**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, 2006**
              
              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-**
 *Table
          of Contents*


Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large
      accelerated filer  / /   Accelerated
      filer  / /  Non-accelerated
      filer  /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, 2006 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 $20.00, was $49,544,540 As of March
      1,
      2007, 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 2007 Annual Meeting
      of Shareholders, to be held on June 6, 2007, are incorporated by reference
      into
      Part III of this report.


**-2-**
 *Table
          of Contents*


**AMERICAN
      COMMUNITY PROPERTIES TRUST**





**2006
      Form 10-K Annual Report**





**TABLE
      OF CONTENTS**











PagePART
                IItem
                1.
            Business
            4Item
                1A.
            Risk
                Factors
            18Item
                1B.
            Unresolved
                Staff Comments
            22Item
                2.
            Properties
            22Item
                3.
            Legal
                Proceedings
            22Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            23Item
                4A.
            Executive
                Officers of the Registrant
            24PART
                IIItem
                5.
            Market
                for the Company's Common Equity, Related Shareholder
                Matters and Issuer Purchases of Equity Securities
            25Item
                6.
            Selected
                Financial Data
            27Item
                7.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operation
            28Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            50Item
                8.
            Financial
                Statements and Supplementary
                Data
            51Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            90Item
                9A.
            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 Article
      8 of
      the Maryland Corporation Associations Code (the "Maryland Trust 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 new federal tax regulation has been proposed that will
      eliminate the pass through of these foreign tax credits to ACPT’s shareholders.
      This regulation is expected to become effective in 2007. 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 other rental apartments 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 land in Puerto Rico held
                by
                Land Development Associates, S.E. ("LDA"), a wholly owned subsidiary
                of
                IGP, and designated for development as saleable property;
                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.





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. First, we believe the continuing threat
      of rising interest rates and increased home prices have priced some potential
      first time homebuyers out of the home ownership market. Coupled with the
      decrease of the average suburban multifamily capitalization rate to 6.44% as
      compared to 6.74% in 2005 (1) ,
      we
      believe the values of our multifamily rental properties have
      increased.





**New
      Multifamily Rental Property Construction**


In
      the
      fourth quarter of 2005, we broke ground on our newest addition to our
      multifamily rental properties in St. Charles' Fairway Village, the Sheffield
      Greens Apartments, and began leasing efforts in the first quarter of 2006.
      The
      252-unit apartment project consists of nine, 3-story buildings and offers 1
      and
      2 bedroom units ranging in size from 800 to 1,400 square feet. The first five
      buildings became available for occupancy in the fourth quarter of 2006. As
      of
      December 31, 2006, 39% of the total units were leased. The Company completed
      the
      construction of the remaining buildings in January 2007.








(1)
      Per
      Integra Realty Resources “IRR” Viewpoint 2007, “Real Estate Value
      Trends”


**-5-**
 *Table
          of Contents*


**Multifamily
      Rental Property Acquisitions**


On
      April
      28, 2006, AHP completed its acquisition of two apartment properties in
      Baltimore, Maryland containing a total of 250 units for a purchase price of
      $14,300,000. These properties are held in two wholly owned limited liability
      companies, Milford Station I, LLC and Milford Station II, LLC, and offer market
      rate, garden style apartments.




We
      are
      actively seeking additions to our rental property portfolio. We are currently
      pursuing various opportunities to purchase apartment properties in the Baltimore
      and Washington, D.C. areas; however, we cannot give any assurance that we will
      be able to make acquisitions on favorable terms or at all.




The
      table
      below 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:


Expira-No.
            
            
            %
            
            
            12/31/2006
            
            
            
            
            
            tionof
            
            
            of
            
            
            Project
            
            
            Occupancy
            
            
            of
            
            
            MaximumApt.
            
            
            Port-
            
            
            Cost
                (C)
            
            
            at
            
            
            Subsidy
            
            
            SubsidyUnits
            
            
            folio
            
            
            (in
                thousands)
            
            
            12/31/2006
            
            
            Contract
            
            
            (in
                thousands)**Consolidated
                Partnerships**Bannister
                Associates Limited Partnership
            
            
            167
            
            
            5
            %
            $
            9,819
            
            
            92
            %
            
            N/A
            
            $
            -41
            
            
            1
            %
            
            
            
            
            
            
            
            2008
            
            
            508Coachman's,
                LLC
            
            
            104
            
            
            3
            %
            
            7,321
            
            
            96
            %
            
            N/A
            
            
            -Crossland
                Associates Limited Partnership
            
            
            96
            
            
            3
            %
            
            3,321
            
            
            95
            %
            
            N/A
            
            
            -Essex
                Apartments AssociatesLimited
                Partnership
            
            
            496
            
            
            15
            %
            
            20,592
            
            
            95
            %
            
            2007
            
            
            4,369Fox
                Chase Apartments, LLC
            
            
            176
            
            
            5
            %
            
            8,560
            
            
            97
            %
            
            N/A
            
            
            (A
            )Headen
                House Associates Limited Partnership
            
            
            136
            
            
            4
            %
            
            8,395
            
            
            99
            %
            
            2007
            
            
            1,598Huntington
                Associates Limited Partnership
            
            
            204
            
            
            6
            %
            
            10,078
            
            
            99
            %
            
            2007
            
            
            2,352Lancaster
                Apartment Limited Partnership
            
            
            104
            
            
            3
            %
            
            5,862
            
            
            88
            %
            
            N/A
            
            
            (A
            )Milford
                Station I, LLC
            
            
            200
            
            
            6
            %
            
            13,050
            
            
            98
            %
            
            N/A
            
            
            -Milford
                Station II, LLC
            
            
            50
            
            
            1
            %
            
            1,836
            
            
            94
            %
            
            N/A
            
            
            -New
                Forest Apartments, LLC
            
            
            256
            
            
            8
            %
            
            14,907
            
            
            88
            %
            
            N/A
            
            
            (A
            )Nottingham
                South, LLC
            
            
            85
            
            
            3
            %
            
            3,013
            
            
            93
            %
            
            N/A
            
            
            -Owings
                Chase, LLC
            
            
            234
            
            
            7
            %
            
            15,535
            
            
            97
            %
            
            N/A
            
            
            -Palmer
                Apartments Associates
            
            
            96
            
            
            3
            %
            
            8,961
            
            
            97
            %
            
            N/A
            
            
            -Limited
                Partnership
            
            
            56
            
            
            2
            %
            
            
            
            
            
            
            
            2008
            
            
            688Prescott
                Square, LLC
            
            
            73
            
            
            2
            %
            
            4,562
            
            
            95
            %
            
            N/A
            
            
            -Sheffield
                Greens Apartments, LLC (D)
            
