar's settlement with
the respective homebuyers.


Residential
lots vary in size and location resulting in pricing differences. Gross margins
are calculated based on the total estimated sales values for all remaining lots
within a neighborhood as compared to the total estimated costs.


Commercial
land is typically sold by contract that allows for a study period and delayed
settlement until the purchaser obtains the necessary permits for development.
The sales prices and gross margins for commercial parcels vary significantly
depending on the location, size, extent of development and ultimate use.
Commercial land sales are cyclical and usually have a noticeable positive effect
on our earnings in the period they reach settlement.





2007 compared to
2006


Community
development land sales revenue decreased $6,481,000 to $14,486,000 for the year
ended December 31, 2007 compared to $20,967,000 for the year ended December 31,
2006.  The 31% decrease in our community development land sales within
our U.S. segment in 2007 is primarily the result of a decrease in delivery of
residential lots to Lennar, offset by an increase in the commercial land
sales.





Residential
Land Sales


For the
year ended December 31, 2007, we delivered 34 single-family lots and 44
town-home lots to Lennar, resulting in the recognition of revenues ranging from
$121,000 to $78,000 per single family lot and $85,000 to $65,000 per town-home
lot plus $2,600 per lot of water and sewer fees, road fees and other off-site
fees.  The total revenue recognized at initial settlement was
$5,964,000 for the year ended December 31, 2007. For the year ended December 31,
2006, we delivered 70 single-family lots and 65 town-home lots to Lennar,
resulting in the recognition of revenues ranging from $100,000 to $125,000 per
single family lot and $70,000 to $85,000 per town-home lot plus water and sewer
fees, road fees and other off-site fees.  The total revenue recognized
at initial settlement was $13,130,000 for the year ended December 31, 2006. As
of December 31, 2007, we had 121 developed single-family lots and 8 finished
town-home lots in backlog and ready for delivery.


During
the years ended December 31, 2007 and 2006, we also recognized $2,295,000 and
$3,434,000, respectively, of additional revenue for lots that were previously
sold to Lennar.  This additional revenue is based on the final
settlement price of the homes as provided by our agreement with Lennar.
Currently new town-homes in Fairway Village are priced between $330,000 and
$400,000 while single-family homes in Fairway Village are priced between
$390,000 and $500,000.




-38-
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The homes
sold by Lennar to the homebuyer in 2007 resulted in a total average final lot
price of $120,000 per single family lot and $94,000 per townhome lot.  For
2006, the homes sold by Lennar to the homebuyer resulted in a total average
final lot price of $135,000 per single family lot.  No townhomes were sold
to homebuyers in 2006.





Commercial
Land Sales


For the
year ended December 31, 2007, we sold 12.0 commercial acres in St. Charles for
$5,333,000 compared to 14.9 commercial acres for $2,903,000 for the year ended
December 31, 2006. Sales in 2007 included two parcels within the O’Donnell Lake
Restaurant Park, our latest commercial development project located near the St.
Charles Towne Center.  These two parcels, totaling approximately 5
acres, were sold for $3.2 million.  However, a portion of this revenue
was deferred related to certain ongoing development activities.  In
addition, 2007 commercial sales included three lots, totaling approximately 3
acres, from Town Center Parcel G for approximately $1.4 million.  The
Parcel G lots were previously developed commercial parcels and also surround St.
Charles Town Center.  The 2007 lot sales also included four previously
developed lots within Henry Ford Circle, totaling approximately 4 acres, for
$771,000.  As of December 31, 2007, our backlog contained 95.68
commercial acres in St. Charles under contract for a total of
$17,097,000.





St.
Charles Active Adult Community, LLC - Land 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 September
2006, again in December 2006, and again in October 2007.  Most
recently, 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.


The joint
venture sold 48 lots to Lennar’s homebuilding division during 2007 compared to
61 lots delivered in 2006.  As a result, the Company recognized
$1,063,000 in deferred revenue, management fees and off-site fees and $358,000
of deferred costs for the year ended December 31, 2007 compared to $1,294,000 in
deferred revenue, management fees and offsite fees and $419,000 of deferred
costs for the year ended December 31, 2006.





Gross
Margin on Land Sales


The gross
margin on land sales was 23% for the year ended December 31, 2007 as compared to
45% for the year ended December 31, 2006.  Our gross margins on land
sales in the U.S. can fluctuate based on changes in the mix of residential and
commercial land sales. The reduction in gross margin between 2007 and 2006 was
primarily the result of decreasing our estimate of relative sales values for our
residential lots as a result of the downturn in the real estate market and the
reduced pricing granted to Lennar during 2007.  The revised sales
values reduced our estimated gross margins on the residential lot sales to
approximately 31% from approximately 50%. In addition, gross margins on
commercial sales in 2007 ranged between 49% and 1% with an overall weighted
average of approximately 27%.  The average gross margins on commercial
sales were negatively impacted by increased costs estimates related to the
development of certain amenities included within the O’Donnell Lake Restaurant
Park.





Customer
Dependence


Revenues
from Lennar include residential land sales as well as certain management
fees.  Total revenues from Lennar within our U.S. segment were
$9,663,000 for the year ended December 31, 2007 which represents 18% of the U.S.
segment's revenue and 11% of our total year-to-date consolidated
revenue.  No other customers accounted for more than 10% of our
consolidated revenue for the year ended December 31, 2007.  Loss of
all or a substantial portion of our land sales, as well as the joint venture's
land sales, to Lennar would have a significant adverse effect on our financial
results until such lost sales could be replaced.





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2006 compared to
2005


Community
development land sales revenue increased $8,564,000 to $20,967,000 for the year
ended December 31, 2006 compared to $12,403,000 for the year ended December 31,
2005.  The 69% increase in our community development land sales within
our U.S. segment in 2006 is the result of our significant investment in
residential lot development and delivery of residential lots to
Lennar.





Residential
Land Sales


For the
year ended December 31, 2006, we delivered 70 single-family lots and 65
town-home lots to Lennar, resulting in the recognition of revenues ranging from
$100,000 to $125,000 per single family lot and $70,000 to $85,000 per town-home
lot plus water and sewer fees, road fees and other off-site fees. For the year
ended December 31 2005, we delivered 94 residential lots to Lennar at an initial
selling price of $100,000 per lot plus water and sewer fees, road fees and other
off-site fees.


During
the years ended December 31, 2006 and 2005, we also recognized $3,434,000 and
$2,000,000, respectively, of additional revenue for lots that were previously
sold to Lennar.  This additional revenue is based on the final
settlement price of the homes as provided by our agreement with
Lennar.





Commercial
Land Sales


For the
year ended December 31, 2006, we sold 14.9 commercial acres in St. Charles for
$2,800,000 compared to 1.34 commercial acres for $200,000 for the year ended
December 31, 2005.





St.
Charles Active Adult Community, LLC - Land Joint Venture


The joint
venture sold 61 lots to Lennar’s homebuilding division during the third and
fourth quarters of 2006 compared to 25 lots delivered in the fourth quarter of
2005.  As a result, the Company recognized $1,294,000 in deferred
revenue, management fees and off-site fees and $419,000 of deferred costs for
the year ended December 31, 2006 compared to $610,000 in deferred revenue,
management fees and offsite fees and $176,000 of deferred costs for the year
ended December 31, 2005.





Gross
Margin on Land Sales


The gross
margins on land sales for the years ended December 31, 2006 and 2005 remained
consistent at 45%.





Management
and Other Fees - U.S. Operations:


We earn
monthly management fees from all of the apartment properties that we own as well
as our management of apartment properties owned by third parties and affiliates
of J. Michael Wilson.  Effective February 28, 2007, the Company’s
management agreement with G.L. Limited Partnership was terminated upon the sale
of the apartment to a third party.  Effective April 30, 2006, the
Company’s management agreement with Chastleton Associates LP terminated when the
apartment property was sold to a third party, however, we received an
agreed-upon management fee for administrative services through the end of the
second quarter 2006. These two properties were previously owned by an
affiliate.  Management fees generated by each of these properties
accounted for less than 1% of the Company’s total revenue.


We
receive an additional fee from the properties that we manage for their use of
the property management computer system and a fee for vehicles purchased by the
Company for use on behalf of the properties. The cost of the computer system and
vehicles are reflected within depreciation expense.


The
Company manages the project development of the joint venture with Lennar for a
market rate fee pursuant to a management agreement.  These fees are
based on the cost of the project and a prorated share is earned when each lot is
sold.


This
section includes only the fees earned from the non-consolidated properties; the
fees earned from the consolidated properties are eliminated in
consolidation.





2007 compared to
2006


Management fees decreased $327,000 to
$336,000 for the year ended December 31, 2007 as compared to $663,000 for the
year ended December 31, 2006.  The decrease was primarily the result
of the Company no longer providing management services to G.L. Limited
Partnership and Chastleton Associates LP.





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2006 compared to
2005


Management
fees decreased $451,000 to $663,000 for the year ended December 31, 2006 as
compared to $1,114,000 for the year ended December 31, 2005.  The
decrease was primarily the result of implementation of EITF 04-05, resulting in
an additional $375,000 eliminated related to the newly consolidated
properties.  Excluding the impact of EITF 04-05, management and other
fees were relatively consistent with the prior periods.





General,
Administrative, Selling and Marketing Expense - U.S. Operations:


The costs
associated with the oversight of our U.S. operations, accounting, human
resources, office management and technology, as well as corporate and other
executive office costs are included in this section. ARMC employs the
centralized office management approach for its property management services for
our properties located in St. Charles, Maryland, our properties located in the
Baltimore, Maryland area and the property in Virginia and, to a lesser extent,
the other properties that we manage. Our unconsolidated and managed-only
apartment properties reimburse ARMC for certain costs incurred at the central
office that are attributable to the operations of those properties. In
accordance with EITF Topic 01-14, “Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred,” the cost
and reimbursement of these costs are not included in general and administrative
expenses, but rather they are reflected as separate line items on the
consolidated income statement.





2007 compared to
2006


General,
administrative, selling and marketing costs incurred within our U.S. operations
increased $1,711,000 to $8,081,000 for the year ended December 31, 2007 compared
to $6,370,000 for the same period of 2006.  The 27% increase is
primarily attributable to a $902,000 increase in consulting expenses and
$727,000 related to fees associated with an evaluation of a recapitalization of
the Company.  The increases in consulting expenses including $408,000
of fees related to a consultant hired to assist the Company with an overall
strategic plan. Other increases in consulting included consulting services
provided for our FIN 48 implementation during the first quarter of 2007 and
consulting services for Sarbanes-Oxley Section 404 (“SOX 404”) internal control
compliance testing.  Other increases included salaries and benefits
related to executive retention agreements with our COO and CFO executed in the
third quarter of 2007.  The salaries and benefits increase was
partially offset by reduced bonus accruals for 2007 as bonuses were not awarded
to executive management for 2007.  Other decreases in general,
administrative, selling and marketing costs include decreases in audit and
accounting expenses as 2006 amounts included non-recurring fees related to the
closing agreement reached with the IRS and a decrease in share appreciation
rights expense resulting from the decrease in our share price between
periods.


We
anticipate additional costs will be incurred as part of the company’s strategic
planning activities noted above.  These costs include, but are not
limited to, legal fees, consulting fees, and fees paid to the Special Committee
to the Board of Trustees.





2006 compared to
2005


General,
administrative, selling and marketing costs incurred within our U.S. operations
decreased $537,000 to $6,370,000 for the year ended December 31, 2006, compared
to $6,907,000 for the year ended December 31, 2005.  The 8% decrease
in general, administrative, selling and marketing costs is primarily
attributable to a decrease in the expense associated with our outstanding share
incentive rights, as a result of a reduction of shares outstanding due to prior
year exercises, coupled with a significant increase in the share price during
2005.  The decrease was partially offset by an increase in salaries
and benefits, and legal fees related to the closing agreement reached with the
IRS earlier this year.




Depreciation
Expense - U.S. Operations:
 2007 compared to
2006
 Depreciation
expense increased $957,000 to $5,744,000 for the year ended December 31, 2007
compared to $4,787,000 for the same period in 2006.  The increase in
depreciation is primarily the result of depreciation related to the acquisitions
of Milford Station I and Milford Station II and the depreciation related to
Sheffield Greens Apartments, all of which accounted for $609,000 of the
variance.  The balance of the increases relate to the recent
refinancings of several properties at the end of 2006 and beginning of
2007.  The Company used part of the proceeds to make significant
investments in capital improvements at these properties resulting in increased
depreciation expense for 2007.


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 2006 compared to
2005


Depreciation
expense increased $958,000 to $4,787,000 for the year ended December 31, 2006
compared to $3,829,000 for the year ended December 31, 2005.  As a
result of adopting EITF 04-05 in 2006, we added an additional $540,000 of
depreciation expense to our 2006 consolidation.  The remainder of the
increase is attributable to the acquisitions in May 2005 and April 2006 as well
as capital improvements made to the existing properties.





Interest
Income – U.S. Operations:


2007 compared to
2006


Interest
income increased $105,000 to $1,073,000 for the year ended December 31, 2007, as
compared to $968,000 for the same period of 2006.  The increase was
primarily attributable to interest income received on investments of cash
received from the various apartment refinancings at the end of 2006 and
beginning of 2007.  This increase was offset in part by a reduction of
the interest income received on the county bond receivables during the
year.  During 2006, the Company negotiated a written agreement with
the County to receive interest income on bond proceeds held in escrow by the
County beginning July 1, 2005.  Accordingly, 2006 amounts included the
recognition of 6 quarters of interest income from the County as the
Company.




2006 compared to
2005


Interest
income for the year ended December 31, 2006 was $968,000 compared to $145,000
for the year ended December 31, 2005.  The $823,000 increase in
interest income in 2006 is the result of the recognition of $855,000 of interest
income in 2006 related to the Charles County bonds for the period from July 1,
2005 through December 31, 2006, an 18 month period, with no comparable amounts
recognized in 2005.  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.  As
development activities specified by the bond agreement are completed, the
Company draws down the escrowed bond proceeds.  The interest agreement
is expected to remain effective through the last draw made by the Company, and
the Company expects to receive future annual interest payments from the
County.





Equity
in Earnings from Unconsolidated Entities - U.S. Operations:


2007 compared to
2006


Equity in
earnings from unconsolidated entities was the same for the year ended December
31, 2007 as compared to the year ended December 31, 2006.  In both
periods, the Company recognized a loss of $1,000 from its investment in its
unconsolidated real estate entities.  We continue to account for our
investments in two apartment partnerships, Brookside and Lakeside, using equity
accounting, but due to our limited ownership in these partnerships, our
recognition of the partnerships’ earnings is immaterial.





2006 compared to
2005


For the
year ended December 31, 2006, the Company recognized a loss of $1,000 from its
investment in its unconsolidated real estate entities compared to the
recognition of earnings of $135,000 for the year ended December 31,
2005.  With the implementation of the EITF 04-05, effective January 1,
2006, the Company has consolidated the operational results of Huntington and
Essex which resulted in the overall decrease in our equity in
earnings.





Interest
Expense - U.S. Operations:


The
Company considers interest expense on all U.S. 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 of the U.S. segment is applied.  Any excess
interest is reflected as interest expense.  For 2007, 2006 and 2005,
the excess interest primarily relates to the interest incurred on the
non-recourse debt from our investment properties.





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2007 compared to
2006


Interest
expense increased $2,769,000 for the year ended December 31, 2007, to
$12,621,000, as compared to $9,852,000 for the same period of
2006.  The increase in interest expense was primarily attributable to
interest expense incurred at new properties, including Sheffield Greens
Apartments, Milford Station I and Milford Station II all of which accounted for
$1,608,000 of the increase.  In addition, the refinancing of several
apartment mortgages during the fourth quarter of 2006 and early first quarter
2007 increased interest expense at Fox Chase Apartments, LLC, New Forest
Apartments, LLC, Coachman’s Apartments LLC and Village Lake Apartments, LLC
$1,318,000 for 2007.  Additionally, interest expense increased
$1,253,000 as a result of accrued interest on uncertain tax positions associated
with our implementation of FIN 48 beginning January 1, 2007.


For the
year ended December 31, 2007, $1,271,000 of interest was capitalized in the U.S.
operations compared to $1,504,000 of interest capitalized during
2006.





2006 compared to
2005


Interest
expense for the year ended December 31, 2006 increased $3,055,000 to $9,852,000
compared to $6,797,000 for the year ended December 31, 2005.  The
increase is primarily the result of EITF 04-05, which added $1,263,000 of
interest expense in 2006.  Excluding the impact of EITF 04-05, the
increase is the result of additional interest expense of $599,000 recognized as
a result of the conversion of one of our properties from an interest subsidized
property to a market rent property in December 2005, $554,000 on the mortgages
of the properties acquired in May 2005 and April 2006, and $200,000 of the write
off of pre-payment penalties and other fees from the refinancing of two of our
properties mortgages in the fourth quarter of 2006 with no comparable amounts
for 2005. The remainder of the increase is related to reduced amounts of
capitalized interest for 2006 as completed lots in Fairway Village and completed
units in Sheffield Greens were no longer eligible for
capitalization.


For the
year ended December 31, 2006, $1,504,000 of interest was capitalized in the U.S.
operations compared to $944,000 of interest capitalized during
2005.





Minority
Interest in Consolidated Entities - U.S. Operations:


Minority
interest in consolidated entities includes the minority partner's share of the
consolidated partnerships’ earnings and distributions to minority partners in
excess of their basis in the consolidated partnership. Losses charged to the
minority interest are limited to the minority partner's basis in the
partnership.  Because the minority interest holders in most of our
partnerships have received distributions in excess of their basis, we anticipate
volatility in minority interest expense.  Although this allows us to
recognize 100 percent of the income of the partnerships up to accumulated
distributions and losses in excess of the minority partner’s basis previously
required to be recognized as our expense, we will be required to recognize as
expense 100 percent of future distributions to minority partners and any
subsequent losses.





2007 compared to
2006


Minority
interest decreased $280,000 or 45% to $336,000 for the year ended December 31,
2007 compared to $616,000 for the same period in 2006.  The decrease was
primarily the result of decreased surplus cash distributions in excess of basis
made to the limited partners during 2007 as compared to 2006.





2006 compared to
2005


Minority
interest for the year ended December 31, 2006 was $616,000 compared to $926,000
for the year ended December 31, 2005.  The $310,000 decrease in
minority interest expense in 2006 is the result of distributions provided to
third party owners in excess of their basis after the refinancing of Terrace in
the fourth quarter of 2005 with no comparable distributions made in
2006.  This was offset by distributions in excess of basis made to the
limited partners of Huntington for which we are now required to consolidate as a
result of the implementation of EITF 04-05.





Provision
for Income Taxes – U.S. Operations:


The
effective tax rates for the years ended December 31, 2007, 2006, and 2005 were
41%, 41% and 54%, respectively.  The statutory rate is 40%.  The
effective tax rate for 2007 differs from the statutory rate as a result of the
impact of a statutory rate change effective for 2008 on our net deferred tax
assets.   This was partially offset by penalties accrued on
uncertain tax positions as well as certain nondeductible expenses creating
permanent differences.  The effective tax rates for 2006 and 2005
differ from the statutory rate due to certain permanent differences and taxation
of foreign source interest income without a corresponding foreign tax
credit.





Results
of Operations - Puerto Rico Operations:


For the
year ended December 31, 2007, our Puerto Rico segment generated $7,074,000 of
operating income compared to $9,696,000 of operating income generated by the
segment for the same period in 2006 and $2,659,000 in
2005.  Additional information and analysis of the Puerto Rico
operations can be found below.





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Rental
Property Revenues and Operating Expenses - Puerto Rico Operations:


As of
December 31, 2007, nine Puerto Rico-based apartment properties, representing
twelve apartment complexes totaling 2,653 units, in which we hold an ownership
interest (“Puerto Rico Apartments”) qualified for the consolidation method of
accounting.  The rules of consolidation require that we include within
our financial statements the consolidated apartment properties' total revenue
and operating expenses. The portions of net income attributable to the interests
of the outside owners of these properties and any losses and distributions in
excess of the minority owners’ basis in those properties are reflected as
minority interest expense.  As of December 31, 2007, all of the Puerto
Rico Apartments were HUD subsidized projects with rental rates governed by
HUD.


Prior to
January 1, 2006, the Puerto Rico apartments were not included in the Company’s
consolidated results.  Effective January 1, the Company included the
Puerto Rico Apartments in their consolidated results as part of the
implementation of the provisions of EITF 04-05.