            
            252
            
            
            7
            %
            
            25,262
            
            
            39
            %
            
            N/A
            
            
            -Village
                Lake Apartments, LLC
            
            
            122
            
            
            3
            %
            
            7,953
            
            
            95
            %
            
            N/A
            
            
            -Wakefield
                Terrace Associates
            
            
            164
            
            
            5
            %
            
            11,138
            
            
            97
            %
            
            N/A
            
            
            -Limited
                Partnership
            
            
            40
            
            
            1
            %
            
            
            
            
            
            
            
            2007
            
            
            395Wakefield
                Third Age Associates Limited Partnership
            
            
            104
            
            
            3
            %
            
            5,549
            
            
            93
            %
            
            N/A
            
            
            -3,256
            
            
            96
            %
            
            185,714
            
            
            
            
            
            
            
            
            9,910**Unconsolidated
                Partnerships**Brookside
                Gardens Limited Partnership
            
            
            56
            
            
            2
            %
            
            2,700
            
            
            98
            %
            
            N/A
            
            
            (B
            )Lakeside
                Apartments Limited Partnership
            
            
            54
            
            
            2
            %
            
            4,124
            
            
            98
            %
            
            N/A
            
            
            (B
            )110
            
            
            4
            %
            
            6,8243,366
            
            
            100
            %
            $
            192,538
            
            
            
            
            
            
            
            $
            9,910





**-6-**
 *Table
          of Contents*


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


(B)
            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.


(C)
            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.


(D)
            Apartment
                property under construction. As of December 31, 2006 161 units of
                the 252
                unit property were available with 75 of those available unit occupied.
                Construction was completed on January 31,
                2007.





The
      table
      below 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**
            **NO.
                OF UNITS**
            **OPERATING
                REVENUE**
            **OPERATING
                EXPENSES**
            **NON-RECOURSE
                MORTGAGE OUTSTANDING**
            **ECONOMIC
                INTEREST UPON LIQUIDATION (a)****Consolidated
                Partnerships*****Charles
                County, Maryland***Bannister
                Associates LP
            208
            $                             
                 2,579
            $                      
                983
            $                    
                12,692
            100.0%Coachman's,
                LLC
            104
            1,656
            629
            5,313
            95.0%Crossland
                Associates LP
            96
            1,145
            531
            4,146
            60.0%Fox
                Chase Apartments, LLC
            176
            2,202
            824
            12,987
            99.9%Headen
                House Associates LP
            136
            1,569
            599
            6,994
            75.5%Huntington
                Associates LP
            204
            2,324
            1,293
            9,326
            50.0%Lancaster
                Apartments LP
            104
            1,492
            611
            8,622
            100.0%New
                Forest Apartments, LLC
            256
            3,852
            1,456
            22,977
            99.9%Palmer
                Apartments Associates LP
            152
            1,843
            716
            6,838
            75.5%Sheffield
                Greens Apartments, LLC
            252
            200
            291
            22,351
            100.0%Village
                Lake Apartments, LLC
            122
            1,505
            633
            6,402
            95.0%Wakefield
                Terrace Associates LP
            204
            1,746
            1,013
            10,179
            75.5%Wakefield
                Third Age Associates LP
            104
            1,260
            517
            7,405
            75.5%***Baltimore
                County, Maryland***Milford
                Station I, LLC
            200
            1,114
            671
            10,491
            100.0%Milford
                Station II, LLC
            50
            223
            185
            1,345
            100.0%Nottingham
                South, LLC
            85
            605
            405
            2,560
            100.0%Owings
                Chase, LLC
            234
            2,268
            1,290
            12,536
            100.0%Prescott
                Square, LLC
            73
            744
            421
            3,636
            100.0%***Henrico
                County, Virginia***Essex
                Apartments Associates LP
            496
            4,178
            2,643
            14,272
            50.0%
            (b)Total
                Consolidated
            3,256
            32,505
            15,711
            181,072**Unconsolidated
                Partnerships*****Charles
                County, Maryland***Brookside
                Gardens LP
            56
            309
            250
            1,264
            
            (c)Lakeside
                Apartments LP
            54
            481
            239
            1,983
            
            (c)Total
                Unconsolidated
            110
            790
            489
            3,2473,366
            $                             
                 33,295
            $                   
                16,200
            $                    
                84,319(a)
                Surplus cash from operations and proceeds from sale or liquidation
                are
                allocated based on the economic interest except those identified
                by
                additional description.(b)
                The limited partners have a priority to their respective unrecovered
                capital. Upon liquidation, the limited partners have a priority
                distribution equal to their
              unrecovered
                capital. As of December 31, 2006, 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.
              (c)
                The allocation of profits and surplus cash, as per the respective
                partnership agreement, is based on a complex waterfall calculation.
                The
                Company’s share of the economic ownership is
                immaterial.





**-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
      2007 and 2008. 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 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 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, 2006, a total of
      $ 5 . 0 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 properties' average annual occupancy is approximately 99%. 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.





***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 4,122 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 other managed apartment properties owned
      by
      third parties and affiliates of J. Michael Wilson, Chairman and CEO of ACPT,
      range from 3% to 4.5% 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.


**-8-**
 *Table
          of Contents*


***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 and Wooded Glen, both undeveloped. 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, 2006, 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 135
      lots settled in 2006 and the 210 completed lots in backlog as of December 31,
      2006. All settlements made in 2006 were the result of the March 2004 agreement
      with Lennar Corporation (“Lennar”) discussed below. Since inception of Fairway
      Village, builders have settled 550 fully developed single-family lots in the
      first thirteen parcels. In addition to lots in backlog, infrastructure
      construction will begin on the next 68 single family lots with completion
      expected by the end of the year. Engineering of an additional 152 townhouse
      lots
      are in review by the County, and construction is expected to commence in the
      summer of 2007. 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, 2006, 53.9 acres of developed commercial land and 210 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, 2006:





**Lot
                Type**
            **Estimated**
              **Number
                of**
              **Lots**
            **Approximate**
              **Acreage**
            **Entitlements**
            **Estimated**
              **Expected**
              **Date
                of Sale**
            **Estimated**
              **Aggregate
                Sales Price****SMALLWOOD
                VILLAGE****Commercial,
                Retail, Office:**Henry
                Ford Circle
            Commercial
            12
            13.16
            A
            2007
                - 2009
            $1.8
                - $2.0 million**Industrial:**Industrial
                Park North Tract 7A
            Light
                Industrial
            1
            2.82
            A
            2010
            TBDIndustrial
                Park North Tract 21, Parcel F
            Light
                Industrial
            1
            4.18
            A
            2011
            TBDIndustrial
                Park North Tract 23, Parcel A
            Light
                Industrial
            1
            1.95
            A
            2012
            TBD**WESTLAKE
                VILLAGE****Commercial,
                Retail, Office:**Town
                Center Parcel A3
            Restaurant,
                Office, Retail
            7
            13.84
            A
            2007
                - 2010
            $
                7,000,000Town
                Center Parcel G3
            Office,
                Retail
            1
            1.13
            A
            2007
            $
                490,000Town
                Center Parcel G4
            Office,
                Retail
            1
            0.98
            A
            2007
            $
                430,000Town
                Center Parcel G7
            Office,
                Retail
            1
            0.91
            A
            2007
            $
                475,000Parcel
                M
            Office,
                Retail
            1
            2.61
            A
            2008
            $
                300,000Hampshire
                Commercial Parcel Q
            Commercial
            1
            13.31
            C
            2008
                - 2010
            $
                2,100,000**FAIRWAY
                VILLAGE****Residential
                Lots:**Sheffield
                Parcel F
            SF
                Detached
            4
            0.55
            A
            2007
            *Sheffield
                Parcel I
            SF
                Attached
            52
            22.25
            A
            2007
                - 2008
            *Sheffield
                Parcel G/M1
            SF
                Detached
            151
            39.75
            A
            2007
                - 2008
            *Sheffield
                Parcel J
            SF
                Attached
            152
            34.30
            B
            2008
                - 2010
            *Gleneagles
                Parcel A
            Multi-Family
            120
            12.40
            B
            To
                Be Held
            N/AGleneagles
                Parcel B
            Multi-Family
            184
            13.00
            B
            To
                Be Held
            N/AGleneagles
                Parcel D
            SF
                Detached
            68
            28.40
            B
            2008
            *Gleneagles
                Parcel E
            SF
                Detached
            117
            53.70
            B
            2008
                - 2009
            *Gleneagles
                Parcel C
            SF
                Attached
            168
            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
            To
                Be Held
            N/A**Commercial,
                Retail, Office:**Middle
                Business Park Parcel D
            Office,
                Commercial
            14
            42.15
            B
            2008
                - 2011
            TBDFairway
                Village Center
            Retail,
                Commercial
            1
            93.90
            B
            2008
                - 2012
            TBDMiddle
                Business Park Parcel B
            Office,
                Commercial
            4
            32.85
            B
            2013
                - 2015
            TBDMiddle
                Business Park Parcel C
            Office,
                Commercial
            3
            16.16
            B
            2011
                - 2013
            TBD**VILLAGE
                OF WOODED GLEN**Residential
                Parcels
            TBD
            7,155
            1810.4
            D
            2013
                - 2036
            TBDWooded
                Glen Village Center
            Retail,
                Commercial
            1
            30.00
            C
            2020
            TBD**VILLAGE
                OF PINEY REACH**Residential
                Parcels
            TBD
            2,921
            666.60
            D
            2030
                - 2040
            TBDPiney
                Reach Village Center
            Retail,
                Commercial
            1
            37.30
            C
            2030
            TBDPiney
                Reach Industrial Park
            Industrial
            Undetermined
            672.60
            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
                allocations
              TBD
                means to be determined.*
                Price determined as 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 an agreement with Lennar’s homebuilding subsidiary to
      sell approximately 1,950 residential lots, consisting of approximately 1,359
      single-family lots and 591 town home lots in Fairway Village. The agreement
      requires 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. 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. Under the agreement, 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 at a minimum 200 residential
      lots developed by the Company per year. The price of the lots will be calculated
      based on 30% of the base sales price of homes sold by the builder. The current
      selling price of new townhomes in this area is approximately $300,000 while
      new
      single-family homes are selling in the $400,000 to $500,000 range. Based on
      200
      lot sales per year, it is estimated that settlements will take place through
      2015; however, the recent slowing of the new homes sales market in the United
      States, and more specifically in the Washington D.C. suburban areas, could
      adversely impact Lennar’s willingness or ability to take down 200 lots per
      year.  In the event that Lennar does not take down the required 200 lots
      per year, Lennar would lose their exclusivity within Fairway Village as we
      would
      be allowed to sell these lots to other homebuilders.


Residential
      land sales to Lennar within our U.S. segment were $18,204,000 for the year
      ended
      December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
      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, 2006. 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.


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.





**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 894 new dwelling
      units. The County subsequently granted allocations for an additional 200
      dwelling units in 2005, 300 dwelling units in 2006 and in December 2006, the
      County granted us an additional 300 units for 2007. To date, we have recorded
      773 dwelling units with the County leaving us with a balance of 921 school
      allocations available for new dwelling units. 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, 2006, approximately 1,500 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, 2006, the Charles County
      Commissioners have issued three separate


**-11-**
 *Table
          of Contents*


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 $30,000,000.


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, $4,000,000 of bonds were issued
      for
      this project and in March 2007, an additional $3,000,000 in bonds will be
      issued. 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.





**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
      2006,
      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


**-12-**
 *Table
          of Contents*


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 effective buying income in
      Charles County was $53,787 in 2005. Building permit activity for new structures
      increased to 2,785 permits issued in Charles County in 2006 compared to 2,678
      permits issued in 2005, an increase of 4%.





**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.


The
      table
      below sets forth the name of each property; the number of rental units in the
      property; the percentage of all units held by Puerto Rico Apartment Properties;
      the project cost; the percentage of such units under lease; and the expiration
      date and maximum benefit for any subsidy contract:


No.
                  of Apt.
              
              %
                  of Port-
              
              12/31/2006
                Project
                  Cost (B)
              
              Occupancy
                At
              
              Expiration
                of
                  Subsidy
              
              Maximum
                Subsidy**Consolidated
                  Partnerships**
              
              Units
              
              folio
              
              (in
                  thousands)
              
              12/31/06
              
              Contract
              
              (in
                  thousands)San
                  Anton
              
              
              184
              
              
              7
              %
              $
              5,497
              
              
              98
              %
              
              2010
              
              $
              1,288Monserrate
                  Associates
              
              
              304
              
              
              11
              %
              
              12,729
              
              
              99
              %
              
              2009
              
              
              2,523Alturas
                  del Senorial
              
              
              124
              
              
              5
              %
              
              5,045
              
              
              100
              %
              
              2009
              
              
              1,020Jardines
                  de Caparra
              
              
              198
              
              
              7
              %
              
              7,987
              
              
              100
              %
              
              2010
              
              
              1,555Colinas
                  de San Juan
              
              
              300
              
              
              11
              %
              
              12,618
              
              
              100
              %
              
              2011
              
              
              2,014Bayamon
                  Garden
              
              
              280
              
              
              11
              %
              
              14,178
              
              
              99
              %
              
              2011
              
              
              1,983Vistas
                  del Turabo
              
              
              96
              
              
              4
              %
              
              3,546
              
              
              100
              %
              
              2021
              
              
              651Monserrate
                  Tower II (A)
              
              
              304
              
              
              11
              %
              
              13,339
              
              
              100
              %
              
              2020
              
              
              2,431Santa
                  Juana (A)
              
              
              198
              
              
              7
              %
              
              8,001
              
              
              100
              %
              
              2020
              
              
              1,628Torre
                  De Las Cumbres (A)
              
              
              155
              
              
              6
              %
              
              7,065
              
              
              100
              %
              
              2020
              
              
              1,285De
                  Diego (A)
              
              
              198
              
              
              8
              %
              
              7,939
              
              
              100
              %
              
              2020
              
              
              1,588Valle
                  del Sol
              
              
              312
              
              
              12
              %
              
              15,844
              
              
              100
              %
              
              2008
              
              
              2,4222,653
              
              
              100
              %
              $
              113,788
              
              
              
              
              
              
              
              $
              20,388





(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.