Our
Puerto Rico rental property portfolio also includes the operations of a
commercial rental property in the community of Parque Escorial, known as
Escorial Building One.  The company constructed and holds a 100%
ownership interest in Escorial Building One, which commenced operations in
September 2005.  Escorial Building One is a three-story building with
approximately 56,000 square feet of offices space for lease.  The
Company moved the Puerto Rico Corporate Office to the new facilities in the
third quarter of 2005 and leases approximately 20% of the building.





2007 compared to
2006


Rental
property revenues increased $782,000 or 4% to $22,306,000 for the year ended
December 31, 2007 compared to $21,524,000 for the same period of
2006.  The increase in our rental property revenues was primarily the
result of an overall rent increase of 3% from HUD on our multifamily apartment
properties.  In addition, rents for our commercial rental property,
EOB, increased 35% for the year as a result of lease up efforts and new
tenants.


Rental
property operating expenses increased $469,000 or 4% to $11,432,000 for the year
ended December 31, 2007 compared to $10,963,000 for the same period of
2006.  The increase was the result of a 4% increase to our multifamily
apartment properties operating expenses driven by overall inflationary
adjustments as well as specific above inflation increases noted in utilities,
repairs and painting.  In addition, operating expenses for our
commercial rental property, EOB, increased 6% for the year as a result of
amortized concessions related to new tenants as well as a reserve for bad
debts.





2006 compared to
2005


Rental
property revenues increased $21,466,000 to $21,524,000 for the year ended
December 31, 2006 compared to $58,000 for the year ended December 31,
2005.  The consolidation of the Puerto Rico Apartments as a result of
EITF 04-05, increased rental property revenues by $21,168,000 for the year ended
December 31, 2006.  Although not included in the consolidated results
for the same periods in 2005, rental property revenues from the Puerto Rico
Apartments were $20,589,000.  The 2.8% increase for the year ended
December 31, 2006 was primarily related to increases in rents in such
period.


Rental
property operating expenses increased $10,302,000 to $10,963,000 for the year
ended December 31, 2006 compared to $661,000 for the year ended December 31,
2005.  The consolidation of the Puerto Rico Apartments as a result of
EITF 04-05 increased rental property operating expenses by $9,862,000 for the
year ended December 31, 2006.  Although not included in the
consolidated results for the same periods in 2005, rental property revenues from
the Puerto Rico Apartments were $9,742,000.  The 1.2% increase for the
year ended December 31, 2006, was primarily due to increases in utilities and
other operating expenses, partially offset by a reduction in repairs, painting
and rehabilitation of units in such period.





Community
Development - Puerto Rico Operations:


Total
land sales revenue in any one period is affected by commercial sales which are
cyclical in nature and usually have a noticeable positive impact on our earnings
in the period in which settlement is made.  There were no community
development land sales during the years ended December 31, 2007 and
2006.  Community land sales were $10,397,000 for the year ended
December 31, 2005.  In April 2005, the Company sold 7.2 commercial
acres for the $7,448,000 and in February 2005, sold 2.5 commercial acres for
$2,949,000 in the master-planned community of Parque Escorial.  The
gross margin on land sales for the year ended December 31, 2005, was
28%.  There were no commercial contracts for commercial sales in
backlog at December 31, 2007.





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Homebuilding
– Puerto Rico Operations:


The
Company organizes corporations as needed to operate each individual homebuilding
project.  In April 2004, the Company commenced the construction of a
160-unit mid-rise condominium complex known as Torres del Escorial
(“Torres”).  The condominium units were offered to buyers in the
market in January 2005 and delivery of the units commenced in the fourth quarter
of 2005.





2007 compared to
2006


For the
year ended December 31, 2007, homebuilding revenues decreased $12,258,000 or 62%
to $7,580,000 as compared to $19,838,000 for the year ended December 31,
2006.  The decrease in homebuilding revenues was impacted by the slow
housing market resulting in a decrease in the number of units sold in the
respective periods.  For the year ended December 31, 2007, the company
sold 29 units at an average selling price of $261,000 as compared to 78 units at
an average selling price of $254,000 per unit for the same period of
2006.  The gross margins on home sales for the years ended December
31, 2007 and 2006 were 27% and 25%, respectively.  The slight increase
in gross profit percentages between periods results from the increased sales
prices for the units sold during 2007.


As of
December 31, 2007, 1 unit of Torres was under contract at a selling price of
$239,000.  The sales contract is backed by a $6,000
deposit.  For the year ended December 31, 2007, the Company had 22 new
contracts and 8 canceled contracts.  For the year ended December 31, 2006,
the Company had 68 new contracts and 42 canceled contracts.  The
Puerto Rico real estate market has slowed substantially from 2006 to
2007.  The reduced pace of sales has impacted the Company somewhat,
but not to the same extent as the overall Puerto Rico market
decline.  The Company currently anticipates that the remaining 21
units in Torres will be sold in 2008 and that its current pricing remains
competitive.





2006 compared to
2005


Within the Torres project and during
the years ended December 31, 2006 and 2005, 78 and 32 units, respectively, were
closed at an average selling price of approximately $254,000 and $ 232,000 per
unit, respectively, generating aggregate revenues of $19,838,000 and $7,424,000,
respectively.  The gross margins on home sales for the years ended
December 31, 2006 and 2005 were 25% and 18%,
respectively.    The increase in the gross profit margin is
primarily attributable to two factors.  First, the cost of sales in
2005 included certain deferred commission expenses charged as period costs when
sales began in 2005.  Secondly, the market has allowed for an increase
in the selling prices for the units sold within each subsequent building which
has improved the gross margins for this project.





Management
and Other fees – Puerto Rico Operations:


We earn
monthly fees from our management of four non-owned apartment properties and four
home-owner associations operating in Parque Escorial.  This section
currently includes only the fees earned from the non-owned managed
entities.  For 2005, this section also included fees earned from our
previously unconsolidated Puerto Rico Apartments.  However, these fees
are now eliminated in consolidation.





2007 compared to
2006


Total
management fees increased $42,000 or 7%, to $634,000 for the year ended December
31, 2007, as compared to $592,000 for the year ended December 31,
2006.  The increase in our management fees resulted from increases in
the annual rents, antenna rents and other miscellaneous income in the non-owned
apartment properties as well as increases in the management fees received
from Parque Escorial Associations during the year.





2006 compared to
2005


Total
management fees decreased $1,536,000 to $592,000 for the year ended December 31,
2006, as compared to $2,128,000 for the year ended December 31,
2005.  The decrease was primarily the result of the implementation of
EITF 04-05 and the elimination of $2,358,000 of management fees in
consolidation.  On a comparative basis, the management fees decreased
$114,000 to $592,000 for the year ended December 31, 2006, as compared to
$706,000 for the year ended December 31, 2005.  The decrease was
primarily due to a broker’s fee of $139,000 earned in the sale of a property
owned by the Wilson family which was sold to a third party in April 2005, with
no comparable fees earned in 2006.  This decrease was offset in part
during the year 2006 by an increase in management fees from Parque Escorial
Association.


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General,
Administrative, Selling and Marketing Expenses – Puerto Rico
Operations:


The costs
associated with the oversight of our operations, accounting, human resources,
office management and technology are included within this
section.  The apartment properties reimburse IGP for certain costs
incurred at IGP’s office that are attributable to the operations of those
properties.  In accordance with EITF 01-14 the costs and reimbursement
of these costs are not included within this section but rather, they are
reflected as separate line items on the consolidated income
statement.  Due to the fact that we moved our corporate office to our
new office building, Escorial Office Building One, rent expense and parking
expenses are eliminated in consolidation.




2007 compared to
2006


General,
administrative, selling and marketing expenses decreased 3% or $76,000 to
$2,771,000 during the year ended December 31, 2007, as compared to $2,847,000
for the same period of 2006.  The decrease is primarily attributable
to a reduction in salaries and benefits due to reduced bonus accruals for 2007
as bonuses were not awarded to executive management for
2007.  Partially offsetting this decrease, the Company experienced
increases in legal expenses related to the Jalexis matter.





2006 compared to
2005


General,
administrative, selling and marketing expenses increased 1% or $15,000 to
$2,847,000 during the year ended December 31, 2006, as compared to $2,832,000
for the same period of 2005.


The 1%
annual increase is attributable to an increase in selling and marketing expenses
incurred in the Torres project, with no comparable expense during the same
period in 2005 and increases in municipal and property taxes as well as salaries
and benefits.  These increases were offset in part by a reduction in
the expense related to our share appreciation rights as a result of significant
increases in our share price in the prior period while the share price in the
current period remained relatively constant, a reduction in office and parking
rents, as well as decreases in bad debts, consulting and outside tax services,
legal services and miscellaneous general expenses.





Depreciation
Expense – Puerto Rico Operations:


2007 compared to
2006


Depreciation
expense for the year ended December 31, 2007 increased $79,000 or 2% to
$3,694,000 as compared to $3,615,000 for the year ended December 31,
2006.  The increase in depreciation expense resulted from improvements
made to our multifamily apartment properties during 2007.





2006 compared to
2005


Depreciation
expense for the year ended December 31, 2006 was $3,615,000 compared to $213,000
for the same period in 2005.  The $3,402,000 increase is primarily
attributable to the adoption of EITF 04-05 and the inclusion of the Puerto Rico
apartments within the consolidated results.  Depreciation expense,
excluding the impact of EITF 04-05 increased $164,000 to $377,000 for the year
ended December 31, 2006 compared to $213,000 for the same period in
2005.  The increase primarily is attributable to the depreciation
expense in Escorial Building One, our new commercial office building and related
depreciation for new corporate office furniture and leasehold
improvements.





Interest
Income – Puerto Rico Operations:


2007 compared to
2006


Interest
income increased $94,000 to $231,000 for the year ended December 31, 2007, as
compared to $137,000 for the same period of 2006.  The increase was
primarily attributable to the receipt of accrued interest from the El Monte note
receivable during January 2007 that had been previously deferred.





2006 compared to
2005


Interest
income for the year ended December 31, 2006 was $137,000 compared to $722,000
for the year ended December 31, 2005.  The $585,000 decrease in
interest is the result of interest income recognized in 2005 related to the
discount taken on final payment of a related party note with no comparable
amounts recognized in 2006.





Equity
in Earnings from Partnerships and Sponsor and Developer fees – Puerto Rico
Operations:


As of
December 31, 2007, we account for our limited partner investment in commercial
rental properties owned by ELI and El Monte under the equity method of
accounting.  The earnings from our investment in ELI and El Monte are
reflected within this section.  The recognition of earnings depends on
our investment basis in the property, and where the partnership is in the
earnings stream.


Prior to
January 1, 2006, the Company accounted for its investment in the Puerto Rico
Apartments under the equity method of accounting and, accordingly, reflected the
Company’s shares of earnings in this section.  With the implementation
of the EITF 04-05, effective January 1, 2006, the Company consolidated the
operating results of its apartment partnerships.


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2007 compared to
2006


Equity in
earnings from unconsolidated entities for the year ended December 31, 2007 was
$2,193,000 compared to $683,000 for the same periods of 2006.  The
$1,510,000 increase was the related to the payment in full of the $1,500,000
note receivable from El Monte.  The note was received as part of the
sale of the El Monte facility, at which point the Company determined that the
cost recovery method of accounting was appropriate for gain
recognition.  Accordingly, revenue was deferred until collection of
the note receivable, which occurred in January 2007.





2006 compared to
2005


Equity in
earnings from partnerships decreased $325,000 to $683,000 for the year ended
December 31, 2006 compared to $1,008,000 for the year ended December 31,
2005.  With the implementation of EITF 04-05, effective January 1,
2006, the Company has consolidated the operational results of its Puerto Rico
Apartments which resulted in the overall decrease in our equity in
earnings.  The remainder of the decrease is related to operating,
financial and depreciation expenses increasing at a greater rate than the
revenues of our investments accounted for using the equity method of
accounting.





Interest
Expense – Puerto Rico Operations:


The
Company considers interest expense on all Puerto Rico debt available for
capitalization to the extent of average qualifying assets for the
period.  Interest specific to the construction of qualifying assets is
first considered for capitalization.  To the extent qualifying assets
exceed debt specifically identified a weighted average rate including all other
debt of the Puerto Rico segment is applied.  Any excess interest is
reflected as interest expense.  For 2007, 2006 and 2005, the excess
interest primarily relates to the interest incurred on the non-recourse debt
from our investment properties.





2007 compared to
2006


For the
year ended December 31, 2007, interest expense decreased $849,000 or 12% to
$6,208,000 as compared to $7,057,000 for the same period of 2006.  The
decrease in interest expense is attributable to the write off of deferred
financing costs related to the refinancing of one of the Puerto Rico apartment
properties in the fourth quarter of 2006, with no comparable write-offs for the
same period in 2007.


The
Company capitalized $180,000 of interest in the Puerto Rico segment in 2007
compared to $1,225,000 of interest capitalized in 2006.





2006 compared to
2005


Interest
expense for the year ended December 31, 2006 increased $7,893,000 to $7,057,000
compared to ($836,000) for the year ended December 31, 2005.  Interest
expense for the year increased $6,324,000 as a result of the adoption of EITF
04-05 and the addition of interest expense related to the apartment
partnerships’ non-recourse mortgages.  The remainder of the increase
is attributable to the $982,000 reversal of accrued interest in 2005 as a result
of the closing agreement reached with the IRS, with no comparable amount in
2006; and interest expense of $632,000 incurred in 2006 on the new office
building mortgage, compared to $105,000 in 2005.


The
Company capitalized $1,225,000 of interest in the Puerto Rico segment in 2006
compared to $1,371,000 of interest capitalized in 2005.





Minority
Interest in Consolidated Entities – Puerto Rico Operations:


As a
result in implementing EITF 04-05, our Puerto Rico segment now records minority
interest expense related to the minority partners’ share of the consolidated
apartment partnerships earnings and distributions to minority partners in excess
of their basis in the consolidated partnership.  Losses charged to the
minority interest are limited to the minority partners’ basis in the
partnership.  Because the minority interest holders in most of our
partnerships have received distributions in excess of their basis, we anticipate
volatility in minority interest expense.  Although this allows us to
recognize 100 percent of the income of the partnerships up to accumulated
distributions and losses in excess of the minority parnter’s basis previously
required to be recognized as our expense, we will be required to expense 100
percent of future distributions to minority partners and any subsequent
losses.


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2007 compared to
2006


Minority
interest for the year ended December 31, 2007 was $1,452,000 as compared to
$2,404,000 for the same period of 2006.  The $952,000 decrease in
minority interest expense was primarily the result of reduced regular
distributions from the surplus cash and reduced distributions from refinancings
to the minority owners in excess of their basis from our consolidated apartment
partnerships for the year ended December 31, 2007 compared to the same period in
2006.  In the second quarter of 2006, the Company made distributions
of $1,100,000 to the limited partners of Colinas de San Juan related to the
mortgage refinancing of the related properties.    In the
first quarter of 2007, the company made refinancing distributions of $400,000 to
the limited partners of Carolina Associates related to the mortgage refinancing
of the related properties.  The remainder of the difference represents
a decrease in the operating cash distributions made between the respective
periods.





2006 compared to
2005


Minority
interest for the year ended December 31, 2006, was $2,404,000 as compared to
zero for the year ended December 31, 2005.  The minority interest
expense for the period was primarily the result of distributions to the minority
owners in excess of their basis from our consolidated apartment
partnerships.  During 2006, surplus cash distributions of $1,249,000
were made from the consolidated apartment partnerships to the minority owners in
excess of their basis.  In addition, the mortgage of one of our
consolidated apartment partnerships was refinanced and as a result, additional
distributions of $1,100,000 were made to the minority partners.





Provision
for Income Taxes – Puerto Rico Operations:


The
effective tax rate for 2007, 2006 and 2005 were 43%, 28% and (20)%,
respectively.  The statutory rate is 29%.  The difference in the
statutory tax rate and the effective tax rate for the year ended December 31,
2007 is primarily due to the double taxation on the earnings of our wholly owned
corporate subsidiary, ICP.  As a result of a non-recurring gain
recorded in the first quarter 2007 related to its investment in El Monte, ICP’s
current taxes payable and ACPT’s related deferred tax liability on the ICP
undistributed earnings experienced a considerable increase.  The
effective tax rate for the year ended December 31, 2006 differs from the
statutory rate due to U.S. taxes on Puerto Rico source income without the full
benefit of the foreign tax credit offset by special tax exempt income.  The
difference in the statutory tax rate and the effective tax rate for the year
ended December 31, 2005 is primarily the result of the resolution of income tax
matters, which resulted in a benefit to income taxes of $2,421,000.





LIQUIDITY
AND CAPITAL RESOURCES





Summary
of Cash Flows


As of
December 31, 2007, the Company had cash and cash equivalents of $24,912,000 and
$20,223,000 in restricted cash.  The following table sets forth the
changes in the Company’s cash flows ($ in thousands):


Years
      Ended December 312007
            
            
            2006
            
            
            2005Operating
      Activities
            
            $
            (5,466
            )
            
            $
            9,317
            
            
            $
            (3,148
            )Investing
      Activities
            
            
            (7,350
            )
            
            
            (39,161
            )
            
            
            (9,265
            )Financing
      Activities
            
            
            10,269
            
            
            
            36,147
            
            
            
            17,431Net
      Increase in Cash
            
            $
            (2,547
            )
            
            $
            6,303
            
            
            $
            5,018





Operating
Activities


For the
year ended December 31, 2007, operating activities used $5,466,000 of cash flows
compared to $9,317,000 of cash flows provided by operating activities for the
year ended December 31, 2006.  The $14,783,000 decrease in cash flows
from operating activities was primarily related to the $12,258,000 decrease in
homebuilding sales between periods and a decrease in community development land
sales of $6,481,000.  Operating cash flows were also impacted by
$30,087,000 of additions to our community development assets for the year ended
December 31, 2007, $4,967,000 in excess of the additions during the same period
of 2006.  These uses of cash were offset by a decrease of $5,694,000
in our homebuilding expenditures for the year ended December 31, 2007, as
compared to the same period in 2006.  The Torres project was
undergoing significant construction during 2006, which was substantially
completed by year end December 31, 2006.  In addition, the company
received a $2,000,000 fee during the second quarter 2007 related to a right of
way agreement, which was recorded as a reduction in the basis of the
project.  From period to period, cash flow from operating activities
is also impacted by changes in our net income, as discussed more fully above
under "Results of Operations," as well as other changes in our receivables and
payables.





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Investing
Activities


For the
year ended December 31, 2007, net cash used in investing activities was
$7,350,000 compared to $39,161,000 for the same period of 2006.  Cash
provided by or used in investing activities generally relates to increases in
our investment portfolio through acquisition, development or construction of
rental properties and land held for future use, net of returns on our
investments. The $31,811,000 decrease in the cash used in investing activities
between periods was primarily the result of $21,507,000 additions to our rental
property portfolio in the United States, through acquisition and construction
during the year ended December 31, 2006, compared to $7,542,000 in the same
period of 2007.  This decrease primarily related to the acquisition of
Milford I and Milford II during 2006, with no comparable acquisitions in
2007.  In addition, we invested $19,972,000 in the construction of
Sheffield Greens apartments during 2007 compared to $598,000 needed to complete
the construction in 2007.  These differences were partially offset by
the 11 additional properties added to our consolidation as of January 1, 2006,
under the new provisions of EITF-04-05, at which point we added $4,723,000 to
the consolidated cash balance.





Financing
Activities


For the
year ended December 31, 2007, net cash provided by financing activities was
$10,269,000 as compared to $36,147,000 for the year ended December 31,
2006.  This decrease in cash provided by financing activities was
primarily the result of the net differences in the timing of apartment
acquisitions, timing and increases in mortgage amounts for properties
refinanced, differences in county bond proceeds, dividends to shareholders and
debt curtailment from sales, differences between the years end December 31, 2007
and 2006.  During 2006, cash provided by financing activities included
the mortgages, $11,836,000, on the two properties acquired that year and
$22,351,000 of construction draws for Sheffield Greens Apartments.  We
borrowed $4,567,000 to complete Sheffield Greens and there were no other
acquisitions in 2007.  Distributions to minority property owners
decreased in 2007 compared to 2006 as a result of reduced refinancing
distributions between periods.  The Company paid dividends to
shareholders for the first three quarters of 2007, but suspended dividend
payments in the fourth quarter compared to four quarterly dividends and a
non-recurring special dividend distribution made in the comparable period of
2006.  Partially offsetting these decreases was an increase of
$1,430,000 in the addition proceeds generated from the refinancing of mortgages
and an increase in draws on the Charles County bond escrow during the year ended
December 31, 2007 compared to the same period in 2006. A decrease in debt
repayments from home sales as 2006 included curtailments of the Torres
construction loan with no curtailments recorded in 2007 since the facility was
repaid in December 2006 contributed to the offset.