**-13-**
 *Table
          of Contents*


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)


**NON-**
            
            **ECONOMIC****NO.**
            
            
            
            
            
            **RECOURSE**
            
            **INTEREST****OF**
            
            **OPERATING**
            
            **OPERATING**
            
            **MORTGAGE**
            
            **UPON****P.R.
                APARTMENT PROPERTIES**
            
            **UNITS**
            
            **REVENUE**
            
            **EXPENSES**
            
            **OUSTANDING**
            
            **LIQUIDATION
                (a)****Consolidated
                Partnerships*****Carolina,
                Puerto Rico***Monserrate
                Associates
            
            
            304
            
            $
            2,596
            
            $
            1,304
            
            $
            7,386
            
            
            52.50
            %Monserrate
                Tower II (b)
            
            
            304
            
            
            2,487
            
            
            1,239
            
            
            10,120
            
            
            50.00
            %San
                Anton
            
            
            184
            
            
            1,440
            
            
            822
            
            
            4,218
            
            
            49.50
            %***San
                Juan, Puerto Rico***Alturas
                Del Senorial
            
            
            124
            
            
            1,066
            
            
            517
            
            
            3,551
            
            
            50.00
            %Colinas
                San Juan
            
            
            300
            
            
            2,053
            
            
            814
            
            
            9,610
            
            
            50.00
            %De
                Diego (b)
            
            
            198
            
            
            1,653
            
            
            804
            
            
            5,600
            
            
            50.00
            %Torre
                de Las Cumbres (b)
            
            
            155
            
            
            1,328
            
            
            673
            
            
            5,200
            
            
            50.00
            %
            (d)***Caguas,
                Puerto Rico***Santa
                Juana (b)
            
            
            198
            
            
            1,718
            
            
            823
            
            
            7,220
            
            
            50.00
            %Vistas
                Del Turabo
            
            
            96
            
            
            653
            
            
            354
            
            
            1,111
            
            
            50.00
            %
            (c)(d)***Bayamon,
                Puerto Rico***Bayamon
                Garden
            
            
            280
            
            
            2,064
            
            
            832
            
            
            9,419
            
            
            50.00
            %
            (c)
                (d)Jardines
                De Caparra
            
            
            198
            
            
            1,666
            
            
            792
            
            
            6,417
            
            
            50.00
            %
            (d)Valle
                Del Sol
            
            
            312
            
            
            2,444
            
            
            888
            
            
            10,718
            
            
            50.00
            %
            (c)Total
                Consolidated
            
            
            2,653
            
            $
            21,168
            
            $
            9,862
            
            $
            80,570


(a)
            Surplus
                cash from operations and proceeds from sale or liquidation are allocated
                based on the economic interest except those identified by additional
                description (b)
            Owned
                by Carolina Associates (c)
            Upon
                liquidation, the limited partners have a priority distribution equal
                to
                their uncovered capital. As of December 31, 2005, the unrecovered
                limited
                partner capital in Bayamon Garden, Valle Del Sol and Vistas Del Turabo
                were $1,184,000, $1,301,000, and $618,000
                respectively. (d)
            In
                addition to normal operating receivables between the Company and
                the
                Puerto Rico Apartment Properties, the Company as a receivable for
                incentive management fees of $59,000 and $12,000 for Bayamon Gardens
                and
                Jardines de Caparra, respectively. The Company also has a receivable
                for
                working capital loans of $125,000 and $26,000 for Torre de Las Cumbres
                and
                Vistas del Turabo, respectively. These receivables would receive
                priority
                upon liquidation of the interests of these
                partnerships.


**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, 2006, leases approximately
      20%
      of the building. As
      of
      December 31, 2006, 42% of the office space was leased with an additional 15%
      of
      office space generating rent income under an option agreement. The option
      agreement requires the tenant to make lease payments until the tenant completes
      certain permitting, at which point a final lease will be executed as the tenant
      will occupy the facility. However, until a lease is executed, the tenant can
      terminate


**-14-**
 *Table
          of Contents*


the
      option. 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, 2006, a
      total of $3. 2 million
      was designated as replacement reserves and $3.3 million as debt service reserves
      for the consolidated PR 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 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.





**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


**-15-**
 *Table
          of Contents*


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 212 units, is in the permit stage of infrastructure
      development leaving the last phase of 236 units for development in the future.
      There were no commercial land sales in backlog as of December 31,
      2006.


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.





The
      following table is a summary of the land inventory available in Puerto Rico
      as
      of December 31, 2006:





**Lot
                Type**
            **Estimated**
              **Number
                of Units/Parcels**
            **Approximate**
              **Acreage**
            **Entitlements**
            **Expected**
              **Date
                of Sale**
            **Estimated
                Asking**
              **Sales
                Price****PARQUE
                ESCORIAL****Office
                Park:**Lot
                IV-3b
            Office
            1
            2.70
            A
            To
                be held
            N/A**Residential:**Hilltop
                Phase I - 212 residential units
            Residential
            212
            58.50
            B
            2009-2011
            N/AHilltop
                Phase II - 236 residential units
            Residential
            236
            58.50
            B
            2011-2013
            N/A**PARQUE
                EL COMANDANTE****Mixed-use
                Lots:**Phase
                I - Quarry Site
            Mixed-use
                commercial
            TBD
            50.79
            C
            2007
                - 2008
            $20
                millionPhase
                II - Route 66 North
            Mixed-use
            TBD
            165.83
            C
            2012
                - 2013
            TBD**Residential
                Lots:**Phase
                I - Quarry Site
            Residential
            TBD
            26.11
            C
            2007
                - 2008
            TBDPhase
                III - Route 66 South
            Residential
            TBD
            203.76
            C
            2017
                - 2018
            TBDPhase
                IV - Out-Parcel
            Residential
            TBD
            38.85
            C
            2007
                - 2008
            $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




**-16-**
 *Table
          of Contents*


**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 212 Hill Top residential units. Currently the Company is seeking
      final government approval from the Municipality of Carolina.


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.





**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 2006, 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.


The
      Puerto Rico Department of Natural and Environment Resources (DNER) have enacted
      Regulation #25 whereas it requires the replacement of trees removed during
      land
      development of the proposed Escorial Hilltop Project on a two to one basis.
      In
      February 2006, IGP's Agronomist submitted to DNER a tree mitigation plan. On
      December 13, 2006, IGP received from DNER's the approval and permit, under
      certain conditions, to proceed with the tree mitigation plan. As part of this
      mitigation plan, the Company will be segregating and donating 44 acres of land
      to the Municipality of Carolina to get the final condition to begin the land
      development at the Hilltop. These parcels of land will be a conservation area
      for an urban forest.




***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. As of December
      31,
      2006, the construction of the four-tower condominium complex was completed
      and
      110 units were delivered. The rest of the project remains for sale in 2007.
      There were 15 units under contract as of December 31, 2006. These sales are
      backed by a $6,000 deposit and sales contract. In 2006, 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 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 in our area is expected
      from condominium projects that the Company believes to be 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.


**-17-**
 *Table
          of Contents*


***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 2006 Economic Report to the Governor was not available.
      As presented in the 2005 Economic Report to the Governor, for the fiscal year
      ended June 30, 2005, per capita personal income was $12,502 with an average
      family income of $41,258. The economy of Puerto Rico registered growth in
      constant dollars of 2% in 2005.




**GENERAL**





**Employees**


ACPT
      had
      274 full-time employees as of December 31, 2006, 126 in the United States and
      148 in Puerto Rico. 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 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
                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. Recently, the combination of high home
      prices and interest rate increases have slowed the current real estate market.
      This has led some people to assert that real estate prices may be inflated
      and
      may decline if demand continues to weaken. A decline 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.


**-18-**
 *Table
          of Contents*


*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, 2006, 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. 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. 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.





*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.


**-19-**
 *Table
          of Contents*


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


Residential
      land sales to Lennar within our U.S. segment were $18,204,000 for the year
      ended
      December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
      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, 2006.
      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.


Our
      residential land sales agreement with Lennar requires the homebuilder to
      purchase 200 residential lots per year, provided that they are developed and
      available for delivery as defined by the development agreement. Based on 200
      lot
      sales per year, it is estimated that lot settlements will take place through
      2015; however, the recent slowing of the new homes sales market in the United
      States, and more specifically in the Washington D.C. suburban areas, could
      adversely impact Lennar’s willingness or ability to take down 200 lots per
      year.  In the event that Lennar does not take down the required 200 lots
      per year, Lennar would lose their exclusivity within Fairway Village as we
      would
      be allowed to sell these lots to other homebuilders.





**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, 2006, we owned an equity interest in and managed for third parties
      and affiliates 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.





**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.


**-20-**
 *Table
          of Contents*


**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 an **** incremental
      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 you. 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.


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.





**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  **-21-**
 *Table
            of Contents*


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 your 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.


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 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,
      2006, 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


**-22-**
 *Table
          of Contents*


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. In the
      status hearing held on August 10, 2005, the court scheduled the beginning of
      the
      trial for November 2006 however, the trial has been delayed until May 2007.





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; however, our insurance
      carrier denies any obligation to assume responsibility for the defense. The
      Company believes that this lawsuit should be covered by our insurance policy
      and
      therefore, we are readdressing this issue to the insurance company.





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, 2006.





**-23-**
 *Table
          of Contents*


**ITEM
                4A.**
            **EXECUTIVE
                OFFICERS OF THE REGISTRANT**


The
      executive officers of the Company as of December 31, 2006 are as
      follows:





Name
            Age
            PositionJ.
                Michael Wilson
            41
            Chairman
                and Chief Executive OfficerEdwin
                L. Kelly
            65
            President
                and Chief Operating OfficerCarlos
                R. Rodriguez
            61
            Executive
                Vice PresidentCynthia
                L. Hedrick
            54
            Chief
                Financial Officer, Executive Vice President, Secretary and
                TreasurerPaul
                A. Resnik
            59
            Senior
                Vice President and Assistant SecretaryEduardo
                Cruz Ocasio
            60
            Senior
                Vice President and Assistant SecretaryMatthew
                M. Martin
            31
            Vice
                President and Chief Accounting OfficerJorge
                Garcia Massuet
            68
            Vice
                PresidentHarry
                Chalstrom
            46
            Vice
                PresidentMark
                L. MacFarland
            37
            Vice
                PresidentRafael
                Velez
            50
            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 2007. 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.





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.  He joined FTI
      in 2002 where he worked on both large scale internal investigations of complex
      accounting issues for national and international companies as well as litigation
      consulting for accounting fraud cases.  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.


**-24-**
 *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" and our shares are also listed on the NYSE
      ARCA
      (formerly the Pacific Exchange) under
      the
      same trading symbol. As of the close of business on March 1, 2007, there were
      146 shareholders of record of ACPT’s common shares. On March 1, 2007, the
      closing price reported by the American Stock Exchange was $19.13.





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
                
                Declared**2006**
                
                **Quarter**Fourth
                
                $
                    20.24
                
                $
                    17.49
                
                $ 
                    0.10Third
                
                20.20
                
                19.40
                
                0.10Second
                
                22.25
                
                20.00
                
                0.10First
                
                23.25
                
                19.48
                
                0.53**2005**
                
                **Quarter**Fourth
                
                $
                    26.35
                
                $
                    16.50
                
                $ 
                    0.10Third
                
                25.90
                
                18.60
                
                0.10Second
                
                19.94
                
                13.30
                
                0.10First
                
                14.07
                
                12.11
                
                0.10





*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 contributions.





*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.





**-25-**
 *Table
          of Contents*


**Five-year
      Stock Performance Graph**





The
      graph
      below matches American Community Properties Trust's cumulative 5-year total
      shareholder return on common stock with the cumulative total returns of the
      S
& P 500 index and the NAREIT Equity index. The graph tracks the performance
      of a $100 investment in our common shares and in each of the indexes (with
      the
      reinvestment of all dividends) from 12/31/2001 to 12/31/2006.





**12/01**
            **12/02**
            **12/03**
            **12/04**
            **12/05**
            **12/06****American
                Community Properties Trust**
            
            **100.00**
            **87.84**
            **130.88**
            **200.68**
            **329.25**
            **340.78****S
                & P 500**
            
            **100.00**
            **77.90**
            **100.24**
            **111.15**
            **116.61**
            **135.03****NAREIT
                Equity**
            
            **100.00**
            **103.82**
            **142.37**
            **187.33**
            **210.12**
            **283.78**








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


**-26-**
 *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, 2006. 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,**2006***
            
            2005
            
            2004
            
            2003
            
            2002(In
                thousands, except per share and operating data)**Income
                Statement Data:**Total
                operating revenues
            
            **$**
            **98,163**
            
            $
            62,313
            
            $
            49,011
            
            $
            55,506
            
            $
            36,902Total
                operating expenses
            
            
            **73,168**
            
            
            51,207
            
            
            40,932
            
            
            47,720
            
            
            30,730Operating income
            
            
            **24,995**
            
            
            11,106
            
            
            8,079
            
            
            7,786
            
            
            6,172Income
                before provision (benefit) for income taxes
            
            
            **7,485**
            
            
            6,855
            
            
            4,331
            
            
            3,901
            
            
            4,724Income
                tax provision (benefit)
            
            
            **2,894**
            
            
            (690
            )
            