Contractual
Financial Obligations





Recourse Debt - U.S.
Operations


On April
14, 2006, the Company closed a three-year $14,000,000 revolving 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.  The Company
was in compliance with these financial covenants as of December 31, 2007 even
though no amounts were outstanding on the Revolver.


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 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.




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In August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is anticipated to house a
planned minor league baseball stadium and entertainment
complex.  Under the terms of the MOU, the Company donated 42 acres of
land in St. Charles to the County on December 31, 2005. The Company also agreed
to expedite off-site utilities, storm-water management and road construction
improvements that will serve the entertainment complex and future portions of
St. Charles so that the improvements will be completed concurrently with the
entertainment complex.  The County will be responsible for
infrastructure improvements on the site of the complex. In return, the County
agreed to issue $7,000,000 of 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 March
2007.  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.  The County has agreed to provide and
additional $3 million from bond issuances in 2008 to complete this
project.


In
December 2006, the Company reached an agreement with Charles County whereby the
Company receives interest payments on any undistributed bond proceeds held in
escrow by the County.  The agreement covers the period from July 1,
2005, through the last draw made by the Company. For the years ended December
31, 2007 and 2006, the Company recognized $540,000 and $855,000 of interest
income on these escrowed funds, respectively.





Recourse Debt - Puerto Rico
Operations


Substantially
all of the Company's 490 acres of community development land assets in Parque El
Comandante within the Puerto Rico segment are encumbered by recourse debt.
 The homebuilding and land assets in Parque Escorial are unencumbered as of
December 31, 2007.  On September 1, 2006, LDA secured a revolving line
of credit facility of $15,000,000 to be utilized as follows: (i) to repay its
outstanding loan of $800,000; and (ii) to fund development costs of a project in
which the Company plans to develop a planned community in Canovanas, Puerto
Rico, to fund acquisitions and/or investments mainly in real estate ventures, to
fund transaction costs and expenses, to fund future payments of interest under
the line of credit and to fund any future working capital needs of the
Company.  The line of credit bears interest at a fluctuating rate
equivalent to the LIBOR Rate plus 200 basis points (7.23% at December 31, 2007)
and matures on August 31, 2008.  The outstanding balance of this
facility on December 31, 2007, was $1,725,000.





Non-Recourse Debt - U.S.
Operations


As more
fully described in Note 4 to our Consolidated Financial Statements included in
this Form 10-K, the non-recourse apartment properties' debt is collateralized by
apartment projects.  As of December 31, 2007, approximately 38% of this
debt is secured by the Federal Housing Administration ("FHA") or the Maryland
Housing Fund.  Material changes during 2007 to the Non-Recourse debt
consists of newly acquired debt and the refinancing of existing
debt.


Non-recourse
debt within our U.S. operations also includes the conversion, on October 16,
2007, of the construction loan to a $27,008,000 40 year non-recourse mortgage on
our newest property, Sheffield Greens Apartments.   The loan has
a fixed interest rate of 5.47%, and requires principal and interest payments
until maturity. The loan is subject to a HUD regulatory agreement and provides
for covenants and events of default that are customary for mortgage loans
insured by the Federal Housing Authority.


On
January 31, 2007, Coachman’s Apartments, LLC (“Coachman’s”), a majority-owned
subsidiary of the Company, secured a non-recourse mortgage of $11,000,000. The
ten-year loan, amortized over 30 years, has a fixed interest rate of 5.555%,
requires principal and interest payments through maturity and a balloon payment
at the maturity date, February 1, 2017. The prior mortgage of $6,020,000 was
repaid and the net proceeds from the refinancing were used for overall apartment
property improvements, the repayment of recourse debt, and to fund other
development activities.


On
February 1, 2007, Village Lake Apartments, LLC (“Village Lake”), a
majority-owned subsidiary of the Company, secured a non-recourse mortgage of
$9,300,000. The ten-year loan, amortized over 30 years, has a fixed interest
rate of 5.72%, requires principal and interest payments through maturity and a
balloon payment at the maturity date, February 1, 2017. The prior mortgage of
$6,981,000 was repaid and the net proceeds from the refinancing were used for
overall apartment property improvements, the repayment of recourse debt, and to
fund other development activities.





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Non-Recourse Debt - Puerto
Rico Operations


As more
fully described in Note 4 to our Consolidated Financial Statements included in
this Form 10-K, the non-recourse debt is collateralized by the respective
multifamily apartment project or commercial building.  As of December 31,
2007, approximately 1% of this debt is secured by the Federal Housing
Administration ("FHA").  There were no significant changes to our
non-recourse debt obligations during the year ended December 31,
2007.





Purchase Obligations and
Other Contractual Obligations


In
addition to our contractual obligations described above, we have other purchase
obligations consisting primarily of contractual commitments for normal operating
expenses at our apartment properties, recurring corporate expenditures including
employment, consulting and compensation agreements and audit fees, non-recurring
expenditures such as improvements at our investment properties, the construction
of the new projects in St. Charles, costs associated with our land development
contracts for the County’s road projects and  the development of our
land in the U.S. and Puerto Rico. Our U.S. and Puerto Rico land development and
construction contracts are subject to increases in cost of materials and labor
and other project overruns. Our overall capital requirements will depend upon
acquisition opportunities, the level of improvements on existing properties and
the cost of future phases of residential and commercial land
development.  As of December 31, 2007, the Company had approximately
$37 million of total outstanding purchase obligations.





As of
December 31, 2007, the Company has $15,954,000 recorded as accrued income tax
liabilities and $2,814,000 as accrued interest on unpaid income tax liabilities
related to uncertain tax positions as required by the provisions of FIN
48.  We are unable to reasonably estimate the ultimate amount or
timing of settlement of these liabilities. See Note 10 in the Notes to
Consolidated Financial Statements for further discussion.





Liquidity
Requirements


Our
short-term liquidity requirements consist primarily of obligations under capital
and operating leases, normal recurring operating expenses, regular debt service
requirements, non-recurring expenditures and certain strategic planning
expenditures.  The Company has historically met its liquidity
requirements from cash flow generated from residential and commercial land
sales, home sales, property management fees, rental property revenue, and
financings


Pursuant
to agreements with the Charles County Commissioners, the Company is committed to
completing $19.0 million of infrastructure. The Company anticipates the
completion of several of these projects in 2008 which will open up access to
future villages and satisfy certain obligations to the Charles County
Commissioners.  The Company anticipates total development spending
related to these infrastructure projects of $7,205,000 for 2008.  As
of December 31, 2007, $2,294,000 of County bond proceeds remains available to
fund select portions of this development.  In addition, the Company
anticipates the issuance of another $3,000,000 bond in March of 2008, of which
$1,979,000 is expected to fund development in 2008.   In
addition, $8.2 million of development is currently under contract and is
expected to be incurred over the next 12 months.  The difference
between the cost of these projects and any bond proceeds available to fund these
expenditures will be funded out of cash flow and/or our $14,000,000 revolving
credit facility.  We currently have contracts in place for an
additional $486,000 of planning and development costs in Puerto Rico of which
$250,000 is expected to be incurred in 2008.  Our $15,000,000 credit
facility will be used to fund these expenditures.  Further, we may
seek additional development loans and permanent mortgages for continued
development and expansion of other parts of St. Charles and Parque Escorial,
potential opportunities in Florida  and other potential rental
property opportunities.


In July
2007, J. Michael Wilson filed a Form 13 D/A announcing the Wilson family’s
intentions to obtain an investor for a potential management buyout of the
company. During 2008, ACPT will incur expenses related to any proposed
transaction presented to the Special Committee of ACPT’s Board of Trustees, as
well as strategic planning expenses.




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Management
has noted a current reduction in the demand for residential real estate in the
St. Charles and Parque Escorial markets.  Should this reduced demand
result in a significant decline in the prices of real estate in the St. Charles
and Parque Escorial markets or defaults on our sales contracts, it could
adversely impact our cash flows.  Although Lennar is contractually
obligated to take 200 lots per year, the market is not currently sufficient to
absorb this sales pace.  Accordingly, Lennar’s management requested
and the Company granted a reduction of the 200 lot requirement for
2007.   Management agreed to accept a total of 78 lots as
satisfaction of their lot takedown requirement for 2007.  In addition,
the Company agreed to a temporary price reduction to 22.5% of the selling price
of the home for 100 lots, 49 of which Lennar agreed purchase prior to June 1,
2008. Should  Lennar not comply with their obligations pursuant our
amended contract or  there be a reduced demand for our commercial
property our cash flow would be adversely impacted.


As
a result of our existing commitments and the downturn in the residential real
estate market, management expects to use its resources conservatively in
2008.  As such, the Board of Trustees elected not to award 2007
bonuses to executive management or declare a dividend to our shareholders for
the first quarter 2008. Anticipated cash flow from operations, existing loans,
refinanced or extended loans, and new financing are expected to meet our
financial commitments for the next 12 months. However, there are no assurances
that these funds will be generated.    The Company will
evaluate and determine on a continuing basis, depending upon market conditions
and the outcome of events described under the section titled "Forward-Looking
Statements," the most efficient use of the Company's capital, including
acquisitions and dispositions, purchasing, refinancing, exchanging or retiring
certain of the Company's outstanding debt obligations, distributions to
shareholders and its existing contractual obligations.





DEBT
GUARANTEES AND OTHER OBLIGATIONS


ACPT and its subsidiaries typically
provide guarantees for another subsidiary’s loan or letters of credit. In many
cases more than one company guarantees the same debt. All of these companies are
consolidated and the debt or other financial commitment is included in ACPT’s
consolidated financial statements.  These guarantees should not impair
our ability to conduct our business through our subsidiaries or to pursue our
development plans.





IMPACT
OF INFLATION AND CHANGING PRICES


Inflation
has been moderate in recent years. In general, we attempt to minimize any
inflationary effect by increasing our market rents, land prices and home
prices.  However, in recent history, the increases in the HUD
subsidies for the Puerto Rico multifamily rental properties have not offset the
increases in the operating costs of the related properties resulting in a
negative impact on our cash flow.





INTERCOMPANY
DIVIDEND RESTRICTIONS


A significant portion of our debt and
regulatory agreements require us to abide by covenants which, among other
things, limit the availability of our subsidiaries to pay dividends or
distributions.  The regulatory agreements governing the apartment
properties limit the dividend to annual or semi-annual distributions of no more
than surplus cash. In addition, within the Puerto Rico segment the
distributions of two multifamily rental property partnerships are limited;
one is limited to a specified annual cumulative rate of 6% and another
is limited to a maximum distribution amount of $146,000.  These
restrictions are not expected to impair our ability to conduct our business
through our subsidiaries or to pursue our development plans.  Further,
these partnerships have made distributions or have accumulated losses in excess
of the investment, resulting in equity deficits.  Accordingly, no
equity is restricted related to these subsidiaries as of December 31,
2007.


As discussed above, during 2006 the
Company closed on the Revolver, a $14,000,000 revolving credit
facility.  The Revolver requires that ALD have a Senior Debt to Equity
Ratio, as defined by the agreement, of not more than 3 to 1.  As of
December 31, 2007, no balances were outstanding on the Revolver, and
accordingly, no amounts were restricted at year end.





ACPT
DIVIDEND RESTRICTIONS


In addition to the ALD Senior Debt to
Equity covenant, the Revolver requires ACPT to maintain a Minimum Net Worth of
$10,862,000.  As of December 31, 2007, no balances were outstanding on
the Revolver, and accordingly, no amounts were restricted at year
end.





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INSURANCE
AND RISK OF UNINSURED LOSS


We carry
various lines of insurance coverage for all of our investment properties,
including property insurance and believe that we are adequately covered against
normal risks. These policies, and other insurance policies we carry, have policy
specifications, insured limits and deductibles that we consider commercially
reasonable.


We
renewed our insurance coverage on May 1, 2006 for our Puerto Rico operations and
October 1, 2006 for our U.S. operations for one-year policy terms. Although the
insurance coverage provided for in the renewal policies did not materially
change from the preceding year, our overall premium costs decreased by 1% as
compared to the prior policy year.


Mold
growth may occur when excessive moisture accumulates in buildings or on building
materials, particularly if the moisture problem remains undiscovered or is not
addressed over a period of time. Although the occurrence of mold at multifamily
and other structures, and the need to remediate such mold, is not a new
phenomenon, there has been increased awareness in recent years that certain
molds may in some instances lead to adverse health effects, including allergic
or other reactions. To help limit mold growth, we educate residents about the
importance of adequate ventilation and request or require that they notify us
when they see mold or excessive moisture. We have established procedures for
promptly addressing and remediating mold or excessive moisture from apartment
homes when we become aware of its presence regardless of whether we or the
resident believe a health risk is present.  However, we cannot assure
that mold or excessive moisture will be detected and remediated in a timely
manner. If a significant mold problem arises at one of our properties, we could
be required to undertake a costly remediation program to contain or remove the
mold from the affected community and could be exposed to other liabilities. We
cannot assure that we will have coverage under our existing policies for
property damage or liability to third parties arising as a result of exposure to
mold or a claim of exposure to mold at one of our apartment
properties.





OFF-BALANCE
SHEET ARRANGEMENTS


We do not
have any off-balance sheet arrangements within the meaning of SEC Regulation S-K
Item 303(a)(4).





ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY
DATA


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Report
of Independent Registered Public Accounting Firm





To the
Board of Trustees and Shareholders of


American
Community Properties Trust





We have
audited the accompanying consolidated balance sheets of American Community
Properties Trust and subsidiaries (a Maryland real estate investment trust) (the
“Company”) as of December 31, 2007 and 2006, and the related consolidated
statements of income, changes in shareholders’ equity and cash flows for each of
the three years in the period ended December 31, 2007. Our audits also included
the financial statement schedule listed in the Index at Item 15(a). These
consolidated financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  We were
not engaged to perform an audit of the Company's internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of American Community
Properties Trust and subsidiaries at December 31, 2007 and 2006, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.





As
discussed in Note 2 to the consolidated financial statements, in 2006 the
Company adopted the provisions of Emerging Task Force Issue 04-5, “Determining
Whether a General Partner, or the General Partner, as a Group Controls a Limited
Partnership or Similar Entity When the Limited Partners Have Certain
Rights.”





As
discussed in Note 2 to the consolidated financial statements, in 2007 the
Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes.”





/s/ Ernst
& Young LLP





McLean,
Virginia


March 13,
2008


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AMERICAN
      COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF INCOME(In
      thousands, except per share amounts)Years
      Ended December 31,2007
            
            
            2006
            
            
            2005RevenuesRental
      property revenues
            
            $
            60,722
            
            
            $
            54,029
            
            
            $
            22,566Community
      development-land sales
            
            
            14,486
            
            
            
            20,967
            
            
            
            22,800Homebuilding-home
      sales
            
            
            7,580
            
            
            
            19,838
            
            
            
            7,424Management
      and other fees, substantially all from related entities
            
            
            941
            
            
            
            1,228
            
            
            
            3,237Reimbursement
      of expenses related to managed entities
            
            
            1,647
            
            
            
            2,101
            
            
            
            6,286Total
      revenues
            
            
            85,376
            
            
            
            98,163
            
            
            
            62,313ExpensesRental
      property operating expenses
            
            
            30,644
            
            
            
            27,013
            
            
            
            10,790Cost
      of land sales
            
            
            11,169
            
            
            
            11,607
            
            
            
            14,233Cost
      of home sales
            
            
            5,549
            
            
            
            14,833
            
            
            
            6,122General,
      administrative, selling and marketing
            
            
            10,847
            
            
            
            9,212
            
            
            
            9,734Depreciation
      and amortization
            
            
            9,438
            
            
            
            8,402
            
            
            
            4,042Expenses
      reimbursed from managed entities
            
            
            1,647
            
            
            
            2,101
            
            
            
            6,286Total
      expenses
            
            
            69,294
            
            
            
            73,168
            
            
            
            51,207Operating
      Income
            
            
            16,082
            
            
            
            24,995
            
            
            
            11,106Other
      income (expense)Interest
      and other income
            
            
            1,392
            
            
            
            1,673
            
            
            
            895Equity
      in earnings from unconsolidated entities
            
            
            2,192
            
            
            
            682
            
            
            
            1,143Interest
      expense
            
            
            (18,726
            )
            
            
            (16,845
            )
            
            
            (5,363
            )Minority
      interest in consolidated entities
            
            
            (1,788
            )
            
            
            (3,020
            )
            
            
            (926
            )Income
      (loss) before provision (benefit) for income taxes
            
            
            (848
            )
            
            
            7,485
            
            
            
            6,855Provision
      (benefit) for income taxes
            
            
            (307
            )
            
            
            2,894
            
            
            
            (690
            )Net
      income (loss)
            
            $
            (541
            )
            
            $
            4,591
            
            
            $
            7,545Earnings/(loss)
      per share –Basic and Diluted
            
            $
            (0.10
            )
            
            $
            0.88
            
            
            $
            1.45Weighted
      average shares outstanding:Basic
      and Diluted
            
            
            5,207
            
            
            
            5,201
            
            
            
            5,195Cash
      dividends per share
            
            $
            0.30
            
            
            $
            0.83
            
            
            $
            0.40The
      accompanying notes are an integral part of these consolidated
      statements.


Note:* The income statement
for the year ended December 31, 2007 reflects the adoption
of  Financial Accounting Standards Board Interpretation No. 48
“Account for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007 (Refer
to Note 2 and 10).


The
income statement for the year ended December 31, 2007 and 2006 reflects the
adoption of 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”) on January 1, 2006 (Refer to Note 2).


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AMERICAN
      COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      BALANCE SHEETS(In
      thousands, except share and per share amounts)As
      of
              December
      31, 2007
            
            
            As
      of
              December
      31, 2006ASSETSASSETS:Investments
      in real estate:Operating
      real estate, net of accumulated depreciation
            
            $
            164,352
            
            
            $
            142,046of
      $150,292and $142,458 respectivelyLand
      and development costs
            
            
            84,911
            
            
            
            67,745Condominiums
      under construction
            
            
            4.460
            
            
            
            9,226Rental
      projects under construction or development
            
            
            853
            
            
            
            24,430Investments
      in real estate, net
            
            
            254,576
            
            
            
            243,447Cash
      and cash equivalents
            
            
            24,912
            
            
            
            27,459Restricted
      cash and escrow deposits
            
            
            20,223
            
            
            
            19,677Investments
      in unconsolidated real estate entities
            
            
            6,528
            
            
            
            6,591Receivable
      from bond proceeds
            
            
            5,404
            
            
            
            13,710Net
      accounts receivable
            
            
            2,676
            
            
            
            4,320Deferred
      tax assets
            
            
            34,075
            
            
            
            18,157Property
      and equipment, net of accumulated depreciation
            
            
            1,045
            
            
            
            1,157Deferred
      charges and other assets, net of amortization of$2,764
      and $1,655 respectively
            
            
            11,285
            
            
            
            12,181Total
      Assets
            
            $
            360,724
            
            
            $
            346,699LIABILITIES AND SHAREHOLDERS'
      EQUITYLIABILITIES:Non-recourse
      debt
            
            $
            279,981
            
            
            $
            270,720Recourse
      debt
            
            
            25,589
            
            
            
            29,351Accounts
      payable and accrued liabilities
            
            
            24,874
            
            
            
            24,191Deferred
      income
            
            
            3,214
            
            
            
            3,591Accrued
      current income tax liability
            
            
            14,620
            
            
            
            2,992Total
      Liabilities
            
            
            348,278
            
            
            
            330,845SHAREHOLDERS'
      EQUITYCommon
      shares, $.01 par value, 10,000,000 shares authorized,5,229,954
      shares shares issued and outstandingas
      of December 31, 2007 and December 31, 2006.
            
            
            52
            
            
            
            52Treasury
      stock, 67,709 shares at cost
            
            
            (376
            )
            
            
            (376
            )Additional
      paid-in capital
            
            
            17,377
            
            
            
            17,238Retained
      (deficit) earnings
            
            
            (4,607
            )
            
            
            (1,060
            )Total
      Shareholders' Equity
            
            
            12,446
            
            
            
            15,854Total
      Liabilities and Shareholders' Equity
            
            $
            360,724
            
            
            $
            346,699


The
accompanying notes are an integral part of these consolidated
statements.