            1,500
            
            
            1,596
            
            
            2,338Net income
            
            
            **4,591**
            
            
            7,545
            
            
            2,831
            
            
            2,305
            
            
            2,386Earnings
                per shareBasic
            
            **$**
            **0.88**
            
            $
            1.45
            
            $
            0.55
            
            $
            0.44
            
            $
            0.46Diluted
            
            **$**
            **0.88**
            
            $
            1.45
            
            $
            0.55
            
            $
            0.44
            
            $
            0.46**Balance
                Sheet Data:**Total
                assets
            
            **$**
            **346,699**
            
            $
            217,085
            
            $
            184,027
            
            $
            142,497
            
            $
            136,067Recourse debt
            
            
            **29,351**
            
            
            32,818
            
            
            27,192
            
            
            24,634
            
            
            43,206Non-recourse debt
            
            
            **270,720**
            
            
            119,865
            
            
            98,879
            
            
            70,979
            
            
            44,205Other liabilities
            
            
            **30,774**
            
            
            29,912
            
            
            29,065
            
            
            19,031
            
            
            21,429Total
                liabilities
            
            
            **330,845**
            
            
            182,595
            
            
            155,136
            
            
            114,644
            
            
            108,840Shareholders'
                equity
            
            
            **15,854**
            
            
            34,490
            
            
            28,891
            
            
            27,853
            
            
            27,227Cash
                dividends declared and paid per common share
            
            **$**
            **0.83**
            
            $
            0.40
            
            $
            0.35
            
            $
            -
            
            $
            -**Operating
                Data:**Rental
                apartment units managed at end of period
            
            
            **7,693**
            
            
            7,491
            
            
            7,406
            
            
            7,747
            
            
            7,747Community
                DevelopmentResidential lots sold
            
            
            **135**
            
            
            94
            
            
            70
            
            
            88
            
            
            161Residential lots transferred to homebuilding
            
            
            **-**
            
            
            -
            
            
            160
            
            
            -
            
            
            -Residential lots transferred to joint venture
            
            
            **-**
            
            
            -
            
            
            352
            
            
            -
            
            
            -Joint venture lots delivered
            
            
            **61**
            
            
            25
            
            
            -
            
            
            -
            
            
            -Residential lots transferred to investment property
                division
            
            
            **-**
            
            
            252
            
            
            -
            
            
            -
            
            
            -Commercial and business park acres sold
            
            
            **15**
            
            
            11
            
            
            3
            
            
            8
            
            
            13HomebuildingHomes sold
            
            
            **78**
            
            
            32
            
            
            55
            
            
            124
            
            
            29








*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).


**-27-**
 *Table
          of Contents*





**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 the investment in multifamily rental
      properties, property management services, community development, and
      homebuilding through its consolidated subsidiaries. The operations are managed
      out of two primary offices: St. Charles, Maryland, which also houses the
      executive offices, 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 third parties and affiliates of J.
      Michael Wilson, our Chairman and CEO, 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. Through
      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. We are also seeking
      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 property management 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 expected to
      be
      similar in design; however it 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 the commercial building in Parque Escorial opened in
      2005 which was built on land contributed by LDA.


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 proposed IRS regulation would eliminate this treatment
      commencing in 2007, if


**-28-**
 *Table
          of Contents*


finalized.
      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.





**NEW
      ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF
      PRESENTATION**


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.


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
      and
      is effective as of the beginning of our 2007 fiscal year. We are currently
      evaluating the impact, if any, that FIN 48 will have on our financial
      statements.





**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


**-29-**
 *Table
          of Contents*


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.


The
      costs
      of developing the land are allocated to our land assets and charged to cost
      of
      sales as the related inventories are sold. The costs 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, 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


**-30-**
 *Table
          of Contents*


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.





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.








**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, 2006, 2005 and 2004.
      As a result of implementing EITF 04-05, our net income for the year ended
      December 31, 2006, on a consolidated basis, was reduced by $2,166,000, but
      our
      operating income was increased by $7,361,000. 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, 2006, our U.S. segment generated $15,299,000 of
      operating income compared to $8,287,000 of operating income generated by the
      segment for the same period in 2005 and $6,568,000 in 2004. Additional
      information and analysis of the U.S. operations can be found below.





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


In
      the
      prior period, fourteen U.S. based apartment properties in which we hold an
      ownership interest qualified for the consolidation method of accounting.
      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. The rules of consolidation require that we include within our
      financial statements the consolidated apartment properties' total revenue and
      operating expenses. The portion 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.


**-31-**
 *Table
          of Contents*


In
      the fourth
      quarter of 2005, we broke ground on the newest addition to our rental apartment
      properties in St. Charles' Fairway Village, the Sheffield Greens Apartments
      (“Sheffield Greens”), and began leasing efforts in the first quarter of 2006.
      The 252-unit apartment project consists of nine, 3-story buildings and offers
      1
      and 2 bedroom units ranging in size from 800 to 1,400 square feet. The Company
      completed the construction of the entire nine buildings on January 31, 2007.
      The
      first five buildings became available for occupancy during the fourth quarter
      of
      2006. As of December 31, 2006, ---39% of the total units in the complex were
      leased.





*Apartment
      Acquisitions*





A
      summary
      of our significant acquisitions in 2006, 2005 and 2004 is as follows. All of
      the
      acquired properties are operating as market rate 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 acquired the assets of Nottingham Apartments
                LLC, in Baltimore, Maryland containing 85 units for approximately
                $3,000,000.


**·**
            On
                October 29, 2004, the Company acquired the assets of two apartment
                properties, Owings Chase LLC and Prescott Square LLC, located in
                Pikesville, Maryland containing a combined total of 307 units for
                approximately $20,000,000.





As
      of
      December 31, 2006, thirteen of the consolidated properties are market rent
      properties, allowing us to determine the appropriate rental rates. Even though
      we can determine the rents, a portion of our units at some of our market rent
      properties must be leased to tenants with low to moderate income. HUD subsidizes
      four of the properties and the two remaining properties are a mix of subsidized
      units and market rent units. HUD dictates the rents of the subsidized
      units.





2006
      compared to 2005





The
      following table presents the results of rental property revenues and operating
      expenses for the years ended December 31, 2006 and 2005 ($ in
      thousands):






($
                in thousands)
            **December
                31,**
              **2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31,**
              **2006**
              **Excluding
                the**
              **impact
                of**
              **EITF
                04-05**
            **December**
              **31,
                2005**
            **Difference****Rental
                property revenues**
            $32,505
            $6,502
            $26,003
            $22,508
            $3,495**Rental
                operating expenses**
            $16,072
            $3,936
            $12,136
            $10,129
            $2,007








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.


**-32-**
 *Table
          of Contents*




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.