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AMERICAN
      COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(In
      thousands, except share amounts)Common Shares
              
              
              
              
              
              Additional
              
              
              RetainedPar
              
              
              Treasury
              
              
              Paid-in
              
              
              (Deficit)Number
              
              
              Value
              
              
              Stock
              
              
              Capital
              
              
              Earnings
              
              
              TotalBalance
      December 31, 2004
              
              
              5,191,554
              
              
              $
              52
              
              
              $
              (376
              )
              
              $
              16,964
              
              
              $
              12,251
              
              
              $
              28,891Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              7,545
              
              
              
              7,545Dividends
      paid
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,048
              )
              
              
              (2,048
              )Issuance
      of shares to Trustees
              
              
              6,400
              
              
              
              -
              
              
              
              -
              
              
              
              102
              
              
              
              -
              
              
              
              102Balance
      December 31, 2005
              
              
              5,197,954
              
              
              
              52
              
              
              
              (376
              )
              
              
              17,066
              
              
              
              17,748
              
              
              
              34,490Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,591
              
              
              
              4,591Dividends
      paid
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,261
              )
              
              
              (4,261
              )Cumulative
      effect of change in accounting for EITF 04-05
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (19,138
              )
              
              
              (19,138
              )Issuance
      of shares and restricted shares to Trustees
              
              
              32,000
              
              
              
              -
              
              
              
              -
              
              
              
              172
              
              
              
              -
              
              
              
              172Balance
      December 31, 2006
              
              
              5,229,954
              
              
              
              52
              
              
              
              (376
              )
              
              
              17,238
              
              
              
              (1,060
              )
              
              
              15,854Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (541
              )
              
              
              (541
              )Dividends
      Paid
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,548
              )
              
              
              (1,548
              )Cumulative
      effect of change in accounting for FIN 48
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,458
              )
              
              
              (1,458
              )Vesting
      of restricted trustee shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              139
              
              
              
              -
              
              
              
              139Balance
      December 31, 2007
              
              
              5,229,954
              
              
              $
              52
              
              
              $
              (376
              )
              
              $
              17,377
              
              
              $
              (4,607
              )
              
              $
              12,446The
      accompanying notes are an integral part of these consolidated
      statements.


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AMERICAN
      COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)YEARS
      ENDED DECEMBER 31,2007
            
            
            2006
            
            
            2005Cash
      Flows from Operating ActivitiesNet
      income/(loss)
            
            $
            (541
            )
            
            $
            4,591
            
            
            $
            7,545Adjustments
      to reconcile net income/(loss) to net cash (used in)provided
      by operating activities:Depreciation
      and amortization
            
            
            9,438
            
            
            
            8,402
            
            
            
            4,042Distribution
      to minority interests in excess of basis
            
            
            1,988
            
            
            
            2,973
            
            
            
            922Benefit
      for deferred income taxes
            
            
            (6,044
            )
            
            
            (2,706
            )
            
            
            (4,248
            )Equity
      in earnings-unconsolidated entities
            
            
            (2,191
            )
            
            
            (682
            )
            
            
            (1,143
            )Distribution
      of earnings from unconsolidated entities
            
            
            692
            
            
            
            682
            
            
            
            1,388Cost
      of land sales
            
            
            11,169
            
            
            
            11,607
            
            
            
            14,233Cost
      of home sales
            
            
            5,549
            
            
            
            14,833
            
            
            
            6,122Stock
      based compensation expense
            
            
            12
            
            
            
            244
            
            
            
            1,036Amortization
      of deferred loan costs
            
            
            920
            
            
            
            1,588
            
            
            
            392Changes
      in notes and accounts receivable
            
            
            1,644
            
            
            
            (2,387
            )
            
            
            300Additions
      to community development assets
            
            
            (30,087
            )
            
            
            (25,120
            )
            
            
            (20,793
            )Right
      of way easement
            
            
            2,000
            
            
            
            -
            
            
            
            -Homebuilding-construction
      expenditures
            
            
            (744
            )
            
            
            (6,438
            )
            
            
            (13,068
            )Deferred
      income-joint venture
            
            
            (377
            )
            
            
            (370
            )
            
            
            (122
            )Changes
      in accounts payable, accrued liabilities
            
            
            1,106
            
            
            
            2,100
            
            
            
            246Net
      cash (used in) provided by operating activities
            
            
            (5,466
            )
            
            
            9,317
            
            
            
            (3,148
            )Cash
      Flows from Investing ActivitiesInvestment
      in office building and apartment construction
            
            
            (598
            )
            
            
            (19,972
            )
            
            
            (3,739
            )Change
      in investments - unconsolidated entities
            
            
            1,562
            
            
            
            61
            
            
            
            1,819Cash
      from newly consolidated properties
            
            
            -
            
            
            
            4,723
            
            
            
            -Change
      in restricted cash
            
            
            (546
            )
            
            
            136
            
            
            
            (936
            )Additions
      to rental operating properties, net
            
            
            (7,542
            )
            
            
            (21,507
            )
            
            
            (5,687
            )Other
      assets
            
            
            (226
            )
            
            
            (2,602
            )
            
            
            (722
            )Net
      cash used in investing activities
            
            
            (7,350
            )
            
            
            (39,161
            )
            
            
            (9,265
            )Cash
      Flows from Financing ActivitiesCash
      proceeds from debt financing
            
            
            24,957
            
            
            
            121,694
            
            
            
            38,494Payment
      of debt
            
            
            (21,129
            )
            
            
            (81,958
            )
            
            
            (20,481
            )County
      Bonds proceeds, net of undisbursed funds
            
            
            9,977
            
            
            
            3,645
            
            
            
            2,388Payments
      of distributions to minority interests
            
            
            (1,988
            )
            
            
            (2,973
            )
            
            
            (922
            )Dividends
      paid to shareholders
            
            
            (1,548
            )
            
            
            (4,261
            )
            
            
            (2,048
            )Net
      cash provided by financing activities
            
            
            10,269
            
            
            
            36,147
            
            
            
            17,431Net
      Increase (Decrease) in Cash and Cash Equivalents
            
            
            (2,547
            )
            
            
            6,303
            
            
            
            5,018Cash
      and Cash Equivalents, Beginning of Year
            
            
            27,459
            
            
            
            21,156
            
            
            
            16,138Cash
      and Cash Equivalents, End of Year
            
            $
            24,912
            
            
            $
            27,459
            
            
            $
            21,156The
      accompanying notes are an integral part of these consolidated
      statements.


-58-
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AMERICAN
COMMUNITY PROPERTIES TRUST


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




(1)
            ORGANIZATION





American Community Properties Trust
("ACPT") was formed on March 17, 1997 as a real estate investment trust under
Title 8 of the Corporations and Associates Article of the Annotated Code of
Maryland.  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 common shares of
ACPT, resulting in the division of IGC's operations into two
companies.


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.





ARPT


ARPT holds an ownership interest in 21
multifamily rental properties ("U.S. Apartment Properties") indirectly through
American Housing Properties L.P. ("AHP"), a Delaware partnership, in which ARPT
has a 99% limited partner interest and American Housing Management Company, a
wholly owned subsidiary of ARPT, has a 1% general partner interest.





ARMC


ARMC performs property management
services in the United States for the U.S. Apartment Properties and for other
rental apartments not owned by ACPT.





ALD


ALD owns and operates the assets of
ACPT's United States community development. These include the
following:


1.
            A
      100% interest in St. Charles Community LLC ("SCC LLC") which holds
      approximately 4,000 acres of land in St. Charles,
  Maryland.


2.
            The
      Class B interest in Interstate General Properties Limited Partnership
      S.E., a Maryland partnership ("IGP") that represents IGP's rights to
      income, gains and losses associated with the balance of the land in Parque
      Escorial in Puerto Rico held by Land Development Associates, S.E. ("LDA"),
      a wholly owned subsidiary of IGP.


3.
            Through
      SCC LLC, a 50% interest in a land development joint venture, St. Charles
      Active Adult Community, LLC
("AAC").





IGP
Group
 IGP Group owns and operates the assets
of ACPT's Puerto Rico division indirectly through a 99% limited partnership
interest and 1% general partner interest in IGP excluding the Class B IGP
interest transferred to ALD. IGP's assets and operations include:
 1.
              A
      100% partnership interest in LDA, a Puerto Rico special partnership, which
      holds 120 acres of land in the planned community of Parque Escorial and
      490 acres of land in Canovanas;
 2.
              General
      partner interests in 9 Puerto Rico apartment partnerships, and a limited
      partner interest in 1 of the 9 partnerships, these 9 partnerships own 12
      multifamily rental properties;
 3.
              A
      limited partnership interest in ELI, S.E. ("ELI"), that shares 45.26% of
      the future cash flow generated from a 30 year lease to the State Insurance
      Fund of the Government of Puerto
Rico;
 4.
              An
      indirect 100% ownership interest, through LDA and IGP, in Torres del
      Escorial, Inc. ("Torres"), a  Puerto Rico corporation organized
      to build 160 condominium units;
 5.
              A
      100% ownership interest in Escorial Office Building I, Inc. (“EOBI”) a
      Puerto Rico Corporation  that holds the operations of a
      three-story, 56,000 square feet office building;
  and
 6.
              A
      100% ownership interest in Interstate Commercial Properties, Inc. ("ICP"),
      a Puerto Rico corporation organized to hold a limited partner
      interest in El Monte Properties S.E.
("EMP").


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





Basis
of Presentation


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


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


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


Alturas
      del Senorial Associates Limited Partnership
            
            LDA
      Group, LLCAmerican
      Housing Management Company
            
            Milford
      Station I, LLCAmerican
      Housing Properties L.P.
            
            Milford
      Station II, LLCBannister
      Associates Limited Partnership
            
            Monserrate
      Associates Limited PartnershipBayamon
      Garden Associates Limited Partnership
            
            New
      Forest Apartments, LLCCarolina
      Associates Limited Partnership S.E.
            
            Nottingham
      South, LLCCoachman's
      Apartments, LLC
            
            Owings
      Chase, LLCColinas
      de San Juan Associates Limited Partnership
            
            Palmer
      Apartments Associates Limited PartnershipCrossland
      Associates Limited Partnership
            
            Prescott
      Square, LLCEscorial
      Office Building I, Inc.
            
            St.
      Charles Community, LLCEssex
      Apartments Associates Limited Partnership
            
            San
      Anton Associates S.E.Fox
      Chase Apartments, LLC
            
            Sheffield
      Greens Apartments, LLCHeaden
      House Associates Limited Partnership
            
            Torres
      del Escorial, Inc.Huntington
      Associates Limited Partnership
            
            Turabo
      Limited Dividend PartnershipInterstate
      Commercial Properties, Inc.
            
            Valle
      del Sol Associates Limited PartnershipInterstate
      General Properties Limited Partnership, S.E.
            
            Village
      Lake Apartments, LLCJardines
      de Caparra Associates Limited Partnership
            
            Wakefield
      Terrace Associates Limited PartnershipLancaster
      Apartments Limited Partnership
            
            Wakefield
      Third Age Associates Limited PartnershipLand
      Development Associates S.E.




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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.





Implementation
of FIN 48


Prior to
January 1, 2007, we recognized income tax accruals with respect to uncertain tax
positions based upon SFAS No. 5. Under SFAS No. 5, we recorded a liability
associated with an uncertain tax position if the liability was both probable and
estimable.


Effective
January 1, 2007, we adopted FIN 48, “Accounting for Uncertainty in Income
Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 requires that we
determine whether the benefits of our tax positions are more likely than not of
being sustained upon audit based on the technical merits of the tax position.
For tax positions that are at least more likely than not of being sustained upon
audit, we recognize the largest amount of the benefit that is more likely than
not of being sustained in our consolidated financial statements. For all other
tax positions, we do not recognize any portion of the benefit in our
consolidated financial statements. The provisions of FIN 48 also provide
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, and disclosure.




As a result of the implementation of
FIN 48, we recorded a $1,458,000 increase in the net liability for unrecognized
tax positions, which was recorded as a cumulative effect of a change in
accounting principle, reducing the opening balance of retained earnings on
January 1, 2007.  The total amount of unrecognized tax benefits as of
January 1, 2007, was $12,387,000.  Included in the
balance at January 1, 2007, were $239,000 of tax positions that, if
recognized, would impact the effective tax rate. In accordance with our accounting
policy, we present accrued interest related to uncertain tax positions as a
component of interest expense and we present accrued penalties as a component of
income tax expense on the Consolidated Statements of Income.  This
policy did not change as a result of the adoption of FIN 48.  See Note
10 for further discussion of Income Taxes.





Implementation
of EITF 04-05


As of
January 1, 2006, we consolidated 11 partnerships which were previously
unconsolidated as a result of the application of EITF 04-05.  Those
partnerships own, or control other entities that own, 14 multifamily rental
properties.  Our interests in the profits and losses of these
partnerships range from 1 to 50 percent. The Company recorded an overall
reduction to retained earnings of $19.1 million in a manner similar to a
cumulative effect of a change in accounting principle.  The retained
earnings impact is net of a deferred tax asset recorded of $9.8 million related
to temporary differences arising from the capital deficits absorbed by the
Company as a result of consolidating the partnerships.


In prior periods, we used the equity
method of accounting to account for our investments in the additional 11
partnerships that we consolidated in 2006 in accordance with EITF 04-05. Under
the equity method of accounting, we recognized partnership income or losses
based generally on our percentage interest in the partnership. Consolidation of
a partnership does not ordinarily result in a change to the net amount of the
partnership income or loss that is recognized using the equity method of
accounting. However, when consolidated real estate partnerships make cash
distributions or allocate losses to partners in excess of the minority partners’
basis in the property, generally accepted accounting principles require that the
consolidating partner record a charge equal to the amount of such excess
distribution. Certain of the partnerships that we consolidated in accordance
with EITF 04-05 had deficits in equity that resulted from losses and
distributions made to the partners in excess of basis during prior periods when
we accounted for our investment using the equity method of accounting. Had we
consolidated these entities in prior periods, we would have been required to
recognize the non-controlling partners’ share of those losses and distributions
in excess of basis.





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Summary
of Significant Accounting Policies




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, 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.





Revenue Recognition for
Rental Properties


Rental
income related to leases is recognized on an accrual basis when due from
residents and applicable government agencies in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition" and
SFAS No. 13, "Accounting for
Leases." In accordance with the Company's standard lease terms, rental
payments are generally due on a monthly basis. Any cash concessions given at the
inception of the lease are amortized over the approximate life of the lease,
which is generally one year. Leases entered into between a resident and a
partnership for the rental of an apartment unit are generally year-to-year,
renewable upon consent of both parties on an annual basis or monthly basis for
shorter term leases.





Allowance for Doubtful
Accounts


We record a provision for losses on
accounts receivable equal to the estimated uncollectible
amounts.  This estimate is based on our historical experience and a
review of the current status of the Company's receivables.  The
allowance for uncollectible receivables was $1,424,000 and $1,081,000 at
December 31, 2007 and 2006, respectively.





Management
Fees


The
Company recognizes revenue from property management, development and other
services in the period in which services are rendered and fees
earned.





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 years ended December 31, 2007, 2006 and 2005.




-62-
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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 years ended
December 31, 2007, 2006 and 2005.





Cost
Reimbursements


The apartment properties reimburse the
Company for certain costs incurred at the central office that are attributable
to the operations of those properties.  In accordance with EITF 01-14,
“Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred” the cost and
reimbursement of these costs are not included in general, administrative,
selling and marketing expenses, but rather they are reflected as separate line
items on the consolidated income statement.





Depreciable Assets and
Depreciation


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





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


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


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


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





Operating
Real Estate


The table
below presents the major classes of depreciable assets as of December 31, 2007
and 2006 (in thousands):


December
      31,
            
            
            December
      31,2007
            
            
            2006Building
            
            $
            265,115
            
            
            $
            240,264Building
      improvements
            
            
            10,414
            
            
            
            8,022Equipment
            
            
            13,603
            
            
            
            12,569289,132
            
            
            
            260,855Less:Accumulated
      depreciation
            
            
            150,292
            
            
            
            142,458138,840
            
            
            
            118,397Land
            
            
            25,512
            
            
            
            23,649Operating
      properties, net
            
            $
            164,352
            
            
            $
            142,046





Other
Property and Equipment


In
addition, the Company owned other property and equipment of $1,045,000 and
$1,157,000, net of accumulated depreciation of $2,294,000 and $2,101,000
respectively, as of December 31, 2007 and December 31, 2006
respectively.





Depreciation


Total
depreciation expense was $9,438,000, $8,402,000 and $4,042,000 for the years
ended December 31, 2007, 2006 and 2005, respectively.





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Acquired Real Estate
Properties


On April
28, 2006, the Company acquired two multifamily rental properties, Milford
Station I LLC and Milford Station II LLC, in Baltimore, Maryland containing a
combined total of 250 units for approximately $14,300,000.  On May 23,
2005, the Company, through its subsidiary AHP, completed the acquisition of
Nottingham South Apartments (Nottingham), a multifamily rental property in
Baltimore, Maryland containing 85 units for approximately $3,000,000. The
acquisitions were financed through a combination of cash and non-recourse debt
financing. All of the acquired properties are operating as market rate
properties.


We
allocated the purchase price of acquired properties to the related physical
assets (land and building) and in-place leases based on the fair values of each
component, in accordance with SFAS No. 141, "Business Combinations." The
value ascribed to in-place leases is based on the rental rates for the existing
leases compared to market rent for leases of similar terms and present valuing
the difference based on tenant credit risk rates. In preparing this calculation,
we considered the estimated costs to make an apartment unit rent ready, the
estimated costs and lost income associated with executing a new lease on an
apartment unit, and the remaining terms of leases in place. The Company
depreciates the amounts allocated to building and improvements over
40 years on a straight-line basis and amortizes the amounts allocated to
intangible assets relating to in-place leases, totaling $104,000 for the 2005
acquisition and $199,000 for the 2006 acquisition, over the remaining term of
the related leases, which term is no longer than one year.  As of
December 31, 2007, the intangible assets relating to the in-place leases for all
the acquired properties were fully amortized.





Investment in Unconsolidated
Apartment Partnerships


Pursuant to the respective partnership
agreements, the general partners of the unconsolidated partnerships are
prohibited from selling or encumbering their general partner interest or selling
the partnership assets without majority limited partner approval. The Company
accounts for its investments in unconsolidated apartment partnerships under the
equity method of accounting as the Company exercises significant influence, but
does not control these entities. Under the equity method of accounting the net
equity investment of the Company is reflected in the Consolidated Balance Sheets
and the Company’s share of net income from the partnership is included on the
Consolidated Statements of Income.


ACPT's investments consist of nominal
capital contributions, working capital loans and ACPT's share of unconsolidated
partnership income reduced by ACPT’s share of distributions and losses. The
working capital loans receive priority distributions from the cash flow
generated from the operations of the partnerships.





Minority Interest in
Consolidated Entities


We
reflect unaffiliated partners' interests in consolidated real estate
partnerships as an accrued liability on our consolidated balance
sheet.  This accrued liability in consolidated real estate
partnerships represents the minority partners' share of the underlying net
assets of our consolidated real estate partnerships.  When these
consolidated real estate partnerships make cash distributions or allocate losses
to minority limited partners in excess of the minority limited partners' basis
in the property, we generally absorb the excess losses and record a charge equal
to the amount of such excess distribution.  We report these charges
and the minority partners’ share of income during the current period in the
consolidated statements of income as minority interest in consolidated
entities.  Although this allows us to recognize 100 percent of the
income of the partnerships up to accumulated distributions and losses in excess
of minority partners’ basis previously required to be recognized as our expense,
we will be required to recognize as expense 100 percent of future distributions
to minority partners, net of our recapture of minority partner’s share of
income, and any subsequent losses.  For the years ended
December 31, 2007, 2006 and 2005, we recorded in the consolidated financial
statements charges for excess partnership losses and distributions to minority
partners of approximately $352,000, $2,211,000 and $542,000,
respectively.





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Cash and Cash
Equivalents


Cash and cash equivalents include cash
on hand, unrestricted deposits with financial institutions and short-term
investments with original maturities of three months or less.


Restricted cash and escrow deposits
include funds held in restricted escrow accounts used for maintenance and
capital improvements with the approval of HUD and/or the State Finance
Agency.  The account also includes tenant security deposits as well as
deposits collected within our homebuilding operations as well as funds in an
escrow account that are restricted for the repayment of the County
bonds.