2005
      compared to 2004


Rental
      property revenues increased $3,501,000 to $22,508,000 for the year ended
      December 31, 2005 compared to $19,007,000 for the same period in 2004. The
      18%
      increase was primarily due to the apartment acquisitions in October 2004 and
      May
      2005, an overall average annual rent increase of 5%, as well as an increase
      in
      rent generated by one of our properties that converted from a fully subsidized
      property to a 100% market rate property in July 2004.


Rental
      property operating expenses increased $2,042,000 for the year ended December
      31,
      2005 to $10,129,000 compared to $8,087,000 for the respective period in
      2004.  The increase in our rental property operating expenses in 2005 is
      attributable to the growth in the size of our apartment operations including
      acquisitions accounting for $1,807,000 of additional expenses, an increase
      in
      insurance costs and taxes and an increase due to the rising costs of
      utilities.





**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 an agreement with Lennar Corporation to sell 1,950
      residential lots (1,359 single-family lots and 591 town home lots) in Fairway
      Village in St. Charles, Maryland. T he
      agreement requires the homebuilder to provide $20,000,000 in letters of credit
      to secure the purchase of the lots and purchase 200 residential lots per year,
      provided that they are developed and available for delivery as defined by the
      development agreement. Based on 200 lot sales per year, it is estimated that
      lot
      settlements will take place through 2015; however, the recent slowing of the
      new
      homes sales market in the United States, and more specifically in the Washington
      D.C. suburban areas, could adversely impact Lennar’s willingness or ability to
      take down 200 lots per year.  In the event that Lennar does not take down
      the required 200 lots per year, Lennar would lose their exclusivity within
      Fairway Village as we would be allowed to sell these lots to other
      homebuilders. 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 amount recognized
      at closing since the final lot price is equal to 30% of the base price of the
      home sold on the lot. Additional revenue exceeding the established 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 of residential lots are fairly consistent
      within any given village in St. Charles. 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.





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.


**-33-**
 *Table
          of Contents*





*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. As of December 31, 2006, we had 157 developed single-family
      lots
      and 53 finished town-home lots in backlog and ready for delivery.


During
      the years ended December 31, 2006 and 2005, we also recognized $3,400,000 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. Currently new town-homes
      in Fairway Village are selling in the mid-$300,000’s while single-family homes
      in Fairway Village are selling in excess of $450,000.





*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. We closed on the first parcel in the O’Donnell Lake
      Restaurant Park in the fourth quarter of 2006 and we expect the first restaurant
      in the complex to open in late summer 2007. We are developing our commercial
      parcels in the restaurant park surrounding the popular St. Charles Towne Center
      and will continue to sell this land in the future. As of December 31, 2006,
      our
      backlog contained 10.15 commercial acres in St. Charles under contract for
      a
      total of $4,384,000.





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


In
      September 2004, the Company transferred a parcel of land in the Glen Eagles
      Neighborhood in Fairway Village with a cost basis of $5,625,000 to a newly
      formed joint venture with Lennar in exchange for cash of $4,277,000, and a
      50%
      membership interest in the venture. Pursuant to an operating agreement, the
      joint venture will develop the property and sell it to Lennar’s homebuilding
      division. The Company serves as the managing agent for the project and receives
      a 3% management fee. The Company recorded deferred revenues equal to the cash
      it
      received at closing and deferred costs equal to 50% of the cost basis of the
      land. We expect to recognize the profit on the portion of land transferred
      as
      lots are developed by the joint venture and sold to Lennar through the
      amortization of previously deferred revenues and costs. In addition, the Company
      will recognize off-site fees received from the joint venture when lots are
      sold
      by the joint venture. Pursuant to the terms of the lot option agreement, lots
      began selling in the fourth quarter of 2005 and are expected to continue through
      the second quarter of 2010. The remaining 50% of the land's cost basis was
      recorded as our investment in the joint venture and is reflected within our
      investments in unconsolidated real estate entities. 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 $1,300,000 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%; however our gross margins on land sales in the U.S. can
      fluctuate based on changes in the mix of residential and commercial land sales.





*Customer
      Dependence*


Residential
      land sales to Lennar within our U.S. segment were $18,204,000 for the year
      ended
      December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
      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, 2006.
      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.





2005
      compared to 2004


Community
      development land sales revenue increased $5,404,000 to $12,403,000 for the
      year
      ended December 31, 2005 from $6,999,000 for the same period in 2004. The 77%
      increase in our community development land sales revenue in 2005 is the result
      of residential development and delivery of residential lots to
      Lennar.


**-34-**
 *Table
          of Contents*


*Residential
      Land Sales*


In
      2005,
      we delivered 94 lots to Lennar at an average selling price of $102,558 per
      lot;
      the price includes the initial selling price of $100,000 per lot plus water
      and
      sewer fees, road fees and other off-site fees. In 2004 we sold 70 standard
      single family residential lots for an average initial selling price of $98,000
      per lot. In 2005, we also recognized for the first time, additional revenue
      of
      $1,996,000 based on the final settlement of homes of 63 lots previously sold
      to
      Lennar in 2005 and 2004.


Prices
      for our residential lots reflect the healthy housing market in 2005 and its
      upward trend in home prices in Charles County. The current selling price of
      town-homes in this area is in excess of $300,000 while single-family homes
      in
      Fairway Village are selling in excess of $450,000.


As
      of December 31, 2005, we had 20
      developed residential lots available for delivery.





*Commercial
      Land Sales*


In
      2005,
      we sold 1.34 acres of commercial land for $3.43 per square foot compared to
      1.07
      acres of commercial land for sales prices for $2.75 per square foot for the
      same
      period in 2004. The average sales prices of these parcels differ due to their
      location, use and level of development. As of December 31, 2005, our backlog
      contained 16.8 acres of commercial acres under contract for a total of
      $4,524,000.





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


In
      the
      fourth quarter of 2005, the joint venture sold its first 25 lots to Lennar.
      As a
      result, the Company recognized $188,000 for fees, $316,000 of deferred revenue
      and $195,000 of deferred costs. The joint venture did not sell any lots to
      Lennar in 2004.




*Gross
      Margin on Land Sales*


The
      gross
      margin on land sales for the year ended December 31, 2005 was 45% compared
      to
      37% for the same period of 2004. Our gross margins on land sales in 2005 and
      2004 have been affected by increases in the price of steel, oil and fuel and
      the
      strong demand and limited supply for contractors for the development of lots
      in
      Fairway Village. These cost increases were more than offset by increased sales
      prices of homes in Fairway Village.





*Customer
      Dependence*


Our
      community development land sales revenue from Lennar in 2005 was $12,203,000;
      which accounts for 20% of the Company's total revenue and 32% of the U.S.
      segment's revenue.





**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 April 30, 2006, the Company’s management
      agreement with Chastleton Associates LP terminated when the apartment property
      was sold to a third party. The property was previously owned by an affiliate.
      Management fees generated by this property accounted for less than 1% of the
      Company’s total revenue. The Company earned an agreed-upon management fee for
      administrative services through the end of the second quarter 2006. At the
      end
      of February 2007, one of the properties owned by affiliates of J. Michael Wilson
      was sold to a third party. We do not anticipate continuing to manage this
      property subsequent to its sale.