Cash flow from our consolidated
apartment properties whose mortgage loans are insured by the Federal Housing
Authority ("FHA"), or financed through the housing agencies in Maryland,
Virginia or Puerto Rico (the "Financing Agencies,") are subject to guidelines
and limits established by the apartment partnerships' regulatory agreements with
HUD and the State Financing Agencies. For two of our Puerto Rico partnerships,
the regulatory agreements also require that if cash from operations exceeds the
allowable cash distributions, the surplus must be deposited into restricted
escrow accounts held by the mortgagee and controlled by HUD or the applicable
Financing Agency.





Income
Taxes


The Company's complex tax structure
involves foreign source income and multiple entities that file separate
returns.  Due to the complex nature of tax regulations affecting our
entities, our income tax expense and related balance sheet amounts involve
significant management estimates and judgments.


ACPT was structured in a manner so as
not to be subject to U.S. income taxes provided that its income constituted
qualifying income for purposes of the Publicly Traded Partnership (“PTP”)
provisions of the Internal Revenue Code. ACPT's shareholders are expected to be
taxed directly on their share of ACPT's income. ALD and ARMC are subject to
federal and state tax at the applicable corporate rates. ARPT qualified as a
real estate investment trust during 1998, but did not meet the ownership
requirements in 1999. Therefore, commencing in 1999, ARPT has been taxed as an
U.S. C corporation. ARMC and ALD are also taxed as U.S. Corporations.
Furthermore, ACPT, ALD and ARMC are subject to Puerto Rico income tax on its
Puerto Rico source income.





Earnings Per Share and
Dividends


The Company follows the provisions of
SFAS No. 128, “Earnings per
Share.” The calculation of
basic earnings per share is based on the average number of common shares
outstanding during the period. The calculation of diluted earnings per share
includes the effect of all potentially dilutive securities (primarily unvested
restricted share grants as described in Note 8). For 2007, 7,000 shares were
excluded from diluted shares due to their antidilution effect on earnings per
share.  The following table presents the number of shares used in the
calculation of basic earnings per share and diluted earnings per share (in
thousands, except per share data):





Year
      Ended December 312007
            
            
            2006
            
            
            2005Net
      income/(loss)
            
            $
            (541
            )
            
            $
            4,591
            
            
            $
            7,545Weighted
      average shares outstanding:Basic
      and Diluted
            
            
            5,207
            
            
            
            5,201
            
            
            
            5,195Earnings/(loss)
      per share:Basic
      and Diluted
            
            $
            (0.10
            )
            
            $
            0.88
            
            
            $
            1.45








The Company accrues for dividends when
declared.  During the year ended December 31, 2007, the Company
declared and paid cash dividends of $0.30 per share on 5,229,954 common shares
outstanding.  During the year ended December 31, 2006, the Company
declared and paid cash dividends of $0.73 per share on 5,197,954 common shares
outstanding and $0.10 per share on 5,229,954 common shares
outstanding.  During the year ended December 31, 2005, the Company
declared and paid cash dividends of $0.20 per share on 5,191,554 common shares
outstanding and $0.20 per share on 5,197,954 common shares
outstanding.





Share Based
Payments


Prior to
2006, we applied the provisions of Statement of Financial Accounting Standard
No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”) to our Share Appreciation Rights
outstanding (see Note 8). SFAS 123 provided that liability based awards be
accounted for using the intrinsic value.  Effective January 1, 2006,
we adopted Statement of Financial Accounting Standard (SFAS) No. 123(R) “Share Based Payment,” a
revision of SFAS No. 123.  Under the new guidance, liability
instruments are measured at fair value as opposed to intrinsic value. In
addition SFAS 123R requires that we measure the total compensation cost for
equity based payments at the grant date fair value and amortize the expense over
the related service period.  We adopted the provisions of SFAS 123(R)
using the modified prospective application method.  The implementation
of SFAS 123(R) did not have a material impact on our financial
statements.


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Comprehensive
Income


ACPT has no items of comprehensive
income that would require separate reporting in the accompanying consolidated
statements of shareholders' equity.





Reclassification


Certain amounts from prior years have
been reclassified to conform to our current year's presentation.





Use of
Estimates


The preparation of financial statements
in conformity with U.S. generally accepted accounting principles, which we refer
to as GAAP, requires management to make estimates and assumptions that affect
the amounts reported in the financial statements, and accompanying notes and
disclosures. These estimates are prepared using management’s best judgement,
after considering past and current events and economic
conditions.  Actual results could differ from those
estimates.





Impact
of Recently Issued Accounting Standards





SFAS
157 and 159


In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and
in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.”SFAS 157 defines fair
values as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the market
in which the reporting entity transacts. SFAS 157 applies whenever other
standards require assets or liabilities to be measured at fair value and does
not expand the use of fair value in any new circumstances. SFAS 157 establishes
a hierarchy that prioritizes the information used in developing fair value
estimates. The hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, such as the reporting
entity’s own data. SFAS 157 requires fair value measurements to be disclosed by
level within the fair value hierarchy. SFAS 157 is effective for fiscal years
beginning after November 15, 2007.


SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The fair value election is designed to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  SFAS 159 is effective for fiscal years beginning after
November 15, 2007.  The Company believes that the implementation of
SFAS 157 and 159 will 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.





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.





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EITF
Issue No. 06-08


In
November 2006, the Emerging Issues Task force of the FASB (“EITF”) reached a
consensus on EITF Issue No. 06-08, “Applicability of a Buyer’s
Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real
Estate, for Sales of Condominiums” (“EITF 06-08”).  EITF 06-08
will require condominium sales to meet the continuing investment criterion in
FAS No. 66 in order for profit to be recognized under the
percentage-of-completion method.  EITF 06-08 will be effective for
annual reporting periods beginning after March 15, 2007.  The
cumulative effect of applying EITF 06-08, if any, is to be reported as an
adjustment to the opening balance of retained earnings in the year of
adoption.  The Company believes that the implementation of EITF 06-08
will 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 December 31, 2007 and December 31,
2006 included Brookside Gardens Limited Partnership (“Brookside”) and Lakeside
Apartments Limited Partnership (“Lakeside”) that collectively represent 110
rental units.  We have determined that these two entities are variable
interest entities under FIN 46(R).  However, the Company is not
required to consolidate the partnerships due to the fact that  the
Company is not the primary beneficiary and does not bear the majority of the
risk of expected losses. The Company holds an economic interest in Brookside and
Lakeside but, as a general partner, we have significant influence over
operations of these entities that is disproportionate to our economic
ownership.  In accordance with SOP 78-9 and APB No. 18, these
investments are accounted for under the equity method.  The Company is
exposed to losses consisting of our net investment, loans and unpaid fees for
Brookside of $231,000 and $189,000 and for Lakeside of $172,000 and $172,000 as
of December 31, 2007, and December 31, 2006, respectively.  All
amounts are fully reserved. Pursuant to the partnership agreement for Brookside,
the Company, as general partner, is responsible for providing operating deficit
loans to the partnership in the event that it is not able to generate sufficient
cash flows from its operating activities.





Commercial
Partnerships


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


On April
30, 2004, the Company purchased a 50% limited partnership interest in El Monte
Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family, a
related party. In December 2004, a third-party buyer purchased El Monte for
$20,000,000; $17,000,000 in cash and $3,000,000 in two notes of $1,500,000 each
that bear an interest rate of prime plus 2%, with a ceiling of 9%, and mature on
December 3, 2009. The net cash proceeds from the sale of the real estate were
distributed to the partners. As a result, the Company received $2,500,000 in
cash and recognized $986,000 of income in 2004. The gain on sale was reduced by
the amount of the seller's note which is subject to future subordination. In
January 2005, El Monte distributed the notes to the partners whereby the Company
received a $1,500,000 note.  The Company determined that the cost
recovery method of accounting was appropriate for this transaction and
accordingly, deferred revenue recognition on this note until cash payment was
received.  In January 2007, the Company received $1,707,000, equal to
the full principal amount due plus all accrued interest outstanding and,
accordingly, recognized $1,500,000 of equity in earnings from unconsolidated
entities and $207,000 of interest income.  The Company has no required
funding obligations and management expects to wind up El Monte’s affairs in
2008.





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Land
Development Joint Venture


In
September 2004, the Company entered into a joint venture agreement with Lennar
Corporation for the development of a 352-unit, active adult community located in
St. Charles, Maryland.  The Company manages the project's development
for a market rate fee pursuant to a management agreement.  In
September 2004, the Company transferred land to the joint venture in exchange
for a 50% ownership interest and $4,277,000 in cash.  The Company's
investment in the joint venture was recorded at 50% of the historical cost basis
of the land with the other 50% recorded within our deferred charges and other
assets.  The proceeds received are reflected as deferred revenue. The
deferred revenue and related deferred costs will be recognized into income as
the joint venture sells lots to Lennar.  In March 2005, the joint
venture closed an $8.0 million non-recourse development loan, which was amended
in June 2006, December 2006 and again in October 2007.  Included
within these amendments, the maximum borrowings outstanding on the facility was
reduced to $5.0 million.  For the October 2007 amendment, the
development loan was modified to provide a one year delay in development of the
project, as to date, lot development has outpaced sales.  Per the
terms of the loan, both the Company and Lennar provided development completion
guarantees.  For the year ended December 31, 2007, 2006 and 2005, the
joint venture delivered 48, 61 and 25 lots to Lennar, recognizing $1,063,000,
$1,300,000 and $610,000 in deferred revenue, off-site fees and management fees
and $358,000. $419,000 and $176,000 of deferred costs,
respectively.


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


LandDevelopmentApartment
            
            
            Commercial
            
            
            JointProperties
            
            
            Property
            
            
            Venture
            
            
            Total(in
      thousands)Summary
      Financial Position:Total
      AssetsDecember
      31, 2007
            
            $
            4,980
            
            
            $
            27,379
            
            
            $
            12,397
            
            
            
            44,756December
      31, 2006
            
            
            5,142
            
            
            
            27,726
            
            
            
            12,154
            
            
            
            45,022Total
      Non-Recourse DebtDecember
      31, 2007
            
            
            3,189
            
            
            
            22,960
            
            
            
            4,722
            
            
            
            30,871December
      31, 2006
            
            
            3,244
            
            
            
            23,510
            
            
            
            3,476
            
            
            
            30,230Total
      Other LiabilitiesDecember
      31, 2007
            
            
            976
            
            
            
            147
            
            
            
            741
            
            
            
            1,864December
      31, 2006
            
            
            1,242
            
            
            
            172
            
            
            
            1,744
            
            
            
            3,158Total
      Equity/(Deficit)December
      31, 2007 (2)
            
            
            815
            
            
            
            4,272
            
            
            
            6,934
            
            
            
            12,021December
      31, 2006
            
            
            656
            
            
            
            4,044
            
            
            
            6,934
            
            
            
            11,634Company's
      Investment, net (1)December
      31, 2007
            
            
            (1
            )
            
            
            4,701
            
            
            
            1,828
            
            
            
            6,528December
      31, 2006
            
            
            -
            
            
            
            4,763
            
            
            
            1,828
            
            
            
            6,591





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LandDevelopmentApartment
            
            
            Commercial
            
            
            JointProperties
            
            
            Property
            
            
            Venture
            
            
            Total(in
      thousands)Summary
      of Operations:Total
      RevenueYear
      Ended December 31, 2007
            
            $
            811
            
            
            $
            3,636
            
            
            $
            4,983
            
            
            $
            9,430Year
      Ended December 31, 2006
            
            
            790
            
            
            
            3,660
            
            
            
            5,840
            
            
            
            10,290Year
      Ended December 31, 2005
            
            
            27,729
            
            
            
            3,658
            
            
            
            2,711
            
            
            
            34,098Net
      Income (Loss)Year
      Ended December 31, 2007
            
            
            (141
            )
            
            
            1,869
            
            
            
            -
            
            
            
            1,728Year
      Ended December 31, 2006
            
            
            (113
            )
            
            
            1,855
            
            
            
            -
            
            
            
            1,742Year
      Ended December 31, 2005
            
            
            1,384
            
            
            
            1,812
            
            
            
            -
            
            
            
            3,196Company's
      recognition of equity inEarnings
      (Loss)Year
      Ended December 31, 2007
            
            
            (1
            )
            
            
            692
            
            
            
            -
            
            
            
            691Year
      Ended December 31, 2006
            
            
            (1
            )
            
            
            683
            
            
            
            -
            
            
            
            682Year
      Ended December 31, 2005
            
            
            451
            
            
            
            692
            
            
            
            -
            
            
            
            1,143Summary
      of Cash Flows:Cash
      flows from operating activitiesYear
      Ended December 31, 2007
            
            $
            101
            
            
            $
            1,864
            
            
            $
            3,977
            
            
            $
            5,942Year
      Ended December 31, 2006
            
            
            95
            
            
            
            1,857
            
            
            
            6,579
            
            
            
            8,531Year
      Ended December 31, 2005
            
            
            6,460
            
            
            
            1,840
            
            
            
            759
            
            
            
            9,059Company's
      share of cash flows fromoperating
      activitiesYear
      Ended December 31, 2007
            
            
            1
            
            
            
            844
            
            
            
            1,989
            
            
            
            2,834Year
      Ended December 31, 2006
            
            
            1
            
            
            
            840
            
            
            
            3,290
            
            
            
            4,131Year
      Ended December 31, 2005
            
            
            2,131
            
            
            
            833
            
            
            
            379
            
            
            
            3,343Operating
      cash distributionsYear
      Ended December 31, 2007
            
            
            -
            
            
            
            1,641
            
            
            
            -
            
            
            
            1,641Year
      Ended December 31, 2006
            
            
            -
            
            
            
            1,639
            
            
            
            -
            
            
            
            1,639Year
      Ended December 31, 2005
            
            
            2,968
            
            
            
            1,600
            
            
            
            -
            
            
            
            4,568Company's
      share of operatingcash
      distributionsYear
      Ended December 31, 2007
            
            
            -
            
            
            
            754
            
            
            
            -
            
            
            
            754Year
      Ended December 31, 2006
            
            
            -
            
            
            
            743
            
            
            
            -
            
            
            
            743Year
      Ended December 31, 2005
            
            
            1,320
            
            
            
            740
            
            
            
            -
            
            
            
            2,060Refinancing
      cash distributionsYear
      Ended December 31, 2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Year
      Ended December 31, 2006
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Year
      Ended December 31, 2005
            
            
            100
            
            
            
            -
            
            
            
            2,320
            
            
            
            2,420Company's
      share of refinancingcash
      distributionsYear
      Ended December 31, 2007
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Year
      Ended December 31, 2006
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Year
      Ended December 31, 2005
            
            
            1
            
            
            
            -
            
            
            
            1,160
            
            
            
            1,161




Notes:


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


(2)
            In
      December 2007, the Company made a $300,000 equity contribution to Lakeside
      which was used by Lakeside to pay an equal portion of the of the
      Development Fee owed to the Company.  The Company both
      contributed and received the cash, and accordingly, the Company did not
      recognize fee income nor change its investment balance in
      Lakeside.





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(4)
            DEBT





The Company's outstanding debt is
collateralized primarily by land, land improvements, homebuilding assets,
receivables, investment properties, investments in partnerships, and rental
properties.  The following table summarizes the indebtedness of the
Company at December 31, 2007 and 2006 (in thousands):





Maturity
            
            
            Interest
            
            
            Outstanding
      as ofDates
            
            
            Rates
      (a)
            
            
            December
      31,
            
            
            December
      31,From/To
            
            
            From/To
            
            
            2007
            
            
            2006Recourse
      DebtCommunity
      Development (a) (b) (c)
            
            08-31-08/03-01-22
            
            
            4%/8%
            
            
            $
            25,490
            
            
            $
            24,694Investment
      Properties (d)
            
            PAID
            
            
            P+1.25%/6.98%
            
            
            
            -
            
            
            
            4,473General
      obligations (e)
            
            06-01-09/01-01-12
            
            
            Non-interestbearing/8.10%
            
            
            
            99
            
            
            
            184Total
      Recourse Debt
            
            
            
            
            
            
            
            
            
            
            25,589
            
            
            
            29,351Non-Recourse
      DebtCommunity
      Development (f)
            
            PAID
            
            
            Non-interest
      bearing
            
            
            
            -
            
            
            
            500Investment
      Properties (g)
            
            04-30-09/08-01-47
            
            
            4.95%/10 %
            
            
            
            279,981
            
            
            
            270,220Total
      Non-Recourse Debt
            
            
            
            
            
            
            
            
            
            
            279,981
            
            
            
            270,720Total
      debt
            
            
            
            
            
            
            
            
            
            $
            305,570
            
            
            $
            300,071





a)
            As
      of December 31, 2007, $23,765,000 of the community development recourse
      debt is owed to Charles County Commissioners and relates to the general
      obligation bonds issued by the Charles County government as described in
      detail under the heading "Financial Commitments" in Note
      5.


b)
            On
      April 14, 2006, the Company closed a three year $14,000,000 revolving
      acquisition and development loan (“the Revolver”) secured by a first lien
      deed  of trust on property located in St. Charles,
      MD.  The maximum amount of the loan at any one time is
      $14,000,000.  The facility includes various sub-limits on a
      revolving basis for amounts to finance apartment project acquisitions and
      land development in St. Charles.  The terms require certain
      financial covenants to be calculated annually as of December 31, including
      a tangible net worth to senior debt ratio for ALD and a minimum net worth
      test for ACPT.


c)
            On
      September 1, 2006, LDA secured a revolving line of credit facility of
      $15,000,000 to be utilized as follows: (i) to repay its outstanding loan
      of $800,000; and (ii) to fund development costs of a project in which the
      Company plans to develop a planned community in Canovanas, Puerto Rico, to
      fund acquisitions and/or investments mainly in estate ventures, to fund
      transaction costs and expenses, to fund future payments of interest under
      the line of credit and to fund any future working capital needs of the
      Company.  The line of credit bears interest at a fluctuating
      rate equivalent to the LIBOR Rate plus 200 basis points (7.23% at December
      31, 2007) and matures on August 31, 2008.  The outstanding
      balance of this facility on December 31, 2007, was
    $1,725,000.


d)
            The
      outstanding recourse debt within the investment properties was comprised
      of a loan borrowed to finance the acquisition of our properties Village
      Lake and Coachman's in January 2003, as well as a two-year, $3,000,000
      recourse note that the Company obtained in June 2005.  Both of these
      loans were repaid in full in January
2007.


e)
            The
      general recourse debt outstanding as of December 31, 2007, is made up of
      various capital leases outstanding within our U.S. and Puerto Rico
      operations, as well as installment loans for vehicles and other
      miscellaneous equipment.


f)
            In
      2005, the Company purchased 22 residential acres adjacent to the Sheffield
      Neighborhood for $1,000,000.  The Company funded half of the
      purchase price with cash and signed a two-year note for $500,000 which was
      repaid in full  prior to December 31, 2007.  The
      Company plans to annex the land into the St. Charles master plan
      community.


g)
            The
      non-recourse debt related to the investment properties is collateralized
      by the multifamily rental properties and the office building in Parque
      Escorial.  As of December 31, 2007, approximately $74,700,000 of
      this debt is secured by the Federal Housing Administration ("FHA") or the
      Maryland Housing Fund.  The non-recourse debt related to the
      investment properties also includes a construction loan for Sheffield
      Greens Apartments LLC (Sheffield Greens) that was converted to a 40-year
      non-recourse mortgage on October 16,
2007.





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The Company’s loans contain various
financial, cross collateral, cross default, technical and restrictive
provisions.  As of December 31, 2007, the Company is in compliance
with the financial covenants and the other provisions of its loan
agreements.





ACPT's weighted average interest rate
on the amounts outstanding at December 31, 2007 and 2006 on its variable rate
debt was 7.23% and 7.98%, respectively.





The aggregate minimum principal
maturities of ACPT's indebtedness at December 31, 2006 are as follows (in
thousands):





2008
            
            $
            7,0262009
            
            
            12,2442010
            
            
            5,7692011
            
            
            6,1072012
            
            
            6,432Thereafter
            
            
            267,992$
            305,570





The components of interest and other
financing costs, net, are summarized as follows (in thousands):





December
      31,2007
            
            
            2006
            
            
            2005Expensed
            
            $
            18,726
            
            
            $
            16,845
            
            
            $
            5,363Capitalized
            
            
            1,451
            
            
            
            2,729
            
            
            
            2,315$
            20,177
            
            
            $
            19,574
            
            
            $
            7,678








(5)
            COMMITMENTS
      AND CONTINGENT LIABILITIES





Financial
Commitments


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




-71-
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In August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is anticipated to house a
planned minor league baseball stadium and entertainment complex. Under the terms
of the MOU, the Company donated 42 acres of land in St. Charles to the County on
December 31, 2005. The Company also agreed to expedite off-site utilities,
storm-water management and road construction improvements that will serve the
entertainment complex and future portions of St. Charles so that the
improvements will be completed concurrently with the entertainment
complex.  In return, the County agreed to issue $7,000,000 of general
obligation bonds to finance the infrastructure improvements.  In March
2006, the County issued $4,000,000 of bonds for this project and in March 2007,
the County issued an additional $3,000,000.  The funds for this
project will be repaid by ACPT over a 15-year period. In addition, the County
agreed to issue an additional 100 school allocations a year to St. Charles
commencing with the issuance of bonds.


During
2006, the Company reached an agreement with Charles County whereby the Company
receives interest payments on any undistributed bond proceeds held in escrow by
the County.  The agreement covers the period from July 1, 2005 through
the last draw made by the Company.  For the years ended December 31,
2007 and 2006, the Company recognized $540,000 and $855,000 of interest income
on these escrowed funds, respectively.


As of December 31,
2007, ACPT is guarantor of $24,684,000 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 December 31, 2007, ACPT has
guaranteed $23,765,000 of outstanding debt owed by its
subsidiaries.  IGP has guaranteed $1,725,000 of its subsidiaries'
outstanding debt.  The guarantees will remain in effect until the debt
service is fully repaid by the respective borrowing subsidiary.  The
terms of the debt service guarantees outstanding range from one to nine
years.  In addition to debt service guarantees, both the Company and
Lennar provided development completion guarantees related to the St. Charles
Active Adult Community Joint Venture.  We do not expect any of these
guarantees to impair the individual subsidiary or the Company's ability to
conduct business or to pursue its future development plans.





Legal
Matters





Loiza
Valley


On
November 24, 1997, Comité Loiza Valley en Acción, Inc., resident owners of
Urbanización Loiza Valley in Canovanas, Puerto Rico, a neighborhood consisting
of 56 houses near the property owned by LDA, filed a claim in the Superior Court
of Carolina, Puerto Rico against Cantera Hipodromo, Inc. (the “lessee” who
operates a quarry on the land owned by LDA), the owners of the lessee, the
lessee’s Insurance Companies and LDA.  The Plaintiffs allege that as a
result of certain explosions occurring in the quarry, their houses have suffered
different types of damages and they have also suffered physical injuries and
mental anguish.  The damages claimed exceed
$11,000,000.  The physical damage to the property is estimated at less
than $1,000,000.  The lease agreement contains an indemnification
clause in favor of LDA.  The lessee has public liability insurance
coverage of $1,000,000 through Integrand Assurance Company and an umbrella
insurance coverage of $2,000,000 through American International Insurance
Company.  The trial began in 2007 and is expected to continue into the
first six months of 2008.





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Jalexis,
Inc


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”.  The Company believes that it has a strong defense in this case.
Depositions for all parties started in November 2007 and is expected to continue
into the first six months of  2008.





Due to
the inherent uncertainties of the judicial process, we are unable to either
predict the outcome of or estimate a range of potential loss associated with
these matters. While we intend to vigorously defend these matters and believe we
have meritorious defenses available to us, there can be no assurance that we
would prevail. If these matters are not resolved in our favor, we believe we are
insured for potential losses.  Any amounts that exceed our insurance
coverage could have a material adverse effect on our financial condition and
results of operations.





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 these 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 these ordinary course 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)
            LEASES





ACPT operates certain property and
equipment under leases, some with purchase options that expire at various dates
through 2010.  ACPT is also obligated under several non-cancelable
operating leases for office space and equipment.  Capital leases of
$98,000, exclusive of $13,000 of interest, are reported with general recourse
debt in the Debt Note (see Note 4). The following is a schedule of the future
minimum lease payments for operating leases as of December 31, 2007 (in
thousands):











OperatingObligations2008
            
            $
            4002009
            
            
            3632010
            
            
            2562011
            
            
            412012
            
            
            3Thereafter
            
            
            -Total
      minimum lease payments
            
            $
            1,063





Rental expense under non-cancelable
operating leases was $424,000 in 2007, $358,000 in 2006 and $441,000 in 2005 and
is included in general, administrative, selling and marketing expenses and
rental properties operating expenses in the accompanying consolidated statements
of income.








-73-
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ACPT leases office space to tenants
under certain non-cancelable operating leases expiring through
2015.  The following is a schedule of the future minimum payments to
be received as of December 31, 2007 (in thousands):





LeaseIncome2008
            
            $
            4102009
            
            
            4172010
            
            
            3592011
            
            
            832012
            
            
            -Thereafter
            
            
            -Total
      minimum lease payments
            
            $
            1,269











(7)
            RELATED
      PARTY TRANSACTIONS





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








CONSOLIDATED
      STATEMENT OF INCOME:Years
      Ended December 31,2007
            
            
            2006
            
            
            2005Management and Other Fees
    (A)Unconsolidated
      subsidiaries with third party partners
            
            $
            42
            
            
            $
            42
            
            
            $
            1,915Affiliates
      of J. Michael Wilson, CEO and Chairman
            
            
            43
            
            
            
            334
            
            
            
            619$
            85
            
            
            $
            376
            
            
            $
            2,534Rental Property Revenues
(B)
            
            $
            57
            
            
            $
            20
            
            
            $
            -Interest and Other IncomeUnconsolidated
      real estate entities with third party partners
            
            $
            8
            
            
            $
            8
            
            
            $
            8


-74-
 Table of Contents





Years
      Ended December 31,2007
            
            
            2006
            
            
            2005General and Administrative
      ExpenseAffiliates
      of J. Michael Wilson, CEO and Chairman
            
            
            (C1
            )
            
            $
            -
            
            
            $
            19
            
            
            $
            154Reserve
      additions and other write-offs-Unconsolidated
      real estate entities with third party partners
            
            (A)
            
            
            
            43
            
            
            
            5
            
            
            
            (18
            )IGC
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (3
            )Reimbursement
      to IBC for ACPT's share ofJ.
      Michael Wilson's compensation
            
            
            
            
            
            
            390
            
            
            
            470
            
            
            
            440Reimbursement
      of administrative costs-Affiliates
      of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            
            (23
            )
            
            
            (65
            )
            
            
            (21
            )Legal
      fees paid to J. Michael Wilson’s attorney
            
            
            (C4
            )
            
            
            225
            
            
            
            -
            
            
            
            -Consulting
      Fees -James
      J. Wilson, IGC Chairman and Director
            
            
            (C2
            )
            
            
            200
            
            
            
            200
            
            
            
            200Thomas
      J. Shafer, Trustee
            
            
            (C3
            )
            
            
            60
            
            
            
            60
            
            
            
            42$
            895
            
            
            $
            689
            
            
            $
            794








BALANCE
      SHEET:
              
              Balance
              
              BalanceDecember
      31,
              
              December
      31,2007
              
              2006Other AssetsReceivables
      - All unsecured and due on demandAffiliate
      of J. Michael Wilson, CEO and Chairman
              
              $                        5
              
              $                   128








(A)           Management
and Other Services


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


Chastleton
Associates, LP, previously owned by an affiliate of J. Michael Wilson, was sold
to a third party during April 2006, resulting in a termination of our management
agreement.  The Company earned an agreed-upon management fee for
administrative services through the end of the second quarter
2006.  Management fees generated by this property accounted for less
than 1% of the Company’s total revenue.


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





(B)                      Rental
Property Revenue


On
September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson
Family.  The lease provides for 1,842 square feet of office space to
be leased by CWT for five years at $19.00 per rentable square
foot.  The Company provided CWT with an allowance of $9,000 in tenant
improvements which are being amortized over the life of the lease.  In
addition, CWT shall have the right to terminate this lease at any time after one
year, provided it gives Landlord written notice six (6) months prior to
termination.   The lease agreement is unconditionally guaranteed
by Interstate Business Corporation (“IBC”), a company owned by the J. Michael
Wilson Family.





-75-
 Table of Contents


(C)           Other


Other transactions with related parties
are as follows:


1)
            In
      2005, the Company rented executive office space and other property from an
      affiliate in the United States pursuant to leases that were assigned to
      the new owners when the property was sold in January 2006.  In
      management’s opinion, all leases with affiliated persons were on terms at
      least as favorable as these generally available from unaffiliated persons
      for comparable property.


2)
            Represents
      fees paid to James J. Wilson pursuant to a consulting and retirement
      agreement.  At Mr. Wilson's request, payments are made to
      Interstate Waste Technologies, Inc.
(“IWT”).


3)
            Represents
      fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
      agreement.


4)
            The
      Independent Trustees concluded that certain legal fees and expenses
      incurred by J. Michael Wilson in connection with the preliminary work
      being done in seeking a strategic partner to recapitalize the Company are
      in the best interest of the Company and the minority
      shareholders.  Accordingly, the Independent Trustees authorized
      the Company to fund up to $225,000 of such costs, all of which have been
      incurred as of December 31, 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.





-76-
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(8)
            SHARE
      GRANTS AND APPRECIATION RIGHTS





ACPT adopted an employee share
incentive plan (the "Share Incentive Plan") and a Trustee share incentive plan
(the "Trustee Share Plan") to provide for share-based incentive compensation for
officers, key employees and Trustees.  Both plans expire July 7,
2008.


Under the Share Incentive Plan, the
Compensation Committee of the Board of Trustees (the "Compensation Committee")
may grant to key employees the following types of share-based incentive
compensation awards ("Awards") (i) options to purchase a specified number of
shares ("Options"), (ii) forfeitable shares that vest upon the occurrence of
certain vesting criteria ("Restricted Shares"), or (iii) Share Appreciation
Rights ("Rights") that entitle the holder to receive upon exercise an amount
payable in cash, shares or other property (or any combination of the foregoing)
equal to the difference between the market value of shares and a base price
fixed on the date of grant.  A total of 208,000 registered shares have
been reserved for issuance under the Share Incentive Plan.


The Share Incentive Plan authorizes the
Compensation Committee to determine the exercise price and manner of payment for
Options and the base price for Rights.  The Compensation Committee is
also authorized to determine the duration and vesting criteria for Awards,
including whether vesting will be accelerated upon a change in control of
ACPT.  The rights of key employees under Awards are not transferable
other than to immediate family members or by will or the laws of interstate
succession.


The Trustee Share Plan authorizes the
Board of Trustees, in its discretion, to grant to eligible Trustees awards of
the same types and terms of Awards as provided under the Share Incentive
Plan.  Only Trustees who are not employees of ACPT or any affiliated
company are eligible to receive Awards under the Trustee Share
Plan.  A total of 52,000 registered shares have been reserved for
issuance under the Trustee Share Plan.





Trustee Share
Grants


On August 28, 2006, the Company awarded
8,000 shares to each of its four non-employee Trustees pursuant to the Trustee
Share Plan.  The shares vest annually at a rate of 1,600 per year, per
Trustee, with the initial tranche of shares vesting immediately at the grant
date.  In accordance with SFAS 123(R), the Company measured compensation
cost as $643,000, which represents the grant date fair value.  The
Company will recognize compensation expense over the vesting period and
accordingly, recognized $129,000and $172,000 for the year ended December 31,
2007 and 2006, respectively.


On June 29, 2005, 1,600 shares were
issued to each of the four non-employee Trustees under the Trustee Share
Plan.  These shares were granted free of any
restrictions.  At that time, the Company recognized $102,000 of
compensation expense.





Share Appreciation
Rights


In April 2001, 140,000 Rights were
granted to employees.  These Rights bear a $4 base price, and vested
in equal increments over a five-year period commencing April 2002.  As
of December 31, 2007, there are 28,400 outstanding Rights which are all
exercisable and expire on April 30, 2011.  During 2007, 2006 and 2005,
the Company recognized $(47,000), $72,000, and $951,000, of compensation expense
in connection with the outstanding Rights, respectively.





(9)
            RETIREMENT
      AND PROFIT SHARING PLANS





ACPT’s
Retirement Plan (the "Retirement Plan") is a defined contribution plan which
provides for contributions to be made by ACPT.  The Retirement Plan
covers employees of American Rental Management Company and Interstate General
Properties Ltd. Partnership SE and is qualified under both the United States
Internal Revenue Code and the Puerto Rico Internal Revenue
Code.  Employees are eligible to participate in the Retirement Plan
when they have completed a minimum employment period of 1,000 hours and shall
become a participant on either January 1st or July
1st
following the date of hire.  ACPT contributes to the accounts of
eligible employees in amounts equal to 5.7% of base salaries and wages not in
excess of the U.S. Social Security taxable wage base, and 11.4% of salaries
(limited to $225,000 for 2007) that exceed that wage base. Eligible employees
also may make voluntary contributions to their accounts and self direct the
investment of their account balances in various investment funds offered under
the plan. The Retirement Plan also contains a profit sharing provision that
allows the Company to make cash awards to selected employees, a portion of which
is contributed to the Retirement Plan. Contributions made by the Company based
on wages to the Retirement Plan were $615,000, $560,000, and $532,000 in 2007,
2006, and 2005 respectively.  -77-
 Table of Contents


(10)
            INCOME
      TAXES 
 ACPT’s
subsidiaries, ARMC, ALD and ARPT, are subject to federal and state income tax.
ACPT is subject to Puerto Rico income tax on its Puerto Rico source
income.  The reconciliation below for the provision for income taxes
includes income from ARMC, ALD, ARPT and Puerto Rico source income. The 2007
permanent differences reflect special tax exempt income and certain
non-deductible expenses passed through to shareholders; the 2006 permanent
differences reflect special tax exempt income and the 2005 permanent differences
reflect the IRS assessment as discussed below.


The
following table reconciles the effective rate to the statutory rate (in
thousands, except amounts in %):





December
      31,2007
            
            
            2006
            
            
            2005%
      of
            
            
            
            
            
            %
      of
            
            
            
            
            
            %
      ofAmount
            
            
            Income
            
            
            Amount
            
            
            Income
            
            
            Amount
            
            
            IncomeTaxes
      at statutory U.S. federalincome
      tax rate
            
            $
            (297
            )
            
            
            35
            %
            
            $
            2,620
            
            
            
            35
            %
            
            $
            2,399
            
            
            
            35
            %State
      income taxes, net offederal
      tax benefit
            
            
            (128
            )
            
            
            15
            %
            
            
            271
            
            
            
            4
            %
            
            
            142
            
            
            
            2
            %Income
      tax matters adjustment
            
            
            -
            
            
            
            -
            %
            
            
            -
            
            
            
            -
            %
            
            
            (2,479
            )
            
            
            (36
            )%Income
      only subject to foreign tax
            
            
            (118
            )
            
            
            14
            %
            
            
            (41
            )
            
            
            (1
            )%
            
            
            (290
            )
            
            
            (4
            )%Permanent
      differences
            
            
            112
            
            
            
            (13
            )%
            
            
            (189
            )
            
            
            (2
            )%
            
            
            (382
            )
            
            
            (6
            )%Net
      change in uncertain tax positions
            
            
            231
            
            
            
            (28
            )%
            
            
            110
            
            
            
            1
            %
            
            
            58
            
            
            
            1
            %Other
            
            
            (107
            )
            
            
            13
            %
            
            
            123
            
            
            
            2
            %
            
            
            (138
            )
            
            
            (2
            )%Income
      tax (benefit) provision
            
            $
            (307
            )
            
            
            36
            %
            
            $
            2,894
            
            
            
            39
            %
            
            $
            (690
            )
            
            
            (10
            )%








The
provision for income taxes includes the following components (in
thousands):





Years
      Ended December 31,2007
            
            
            2006
            
            
            2005Current:United
      States
            
            $
            4,439
            
            
            $
            3,040
            
            
            $
            836Puerto
      Rico
            
            
            376
            
            
            
            2,560
            
            
            
            2,7224,815
            
            
            
            5,600
            
            
            
            3,558Deferred:United
      States
            
            
            (5,664
            )
            
            
            (558
            )
            
            
            (2,401
            )Puerto
      Rico
            
            
            542
            
            
            
            (2,148
            )
            
            
            (1,847
            )(5,122
            )
            
            
            (2,706
            )
            
            
            (4,248
            )Income
      tax (benefit) provision
            
            $
            (307
            )
            
            $
            2,894
            
            
            $
            (690
            )





As a result of the implementation of
EITF 04-05, a cumulative effect adjustment for certain deferred items was
recorded as a benefit to retained earnings on January 1, 2006.  The
total adjustment was $9,841,000, consisting of $5,386,000 and $4,455,000 for the
United States and Puerto Rico, respectively.





Certain items of income and expense are
not reported in tax returns and financial statements in the same
year.  The tax effect of this difference is reported as deferred
income taxes.  Deferred income taxes are determined in accordance with
SFAS No. 109, "Accounting for Income Taxes," and such amounts as measured by tax
laws.


-78-
 Table of Contents


The
components of deferred income tax (asset) liability include the following (in
thousands):


At
      December 31,2007
            
            
            2006Deferred
      income related to long-term receivables from
      partnerships  operating in Puerto Rico
            
            $
            282
            
            
            $
            282Receivables
      from partnerships operating in United States
            
            
            1,189
            
            
            
            1,170Tax
      benefit on equity in earnings of partnerships operating in Puerto
      Rico
            
            
            (6,875
            )
            
            
            (6,618
            )Tax
      benefit on equity in earnings of partnerships operating in United
      States
            
            
            (9,428
            )
            
            
            (9,287
            )Tax
      on deferred income
            
            
            (1,217
            )
            
            
            (956
            )Tax
      on land development costs capitalized for book purposes but deducted
      currently for tax purposes
            
            
            (12,804
            )
            
            
            366Tax
      on differences in basis related to joint venture in United
      States
            
            
            (705
            )
            
            
            (557
            )Tax
      on differences in basis related to land in United States
            
            
            (2,574
            )
            
            
            (2,563
            )Tax
      on differences in basis related to land in Puerto Rico
            
            
            (66
            )
            
            
            (157
            )Tax
      on basis difference for Puerto Rico commercial venture
            
            
            1,337
            
            
            
            913Allowance
      for doubtful accounts
            
            
            (294
            )
            
            
            (155
            )Accrued
      expenses
            
            
            (2,395
            )
            
            
            (283
            )Alternative
      minimum tax credits
            
            
            (150
            )
            
            
            (113
            )Other
            
            
            (375
            )
            
            
            (199
            )Net
      deferred tax asset
            
            $
            (34,075
            )
            
            $
            (18,157
            )







Recent
Maryland legislation enacted during the fourth quarter of 2007 increased the
income tax rate from 7% to 8% effective for periods after December 31, 2007. As
a result of the Maryland legislation, the ending deferred asset and the deferred
expense were increased by $460,000.






At
December 31, 2007, the Company did not have any net operating loss
carryforwards.  However, at December 31, 2007 and 2006, the
alternative minimum tax credit carryforwards were $150,000 and $113,000,
respectively.   These credits are expected to be fully utilized
in future periods.






IRS Closing
Agreement




During
the 4th quarter of 2005, the Company determined that certain income from our
Puerto Rico operations could be treated as income of ACPT even though it was not
distributed to ACPT. This undistributed income may not constitute qualifying
income for purposes of the PTP provisions of the Internal Revenue Code and could
have affected ACPT's tax status as a PTP. As announced on March 10, 2006, the
Company entered into a closing agreement with the IRS allowing ACPT to retain
its PTP status.  The closing agreement required ACPT to allocate
$4,955,000 of income from the periods 1998 through 2004 to its shareholders of
record on March 29, 2006.  Under the terms of ACPT’s governing
documents, it is required to make minimum annual distributions to the
shareholders equal to at least 45% of net taxable income allocated to
shareholders. Accordingly, the Board of Trustees declared a distribution to the
shareholders of approximately $2,230,000 representing 45% of the allocated
income.  In addition, the Company was required to pay an assessment to
the IRS of $975,000 related to the delay in reporting the income to the
IRS.  This payment has been reflected as income tax expense and was
made by the Company in March 2006.  The reversal of certain accruals
related to the resolution of these tax matters resulted in a net benefit to
income taxes of $2,421,000 for the year ended December 31, 2005. In addition to
the impact on income taxes, the resolution of these matters also resulted in the
reversal of $982,000 in previously accrued interest related to delayed payment
of corporate taxes should we have been taxed as a corporation, which is no
longer necessary.




-79-
 Table of Contents


Uncertain Tax
Positions




We
adopted the provisions of FIN 48 on January 1, 2007.  As a result of
the implementation of FIN 48, we recorded a $1,458,000 increase in the net
liability for unrecognized tax positions, which was recorded as a cumulative
effect of a change in accounting principle, reducing the opening balance of
retained earnings on January 1, 2007.  The total amount of
unrecognized tax benefits as of January 1, 2007, was
$12,387,000.  Included in the balance at January 1, 2007, were
$239,000 of tax positions that, if recognized, would impact 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 year (January 1, 2007)
            
            $
            12,387Change
      attributable to tax positions taken during a prior period
            
            
            2,678Change
      attributable to tax positions taken during the current
    period
            
            
            -Decrease
      attributable to settlements with taxing authorities
            
            
            (
      179
            )Decrease
      attributable to lapse of statute of limitations
            
            
            ( 17
            )Unrecognized
      tax benefit at end of year (December 31, 2007)
            
            $
            14,869







Included
in the balance at December 31, 2007, are $74,000 of tax positions that, if
recognized, would impact the effective tax rate.  Most of the
uncertain tax positions include, in both the beginning and ending balances,
deductions that have a high certainty of ultimate deductibility, but uncertainty
exist in the timing of such deductibility.  Because of the impact of
deferred tax accounting, other than interest and penalties, the disallowance of
a shorter deductibility period would not affect the annual effective tax rate,
but would accelerate the payment of cash to the taxing authorities to an earlier
period.





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.  This policy did not change as a result of the adoption of FIN
48.  During the years ended December 31, 2007, 2006 and 2005, our
Consolidated Statements of Income for the year included interest expense of
$1,233,000, $175,000 and  $102,000, respectively; and penalty expense
of $200,000, $101,000 and $85,000, respectively.  Our Consolidated
Balance Sheet as of December 31, 2007 and 2006 included accrued interest of
$2,814,000 and $278,000, respectively, and accrued penalties of $1,085,000 and
$474,000, respectively.





The
Company currently does not have any income tax returns under audit by the United
States Internal Revenue Service, state taxing authorities or the Puerto Rico
Treasury Department.  However, the income tax returns in the United
States for the years ended December 31, 2004 through 2007 remain subject to
examination.  For Puerto Rico, the income tax returns for the years
ended December 31, 2003 through 2007 remain subject to
examination.  On August 31, 2007, the Company reached a closing
agreement with the Puerto Rico Treasury Department whereby the company paid
$252,000 related to the correction of a special partnership income tax
return.  The Company does not anticipate any other payments related to
settlement of any income tax examinations.  Additionally, certain
United States and Puerto Rico income tax returns are or will no longer be
subject to examination.  As a result, the amount of unrecognized tax
benefits during 2007 decreased by 17,000 due to the expiration of a statute and
there is a reasonable possibility within the next twelve months the amount of
unrecognized tax benefits will decrease by $508,000 when the related statutes of
limitations expire and certain payments are recognized as taxable
income.





-80-
 Table of Contents





(11)
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The balance sheet carrying amounts of
cash and cash equivalents, receivables and other current assets approximate fair
value due to the short-term nature of these items. As of December 31, 2007 and
2006, the book value of long-term fixed rate debt was $296,735,000 and
$288,306,000, respectively, and the fair value of total debt was $311,988,000
and $299,623,000, respectively, which was determined by discounting future cash
flows using borrowing rates currently available to the Company for loans with
similar terms and maturities.





(12)
            SEGMENT
      INFORMATION





ACPT has
two reportable segments: U.S. operations and Puerto Rico operations. The
Company's chief decision-makers allocate resources and evaluate the Company's
performance based on these two segments. The U.S. segment is comprised of
different components grouped by product type or service, to
include:  investments in rental properties, community development and
property management services. The Puerto Rico segment entails the following
components: investment in rental properties, community development, homebuilding
and property management services.  The U.S. segment bears
substantially all of the corporate costs associated with being a public company
and other corporate governance.  The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.





Customer
Dependence


Revenues
from Lennar include residential land sales as well as certain management
fees.  Total revenues from Lennar within our U.S. segment were
$9,663,000 for the year ended December 31, 2007 which represents 18% of the U.S.
segment's revenue and 11% of our total year-to-date consolidated
revenue.  No other customers accounted for more than 10% of our
consolidated revenue for the year ended December 31, 2007.


In March
2004, the Company executed Development and Purchase Agreements with Lennar
Corporation (the “Lennar Agreements”) to develop and sell 1,950 residential lots
(1,359 single-family lots and 591 town home lots) in Fairway Village in St.
Charles, Maryland.  The Lennar Agreements requires the homebuilder to
provide $20,000,000 in letters of credit to secure the purchase of the lots. A
junior lien was placed on the residential portion of Fairway
Village.  The agreements require Lennar to purchase 200 residential
lots per year, provided that they are developed and available for delivery as
defined by the Development Agreement.  The junior lien is released
when the lots are sold and $10,300 of each lot sales proceeds are placed in an
escrow account to repay the principal of the bonds. As of December 31, 2007,
1,565 lots remained under the provisions of the Lennar
Agreements.   Assuming a sales pace of 200 lots per year, it is
estimated that lot settlements will take place through 2015; however, the
continued slowing of the new homes sales market in the United States, and more
specifically in the Washington D.C. suburban areas, has adversely impact
Lennar’s willingness or ability to take down 200 lots per year.  In
December 2007, the Company executed an amendment to the Lennar Agreements
whereby the Company agreed to accept 51 lot settlements in December 2007 as
satisfaction of Lennar’s lot takedown requirement for 2007, resulting in 78
total lots taken down by Lennar during 2007. In addition to the reduction in
number of lots, the December 2007 amendment temporarily reduced the final
selling price of 100 lots (51 taken down in December 2007 and 49 which Lennar
has agreed to take before June 1, 2008) from 30% to 22.5% of the base price of
the home sold on the lot, with guaranteed minimum price of $78,000 per single
family lot and $68,000 per town home lot.




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 Table of Contents


United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              Total2007Rental
      Property revenues
              
              $
              38,416
              
              
              $
              22,306
              
              
              $
              -
              
              
              $
              60,772Rental
      property operating expenses
              
              
              19,235
              
              
              
              11,432
              
              
              
              (23
              )
              
              
              30,644Land
      sales revenue
              
              
              14,486
              
              
              
              -
              
              
              
              -
              
              
              
              14,486Cost
      of land sales
              
              
              11,169
              
              
              
              -
              
              
              
              -
              
              
              
              11,169Home
      sales revenue
              
              
              -
              
              
              
              7,580
              
              
              
              -
              
              
              
              7,580Cost
      of home sales
              
              
              -
              
              
              
              5,549
              
              
              
              -
              
              
              
              5,549Management
      and other fees
              
              
              336
              
              
              
              634
              
              
              
              (29
              )
              
              
              941General,
      administrative, selling and marketing expense
              
              
              8,081
              
              
              
              2,771
              
              
              
              (5
              )
              
              
              10,847Depreciation
      and amortization
              
              
              5,744
              
              
              
              3,694
              
              
              
              -
              
              
              
              9,438Operating
      income
              
              
              9,009
              
              
              
              7,074
              
              
              
              (1
              )
              
              
              16,082Interest
      income
              
              
              1,073
              
              
              
              231
              
              
              
              (103
              )
              
              
              1,201Equity
      in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              2,193
              
              
              
              -
              
              
              
              2,192Interest
      expense
              
              
              12,621
              
              
              
              6,208
              
              
              
              (103
              )
              
              
              18,726Minority
      interest in consolidated entities
              
              
              336
              
              
              
              1,452
              
              
              
              -
              
              
              
              1,788Income/(loss)
      before provision for income taxes
              
              
              (2,925
              )
              
              
              2,077
              
              
              
              -
              
              
              
              (848
              )Income
      tax provision/(benefit)
              
              
              (1,191
              )
              
              
              884
              
              
              
              -
              
              
              
              (307
              )Net
      income
              
              
              (1,734
              )
              
              
              1,193
              
              
              
              -
              
              
              
              (541
              )Gross
      profit on land sales
              
              
              3,317
              
              
              
              -
              
              
              
              -
              
              
              
              3,317Gross
      profit on home sales
              
              
              -
              
              
              
              2,031
              
              
              
              -
              
              
              
              2,031Total
      assets
              
              
              261,084
              
              
              
              101,211
              
              
              
              (1,571
              )
              
              
              360,724Additions
      to long lived assets
              
              
              9,040
              
              
              
              1,087
              
              
              
              -
              
              
              
              10,1272006Rental
      property revenues
              
              $
              32,505
              
              
              $
              21,524
              
              
              $
              -
              
              
              $
              54,029Rental
      property operating expenses
              
              
              16,072
              
              
              
              10,963
              
              
              
              (22
              )
              
              
              27,013Land
      sales revenue
              
              
              20,967
              
              
              
              -
              
              
              
              -
              
              
              
              20,967Cost
      of land sales
              
              
              11,607
              
              
              
              -
              
              
              
              -
              
              
              
              11,607Home
      sales revenue
              
              
              -
              
              
              
              19,838
              
              
              
              -
              
              
              
              19,838Cost
      of home sales
              
              
              -
              
              
              
              14,833
              
              
              
              -
              
              
              
              14,833Management
      and other fees
              
              
              663
              
              
              
              592
              
              
              
              (27
              )
              
              
              1,228General,
      administrative, selling and marketing expense
              
              
              6,370
              
              
              
              2,847
              
              
              
              (5
              )
              
              
              9,212Depreciation
      and amortization
              
              
              4,787
              
              
              
              3,615
              
              
              
              -
              
              
              
              8,402Operating
      income
              
              
              15,299
              
              
              
              9,696
              
              
              
              -
              
              
              
              24,995Interest
      income
              
              
              968
              
              
              
              137
              
              
              
              (64
              )
              
              
              1,041Equity
      in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              683
              
              
              
              -
              
              
              
              682Interest
      expense
              
              
              9,852
              
              
              
              7,057
              
              
              
              (64
              )
              
              
              16,845Minority
      interest in consolidated entities
              
              
              616
              
              
              
              2,404
              
              
              
              -
              
              
              
              3,020Income
      before provision for income taxes
              
              
              6,170
              
              
              
              1,315
              
              
              
              -
              
              
              
              7,485Income
      tax provision
              
              
              2,530
              
              
              
              364
              
              
              
              -
              
              
              
              2,894Net
      income
              
              
              3,640
              
              
              
              951
              
              
              
              -
              
              
              
              4,591Gross
      profit on land sales
              
              
              9,360
              
              
              
              -
              
              
              
              -
              
              
              
              9,360Gross
      profit on home sales
              
              
              -
              
              
              
              5,005
              
              
              
              -
              
              
              
              5,005Total
      assets
              
              
              241,847
              
              
              
              107,115
              
              
              
              (2,263
              )
              
              
              346,699Additions
      to long lived assets
              
              
              38,324
              
              
              
              1,530
              
              
              
              -
              
              
              
              39,854




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 Table of Contents




United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              Total2005Rental
      property revenues
              
              $
              22,508
              
              
              $
              58
              
              
              $
              -
              
              
              $
              22,566Rental
      property operating expenses
              
              
              10,129
              
              
              
              661
              
              
              
              -
              
              
              
              10,790Land
      sales revenue
              
              
              12,403
              
              
              
              10,397
              
              
              
              -
              
              
              
              22,800Cost
      of land sales
              
              
              6,873
              
              
              
              7,520
              
              
              
              (160
              )
              
              
              14,233Home
      sales revenue
              
              
              -
              
              
              
              7,424
              
              
              
              -
              
              
              
              7,424Cost
      of home sales
              
              
              -
              
              
              
              6,122
              
              
              
              
              
              
              
              6,122Management
      and other fees
              
              
              1,114
              
              
              
              2,128
              
              
              
              (5
              )
              
              
              3,237General,
      administrative, selling and marketing expense
              
              
              6,907
              
              
              
              2,832
              
              
              
              (5
              )
              
              
              9,734Depreciation
      and amortization
              
              
              3,829
              
              
              
              213
              
              
              
              -
              
              
              
              4,042Operating
      income
              
              
              8,287
              
              
              
              2,659
              
              
              
              160
              
              
              
              11,106Interest
      income
              
              
              145
              
              
              
              722
              
              
              
              (669
              )
              
              
              198Equity
      in earnings from unconsolidated entities
              
              
              135
              
              
              
              1,008
              
              
              
              -
              
              
              
              1,143Interest
      expense
              
              
              6,797
              
              
              
              (836
              )
              
              
              (598
              )
              
              
              5,363Minority
      interest in consolidated entities
              
              
              926
              
              
              
              -
              
              
              
              -
              
              
              
              926Income
      before provision/(benefit) for income taxes
              
              
              844
              
              
              
              5,922
              
              
              
              89
              
              
              
              6,855Income
      tax provision/(benefit)
              
              
              456
              
              
              
              (1,181
              )
              
              
              35
              
              
              
              (690
              )Net
      income
              
              
              290
              
              
              
              7,201
              
              
              
              54
              
              
              
              7,545Gross
      profit on land sale
              
              
              5,530
              
              
              
              2,877
              
              
              
              160
              
              
              
              8,567Gross
      profit on home sales
              
              
              -
              
              
              
              1,302
              
              
              
              -
              
              
              
              1,302Total
      assets
              
              
              159,889
              
              
              
              67,511
              
              
              
              (10,315
              )
              
              
              217,085Additions
      to long lived assets
              
              
              6,944
              
              
              
              1,787
              
              
              
              -
              
              
              
              8,731






(13)
            SUPPLEMENTAL
      CASH FLOW INFORMATION





Interest paid, income taxes paid, debt
assumed and land transferred were as follows for the years ended December 31 (in
thousands):





2007
            
            
            2006
            
            
            2005Interest
      paid
            
            $
            18,124
            
            
            $
            17,535
            
            
            $
            7,926Income
      taxes paid
            
            $
            3,901
            
            
            $
            8,157
            
            
            $
            2,912Assumption
      of non-recourse debt
            
            $
            -
            
            
            $
            -
            
            
            $
            500Transfer
      of land to joint venture
            
            $
            -
            
            
            $
            -
            
            
            $
            -







-83-
 Table of Contents


AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007(In
      thousands)Initial
      and Subsequent Costs and Encumbrances
            
            Total
      Capitalized Costs and Accumulated DepreciationDateBldgs.
      &
            Subsequent
            
            
            Bldgs.
      &
            
            Accumulated
            ConstructedDescription
            Encumbrances
            Land
            Improvements
            Costs
            
            Land
            Improvements
            Total
            Depreciation
            or
      Acquired
            Depreciable
      LifeConsolidated PartnershipsU.S.
      PartnershipsBannister
      Apartments
            $       12,501
            $      410
            $          4,180
            $    5,146
            
            $       410
            $          9,326
            $     9,736
            $         6,097
            11/30/1976
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDBrookmont
      Apartments
            7,295
            162
            2,677
            2,713
            
            162
            5,390
            5,552
            3,712
            5/18/1979
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDCoachman's
            10,883
            572
            6,421
            1,004
            
            572
            7,425
            7,997
            3,119
            9/5/1989
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDCrossland
      Apartments
            4,091
            350
            2,697
            311
            
            350
            3,008
            3,358
            2,236
            1/13/1978
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDEssex
      Village Apts.
            14,025
            2,667
            21,381
            (3,011)
            
            2,667
            18,370
            21,037
            16,476
            1/31/1982
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsRichmond,
      VAFox
      Chase Apartments
            12,840
            745
            7,014
            1,210
            
            745
            8,224
            8,969
            3,887
            3/31/1987
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDHeaden
      House
            6,914
            205
            4,765
            3,612
            
            205
            8,377
            8,582
            5,820
            10/30/1980
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MD


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AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007(In
      thousands)Initial
      and Subsequent Costs and Encumbrances
            
            Total
      Capitalized Costs and Accumulated DepreciationDateBldgs.
      &
            Subsequent
            
            
            Bldgs.
      &
            
            Accumulated
            ConstructedDescription
            Encumbrances
            Land
            Improvements
            Costs
            
            Land
            Improvements
            Total
            Depreciation
            or
      Acquired
            Depreciable
      LifeHuntington
      Apartments
            9,218
            350
            8,513
            1,252
            
            350
            9,765
            10,115
            6,045
            10/7/1980
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDLancaster
      Apartments
            8,491
            484
            4,292
            1,226
            
            484
            5,518
            6,002
            3,161
            12/31/1985
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDMilford
      Station I
            10,491
            2,659
            9,878
            628
            
            2,659
            10,506
            13,165
            507
            5/1/2006
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsBaltimore,
      MDMilford
      Station II
            1,345
            455
            1,350
            56
            
            455
            1,406
            1,861
            68
            5/1/2006
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsBaltimore,
      MDNew
      Forest Apartments
            22,717
            1,229
            12,102
            2,081
            
            1,229
            14,183
            15,412
            6,633
            6/28/1988
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDNottingham
      South
            2,560
            359
            2,586
            104
            
            359
            2,690
            3,049
            183
            5/23/2005
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsBaltimore,
      MDOwings
      Chase
            12,376
            1,691
            13,428
            630
            
            1,691
            14,058
            15,749
            1,365
            10/29/2004
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsBaltimore,
      MD


-85-
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AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007(In
      thousands)Initial
      and Subsequent Costs and Encumbrances
            
            Total
      Capitalized Costs and Accumulated DepreciationDateBldgs.
      &
            Subsequent
            
            
            Bldgs.
      &
            
            Accumulated
            ConstructedDescription
            Encumbrances
            Land
            Improvements
            Costs
            
            Land
            Improvements
            Total
            Depreciation
            or
      Acquired
            Depreciable
      LifePalmer
      Apartments
            6,746
            471
            4,788
            3,879
            
            471
            8,667
            9,138
            5,997
            3/31/1980
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDPrescott
      Square
            3,590
            470
            3,867
            401
            
            470
            4,268
            4,738
            405
            10/29/2004
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsBaltimore,
      MDSheffield
      Greens
            26,945
            3,562
            22,292
            -
            
            3,562
            22,292
            25,854
            451
            1/31/2007
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDTerrace
      Apartments
            10,041
            497
            5,377
            5,451
            
            497
            10,828
            11,325
            7,157
            11/1/1979
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDVillage
      Lake
            9,205
            824
            6,858
            328
            
            824
            7,186
            8,010
            2,578
            10/1/1993
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDPuerto
      Rico PartnershipsAlturas
      Del Senorial
            3,502
            345
            4,185
            596
            
            345
            4,781
            5,126
            3,434
            11/17/1979
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsRio
      Piedras, PRBayamon
      Garden
            9,289
            1,153
            12,050
            997
            
            1,153
            13,047
            14,200
            8,876
            7/6/1981
            Bldg-40
      YrsWalk-up
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsBayamon,
      PR


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AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007(In
      thousands)Initial
      and Subsequent Costs and Encumbrances
            
            Total
      Capitalized Costs and Accumulated DepreciationDateBldgs.
      &
            Subsequent
            
            
            Bldgs.
      &
            
            Accumulated
            ConstructedDescription
            Encumbrances
            Land
            Improvements
            Costs
            
            Land
            Improvements
            Total
            Depreciation
            or
      Acquired
            Depreciable
      LifeColinas
      De San Juan
            9,499
            900
            10,742
            1,003
            
            900
            11,745
            12,645
            8,110
            3/20/1981
            Bldg-40
      YrsWalk-up
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSan
      Juan, PRDe
      Diego
            5,531
            601
            6,718
            767
            
            601
            7,485
            8,086
            5,199
            3/20/1980
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsRio
      Piedras, PREscorial
      Office
            8,492
            1,596
            8,202
            467
            
            1,596
            8,669
            10,265
            525
            9/1/2005
            Bldg-40
      YrsBuilding
      I, Inc.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsPuerto
      RicoJardines
      De Caparra
            6,328
            546
            5,719
            1,811
            
            546
            7,530
            8,076
            5,166
            4/1/1980
            Bldg-40
      YrsHighrise
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsBayamon,
      PRMonserrate
      I
            7,110
            543
            10,436
            1,874
            
            543
            12,310
            12,853
            8,735
            5/1/1979
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsCarolina,
      PRMonserrate
      II
            9,995
            731
            11,172
            1,636
            
            731
            12,808
            13,539
            8,825
            1/30/1980
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsCarolina,
      PRSan
      Anton
            4,157
            313
            3,525
            1,724
            
            313
            5,249
            5,562
            3,937
            12/10/1974
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsCarolina,
      PR


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AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007(In
      thousands)Initial
      and Subsequent Costs and Encumbrances
            
            Total
      Capitalized Costs and Accumulated DepreciationBldgs.
      &
            Subsequent
            
            
            Bldgs.
      &
            
            Accumulated
            Date
              ConstructedDescription
            Encumbrances
            Land
            Improvements
            Costs
            
            Land
            Improvements
            Total
            Depreciation
            or
      Acquired
            Depreciable
      LifeSanta
      Juana
            7,130
            487
            6,748
            893
            
            487
            7,641
            8,128
            5,303
            2/8/1980
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsCaguas,
      PRTorre
      De Las Cumbres
            5,135
            466
            5,954
            682
            
            466
            6,636
            7,102
            4,742
            12/6/1979
            Bldg-40
      YrsHighrise
      Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsRio
      Piedras, PRValle
      Del Sol
            10,578
            992
            14,017
            844
            
            992
            14,861
            15,853
            9,508
            3/15/1983
            Bldg-40
      YrsHighrise
      and Walk-up Apts.
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsBayamon,
      PRVistas
      Del Turabo
            961
            354
            2,508
            698
            
            354
            3,206
            3,560
            2,035
            12/30/1983
            Bldg-40
      YrsWalk-up
      Apts.
            
            
            
            
            
            
            
            
            
            Acquired
            Bldg
      Equip-5/7 YrsCaguas,
      PRTotal
      Consolidated Properties
            279,981
            27,189
            246,442
            41,013
            
            27,189
            287,455
            314,644
            150,292Unconsolidated PartnershipsBrookside
      Gardens Apartments
            1,241
            156
            2,487
            51
            
            156
            2,538
            2,694
            1,211
            11/10/1994
            Bldg-40
      YrsGarden
      Shared Housing
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDLakeside
      Apartments
            1,952
            440
            3,649
            41
            
            440
            3,690
            4,130
            1,043
            7/1/1996
            Bldg-40
      YrsGarden
      Apartments
            
            
            
            
            
            
            
            
            
            Constructed
            Bldg
      Equip-5/7 YrsSt.
      Charles, MDTotal
      Unconsolidated Properties
            3,193
            596
            6,136
            92
            
            596
            6,228
            6,824
            2,254Total
      Properties
            $     283,174
            $27,785
            $      252,578
            $  41,105
            
            $  27,785
            $      293,683
            $
      321,468
            $    152,546(1)  Operating
      real estate shown on the Consolidated Balance Sheets includes real estate
      assets of $164,352 net of accumulated depreciation of
      $150,292.THE
      AGGREGATE COST,NET OF DEPRECIATION AND AMORTIZATION, FOR FEDERAL INCOME
      TAX PURPOSES FOR U.S. AND P.R. PROPERTIES IS $126,187


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AMERICAN
      COMMUNITY PROPERTIES TRUSTSCHEDULE
      IIIREAL
      ESTATE AND ACCUMULATED DEPRECIATIONAS
      OF DECEMBER 31, 2007 AND 2006(In
      thousands)Consolidated
            
            
            UnconsolidatedPartnerships
            
            
            Partnerships
            
            
            TotalReal
      Estate at December 31, 2005
            
            $
            122,990
            
            
            $
            149,479
            
            
            $
            272,469Additions
      for 2006:Consolidation
      of previously unconsolidated partnerships
            
            
            142,680
            
            
            
            (142,680
            )
            
            
            -Improvements
            
            
            5,915
            
            
            
            39
            
            
            
            5,954Acquisition
      (land and building)
            
            
            14,341
            
            
            
            -
            
            
            
            14,341Deductions
      for 2006:Dispositions
            
            
            1,422
            
            
            
            14
            
            
            
            1,436Real
      Estate at December 31, 2006
            
            
            284,504
            
            
            
            6,824
            
            
            
            291,328Additions
      for 2007:Improvements
            
            
            31,430
            
            
            
            22
            
            
            
            31,452Deductions
      for 2007:Dispositions
            
            
            1,290
            
            
            
            22
            
            
            
            1,312Real
      Estate at December 31, 2007
            
            $
            314,644
            
            
            $
            6,824
            
            
            $
            321,468Accumulated
      depreciation at December 31, 2005
            
            $
            46,412
            
            
            $
            91,278
            
            
            $
            137,690Consolidation
      of previously unconsolidated partnerships
            
            
            89,395
            
            
            
            (89,395
            )
            
            
            -Depreciation
      expenseAcquisition
            
            
            8,073
            
            
            
            201
            
            
            
            8,274Deductions
      for 2006:Dispositions
            
            
            1,422
            
            
            
            14
            
            
            
            1,436Accumulated
      depreciation at December 31, 2006
            
            
            142,458
            
            
            
            2,070
            
            
            
            144,528Additions
      for 2007:Depreciation
      expense
            
            
            9,124
            
            
            
            206
            
            
            
            9,330Deductions
      for 2007:Dispositions
            
            
            1,290
            
            
            
            22
            
            
            
            1,312Accumulated
      depreciation at December 31, 2007
            
            $
            150,292
            
            
            $
            2,254
            
            
            $
            152,546





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ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE


None.





ITEM 9(T).
            CONTROLS
      AND PROCEDURES


Evaluation
of Disclosure Controls and Procedures


In
connection with the preparation of this Form 10-K, as of December 31, 2006, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management
reviewed the selection, application and monitoring of our historical accounting
policies. Based on that evaluation, the CEO and CFO concluded that these
disclosure controls and procedures were effective and designed to ensure that
the information required to be disclosed in our reports filed with the SEC is
recorded, processed, summarized and reported on a timely basis.


The
Company had previously determined that certain accounting errors indicated a
material weakness in internal controls with respect to accounting for income
taxes.  A material weakness in internal control is a significant
deficiency, or combination of significant deficiencies, that results in more
than a remote likelihood that a material misstatement of the financial
statements would not be prevented or detected on a timely basis by the
Company.  The Company implemented controls and procedures designed to
remediate this material weakness. These controls and procedures included hiring
a new Director of Tax who will help manage the tax compliance and tax accounting
process, retaining international tax advisors to provide the Company with
updates related to changes in international tax laws impacting the Company,
providing in-house tax professionals and senior financial management with
additional training to enhance their awareness of potential international tax
matters and implementation of other additional control procedures related to
accounting for income taxes. Management has ensured that these new controls and
procedures are operating effectively and fully address the risks giving rise to
the material weakness. Accordingly, management believes that the material
weakness was fully remediated as of December 31, 2007.





Management’s
Annual Report on Internal Control Over Financial Reporting and Attestation
Report of the Independent Registered Public Accounting Firm


Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of our
management, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated
Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2007.





The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007 is not subject to attestation pursuant to temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
Management’s report and therefore has not been audited by Ernst & Young,
LLP.





Changes
in Internal Control Over Financial Reporting


Except as
discussed above, there have been no other changes during the Company's quarter
ended December 31, 2007, in the Company's internal controls over financial
reporting that have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financing reporting.





ITEM 9B.
            OTHER
      INFORMATION





None.


-90-
 Table of Contents


PART III





Certain information required by Part
III is omitted from this Annual Report on Form 10-K. The Company will file a
definitive proxy statement with the Securities and Exchange Commission (the
"Commission") pursuant to Regulation 14A (the "Proxy Statement") not later than
120 days after the end of the fiscal year covered by this Report, and certain
information to be included therein is incorporated herein by
reference.  Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by
reference.





ITEM 10.
            TRUSTEES,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
information required by this Item for executive officers is set forth under the
heading "Executive Officers of the Registrant" in Part I, Item 4a of this
report.


The
information required by this Item with respect to Trustees is incorporated by
reference to the Company's Proxy Statement under the caption "Election of
Trustees" to be filed with the Commission for its Annual Shareholders' Meeting
to be held in June 2008.


The
information required by this Item with respect to the Company’s Audit Committee
Financial Expert is incorporated by reference to the Company's Proxy Statement
under the caption "Audit Committee Financial Expert" to be filed with the
Commission for its Annual Shareholders' Meeting to be held in June
2008.





Section
16(A) Beneficial Ownership Reporting Compliance


The information required by this Item
is incorporated by reference to the Company's Proxy Statement to be filed with
the Commission for its Annual Shareholders' Meeting to be held in June
2008.





Code
of Ethics


We
established a Code of Ethics for Principal Executive Officers and Senior
Financial Officers, and a Code of Business Ethics for all Officers and Employees
of the Company. Copies of the codes, and any waivers or amendments to such codes
which are applicable to our executive officers, or senior financial officers can
be requested at no cost by writing to the following address or telephoning us at
the following telephone number:





American
Community Properties Trust


222
Smallwood Village Center


St.
Charles, MD  20602


Attention:  Director
of Investor Relations


(301)
843-8600





ITEM 11.
            EXECUTIVE
      COMPENSATION





The information required by this Item
is incorporated by reference to the Company's Proxy Statement to be filed with
the Commission for its Annual Shareholders' Meeting to be held in June
2008.





ITEM 12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS





The information required by this Item
is incorporated by reference to the Company's Proxy Statement to be filed with
the Commission for its Annual Shareholders' Meeting to be held in June
2008.





ITEM 13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND TRUSTEE
      INDEPENDENCE





The information required by this Item
is incorporated by reference to the Company's Proxy Statement to be filed with
the Commission for its Annual Shareholders' Meeting to be held in June
2008.


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 Table of Contents





ITEM 14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





The information required by this Item
is incorporated by reference to the Company’s Proxy Statement to be filed with
the Commission for its Annual Shareholders' Meeting to be held in June
2008.








PART IV





ITEM 15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





(a)      
1.           Financial
Statements





The
      following consolidated financial statements of American Community
      Properties Trust are filed as part of this report on Form 10-K under Item
      8 - Financial Statements and Supplementary
Data:





Report
      of Independent Registered Public Accounting
Firm





Consolidated
      Statements of Income for the years ended December 31, 2007, 2006 and
      2005





Consolidated
      Balance Sheets as of December 31, 2007 and
2006





Consolidated
      Statements of Changes in Shareholders' Equity for the years ended December
      31, 2007, 2006 and 2005





Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006 and
      2005





Notes
      to Consolidated Financial Statements for the years ended December 31, 2007
      and 2006





2.           Financial Statement
Schedules





The following financial statement
schedules are contained herein:





Schedule
      III -- Real Estate and Accumulated Depreciation as of December 31,
      2007 3.           Exhibits





Exhibits
      required by Securities and Exchange Commission Section 601 of Regulation
      S-K.





Exhibit
              No.
            Description
      of Exhibit
            Reference3.1
            Form
      of Restated Declaration of Trust of the Company
            Exhibit
      3.1 to Form S-113.2
            Amended
      and Restated Bylaws of the Company
            Exhibit
      3.1 to Form 8-K filed on January 2, 20084.1
            Form
      of Common Share Certificate
            Exhibit
      4.1 to Form S-1110.1
            Employment
      Agreement, dated August 6, 2007, between the Company and Edwin L.
      Kelly*
            Exhibit
      10.1 to Form8-K filed on August 9, 200710.2
            Employment
      Agreement dated August 6, 2007, between Company and Cynthia L.
      Hedrick*
            Exhibit
      10.2 to Form 8-K filed on August 9,
2007


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 Table of Contents





10.3
            Employment
      Agreement, dated November 10, 2003, between the Company and Paul A.
      Resnik*
            Exhibit
      10.3 to 2003 Form 10-K10.4
            Employment
      Agreement, dated May 12, 2004, between Interstate General Properties
      Limited Partnership S.E. and Jorge Garcia Massuet*
            Exhibit
      10.1 to Form 10-Q for the quarter ended March 31, 200410.5
            Form
      of Consulting Agreement, dated August 24, 1998, between the Company and
      James J. Wilson*
            Exhibit
      10.4 to Form S-1110.6
            Employment
      and Consulting Agreement for Carlos R. Rodriguez *
            Exhibit
      10.1 to Form 10-Q for quarter ended June 30, 200610.7
            Employees'
      Share Incentive Plan*
            Exhibit
      10.5 to Form S-1110.8
            Trustee's
      Share Incentive Plan*
            Exhibit
      10.6 to Form S-1110.9
            Consulting
      Agreement between St. Charles Community, LLC and Thomas J. Shafer dated
      January 1, 1998*
            Exhibit
      10.14 to 1998 Form 10-K10.10
            Amendment
      to Consulting Agreement between St. Charles Community, LLC and Thomas J.
      Shafer dated January 28, 2002*
            Exhibit
      10.15 to 2001 Form 10-K10.11
            Indemnification
      Agreement between American Community Properties Trust and Antonio Ginorio
      dated August 30, 2006*
            Exhibit
      10.1 to Form 8-K filed on August 31, 200610.12
            Indemnification
      Agreement between American Community Properties Trust
      and  Thomas S. Condit dated August 30, 2006*
            Exhibit
      10.2 to Form 8-K filed on August 31, 200610.13
            Indemnification
      Agreement between American Community Properties Trust and T. Michael Scott
      dated August 30, 2006*
            Exhibit
      10.3 to Form 8-K filed on August 31, 200610.14
            Indemnification
      Agreement between American Community Properties Trust
      and  Thomas J. Shafer dated August 30, 2006 *
            Exhibit
      10.4 to Form 8-K filed on August 31, 200610.15
            Settlement
      Agreement dated July 22, 2002 between the County Commissioners of Charles
      County, Maryland and St. Charles Associates Limited Partnership,
      Interstate General Company, St. Charles Community LLC
            Exhibit
      10.1 to Form 10-Q for the quarter ended June 30, 200210.16
            Consent
      Judgment dated July 22, 2002
            Exhibit
      10.2 to Form 10-Q for the quarter ended June 30, 200210.17
            Indenture
      dated July 22, 2002 between St. Charles Associates Limited Partnership,
      Interstate General Company, St. Charles Community LLC and the County
      Commissioners of Charles County
            Exhibit
      10.3 to Form 10-Q for the quarter ended June 30, 200210.18
            Amended
      Order to Docket #90 dated July 22, 2002
            Exhibit
      10.2 to Form 10-Q for the quarter ended September 30,
  2002


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10.19
            Certificate
      of Limited Partnership of Village Lake Apartments Limited Partnership
      dated May 17, 1991
            Exhibit
      10.37 to 2002 Form 10-K10.20
            First
      Amendment to Certificate of Limited Partnership of Village Lake Apartments
      Limited Partnership dated May 13, 1992
            Exhibit
      10.38 to 2002 Form 10-K10.21
            Second
      Amendment to Certificate and Agreement of Limited Partnership
      of  Village Lake Apartments Limited Partnership dated January
      23, 2003
            Exhibit
      10.39 to 2002 Form 10-K10.22
            Limited
      Partnership Agreement and Amended and Restated Limited Partnership
      Certificate of Coachman's Limited Partnership dated June 2,
      1988
            Exhibit
      10.40 to 2002 Form 10-K10.23
            Assignment
      of Partnership Interest and Amendment to the Certificate of Limited
      Partnership of Coachman's Limited Partnership dated June 30,
      1997
            Exhibit
      10.41 to 2002 Form 10-K10.24
            Assignment
      of Partnership Interest and Amendment to the Certificate of Limited
      Partnership of Coachman's Limited Partnership dated September 28,
      2001
            Exhibit
      10.42 to 2002 Form 10-K10.25
            Third
      Amendment to Limited Partnership Agreement and Amended and Restated
      Limited Partnership Certificate of Coachman's Limited Partnership dated
      January 23, 2003
            Exhibit
      10.43 to 2002 Form 10-K10.26
            Purchase
      Agreement between St. Charles Community, LLC and Lennar Corporation dated
      March 4, 2004
            Exhibit
      10.1 to Form 8-K filed on January 4, 200810.27
            Development
      Agreement between St. Charles Community, LLC and Lennar Corporation dated
      March 4, 2004
            Exhibit
      10. 2 to Form 8-K filed on January 4, 200810.28
            First
      Amendment to Purchase Agreement between St. Charles Community, LLC and
      Lennar Corporation dated June 20, 2006
            Exhibit
      10.3 to Form 8-K filed on January 4, 200810.29
            Second
      Amendment to Purchase Agreement between St. Charles Community, LLC and
      Lennar Corporation dated December 31, 2007
            Exhibit
      10.4 to Form 8-K filed on January 4, 200810.30
            Multifamily
      Note dated October 29, 2004 in the amount of $3,640,000 from Prescott
      Square, LLC to Prudential Multifamily Mortgage, Inc.
            Exhibit
      10.47 to Form 10-K for fiscal year ended December 31,
  200410.31
            Multifamily
      Note dated October 29, 2004 in the amount of $12,550,000 from Owings
      Chase, LLC to Prudential Multifamily Mortgage, Inc.
            Exhibit
      10.48 to Form 10-K for fiscal year ended December 31,
  200410.32
            Deed
      of Trust Note for Sheffield Greens Apartments, LLC payable to GMAC
      Commercial Mortgage Bank for principal sum of $27,008,400 dated August 11,
      2005
            Exhibit
      10.1 to Form 10-Q for the quarter ended September 30,
  200510.33
            Deed
      of Trust for Sheffield Greens Apartments, LLC payable to GMAC Commercial
      Mortgage Bank for principal sum of $27,008,400 dated August 11,
      2005
            Exhibit
      10.2 to Form 10-Q for quarter ended September 30, 200510.34
            Security
      Agreement signed on August 11, 2005 between Sheffield Greens Apartment,
      LLC and GMAC Commercial Mortgage Bank
            Exhibit
      10.3 to Form 10-Q for quarter ended September 30, 200510.35
            Legal
      Description attached to the survey entitled “Plat of Survey, Sheffield
      Greens Apartments” dated August 10, 2005
            Exhibit
      10.4 to Form 10-Q for quarter ended September 30, 200510.36
            Lease,
      dated as of September 1, 2006, by and between the Company and Caribe Waste
      Technologies, Inc.
            Exhibit
      10.1 to Form 10-Q for quarter ended September 30, 200610.37
            Deed
      of Trust Note for New Forest Apartments, LLC
              Payable
      to Wells Fargo Bank, N.A. for principal sum of $23,000,000 dated November
      1, 2007
            Exhibit
      10.33 to 2006 Form 10-K21
            List
      of Subsidiaries of American Community Properties Trust
            Filed
      herewith23
            Consent
      of Independent Registered Public Accounting Firm
              233
            Filed
      herewith31.1
            Rule
      13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive
      Officer
            Filed
      herewith31.2
            Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer
            Filed
      herewith32.1
            Section
      1350 Certification of Chairman and Chief Executive Officer
            Filed
      herewith32.2
            Section
      1350 Certification of Chief Financial Officer
            Filed
      herewith*Denotes
      management agreement or compensatory plan or
  arrangement.





(b)
            Exhibits
              See
      15(a) 3, above.(c)
            Financial
      Statement Schedules
              See
      15(a) 2, above.





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 Table of Contents


SIGNATURES








Pursuant
to the requirements of Section 13 or 15(d) 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:  March
      20, 2008
            By:
      /s/ J. Michael
      WilsonJ.
      Michael Wilson
              Chairman
      and Chief Executive Officer
              (Principal
      Executive Officer)Dated:  March
      20, 2008
            By:/s/
      Cynthia L. HedrickCynthia
      L. Hedrick
              Executive
      Vice President and Chief Financial Officer
              (Principal
      Financial Officer)Dated:  March
      20, 2008
            By:/s/
      Matthew M. MartinMartin
      M. Martin
              Vice
      President and Chief Accounting Officer
              (Principal
      Accounting Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:





Signature
            Title
            Date/s/ J. Michael
      Wilson
              J.
      Michael Wilson
            Chairman,
      Chief Executive Officer and Trustee,
              Principal
      Executive Officer
            March
      20, 2008/s/ Edwin L.
      Kelly
              Edwin
      L. Kelly
            Vice
      Chairman, President, Chief Operating Officer and Trustee
            March
      20, 2008/s/ Thomas J.
      Shafer
              Thomas
      J. Shafer
            Trustee
            March
      20, 2008/s/ T.
      Michael Scott
              T.
      Michael Scott
            Trustee
            March
      20, 2008/s/ Antonio
      Ginorio
              Antonio
      Ginorio
            Trustee
            March
      20, 2008/s/
      Thomas S. Condit
              Thomas
      S. Condit
            Trustee
            March
      20, 2008





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