We
      receive an additional fee from the properties that we manage for their use
      of
      the property management computer system that we purchased at the end of 2001
      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.


**-35-**
 *Table
          of Contents*


2006
                compared to 2005
              
              
              
              
              ($ in thousands)
            **December
                31,**
              **2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF**
              **04-05**
            **December
                31,**
              **2006**
              **Excluding
                the**
              **impact
                of EITF**
              **04-05**
            **December
                31,**
              **2005**
            **Difference****Management
                and other fees**
              ****
            $663
            $(375)
            $1,038
            $1,114
            $(76)


Due
      to
      the required elimination of management fees in consolidation, the total
      management fees decreased for the year ended December 31, 2006 compared to
      year
      ended December 31, 2005 as a result of the impact of EITF 04-05. Excluding
      the
      impact of EITF 04-05, management and other fees were relatively consistent
      with
      the prior periods.





2005
      compared to 2004


Management
      and other fees for the year ended December 31, 2005 decreased 26% to $1,114,000
      compared to $1,500,000 for the same period in 2004. The $386,000 decrease in
      management fees is due to a special fee from refinancing and an incentive
      management fee from our managed properties in 2004 with no comparable fees
      earned in 2005. Additionally, we terminated a management contract with a
      non-owned property in October 2004 which accounted for approximately $133,000
      of
      management fee income in 2004. The Company serves as the managing agent for
      the
      land development joint venture project with Lennar and receives 3% of the
      selling price of the finished lots as a management fee for its services. In
      the
      fourth quarter of 2005, the joint venture delivered 25 lots to Lennar and the
      Company earned an $80,000 management fee with no comparable fees earned in
      2004.





**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 sixteen properties located in St. Charles, Maryland, five properties located
      in the Baltimore, Maryland area and one 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.





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.





2005
      compared to 2004


General,
      administrative, selling and marketing costs incurred within our U.S. operations
      increased $1,672,000 to $6,907,000 for the year ended December 31, 2005,
      compared to $5,235,000 for the same period of 2004.  The 32% increase in
      general, administrative, selling and marketing costs for the fiscal year ended
      December 31, 2005 is attributable to an increase of $691,000 of additional
      professional services fees including audit, tax compliance, consulting and
      corporate costs incurred during the year as a result of the restatement,
      additional corporate governance and fee increases in excess of inflation. The
      increase is also due to an additional $625,000 in salaries and benefits as
      a
      result of additional staff, bonuses and normal annual increases. The market
      for
      qualified employees was very competitive, resulting in the additional salaries,
      bonuses and recruiting fees. Other components


**-36-**
 *Table
          of Contents*


of
      the
      increase include $376,000 of additional charges related to our outstanding
      share
      appreciation rights as a result of the increase in our stock price in 2005
      and
      $102,000 in compensation expense for shares that were awarded to our
      non-employee Trustees in June.  The increases noted above were partially
      offset by a reduction in bad debt expense due to the collection of previously
      reserved accounts receivable balances from two apartment properties for which
      we
      serve as the general partner and one affiliated property that we
      managed.





**Depreciation
      Expense - U.S. Operations:**





2006
      compared to 2005


($
                  in thousands)
              **December
                  31,**
                **2006**
                **as
                  presented**
              **Less**
                **Effect
                  of**
                **EITF
                  04-05**
              **December
                  31,**
                **2006**
                **Excluding
                  the**
                **impact
                  of EITF**
                **04-05**
              **December
                  31,**
                **2005**
              **Difference****Depreciation
                  expense**
              $4,787
              $540
              $4,247
              $3,829
              $418






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.





2005
      compared to 2004


Depreciation
      expense increased $617,000 to $3,829,000 for the year ended December 31, 2005
      compared to $3,212,000 for the same period in 2004. Our apartment property
      acquisitions in October 2004 and May 2005 increased our depreciation expense
      in
      2005 by $454,000. The remainder of the fiscal year's increase was affected
      by
      capital improvements made to our rental properties.





**Interest
      Income - U.S. Operations:**





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.





2005
      compared to 2004


Interest
      income for the year ended December 31, 2005 was $145,000 compared to $199,000
      for the year ended December 31, 2004. The $54,000 decrease in interest income
      was generally related to reduced interest on intersegment debt.





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





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. 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.


**-37-**
 *Table
          of Contents*




2005
      compared to 2004


For
      the
      year ended December 31, 2005, the Company recognized earnings of $135,000 from
      its investments in its unconsolidated real estate entities. For the same period
      in 2004, the Company recognized a loss of $291,000 in its investments in its
      unconsolidated real estate entities. The increase was principally the result
      of
      the write-off of deferred finance fees in one of our unconsolidated partnerships
      which negatively impacted its earnings in 2004 with no comparable write-offs
      in
      2005.





**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 2006 and 2005, the excess interest primarily relates
      to
      the interest incurred on the non-recourse debt from our investment
      partnerships .





2006
      compared to 2005





($
                in thousands)
            **December
                31,**
              **2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31,**
              **2006**
              **Excluding
                the**
              **impact
                of EITF**
              **04-05**
            **December
                31,**
              **2005**
            **Difference****Interest
                Expense**
            $9,852
            $1,263
            $8,589
            $6,797
            $1,792







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.





2005
      compared to 2004


Interest
      expense increased 15% for the year ended December 31, 2005 to $6,797,000
      compared to $5,916,000 for the same period in 2004. The $881,000 increase in
      interest expense is primarily due to $845,000 of additional interest expense
      related to the mortgages of the three most recently acquired apartment
      properties in Baltimore, the write-off of pre-payment penalties and other fees
      of $250,000 from the refinancing of one of our properties' mortgages in the
      first quarter of 2005, and $223,000 of additional interest expense recognized
      as
      a result of the conversion of one of our properties from an interest subsidized
      property to a market rent property in December 2004. The increase in 2005 was
      reduced by loan fees amortized and included in interest expense in 2004 of
      $221,000 for loans that were repaid by December 31, 2004 as well as loan fees
      and prepayment penalties of $475,000 paid in connection with the refinancing
      of
      our apartment property’s mortgages in January 2004 with no comparable expense in
      2005. The Company capitalized $944,000 of interest in its U.S. segment in 2005
      compared to $534,000 of interest capitalized in 2004.


**-38-**
 *Table
          of Contents*


**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 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.





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.





2005
      compared to 2004


Minority
      interest decreased 28% in 2005 to $926,000 for the year ended December 31,
      2005
      compared to $1,285,000 for the same period in 2004.  In 2004, we refinanced
      the mortgages of Headen and Third Age that provided distributions to third
      party
      owners in excess of their basis.  In 2005, we refinanced the mortgage of
      Terrace that provided distributions to the third party owners in excess of
      their
      basis.  The 2005 distributions to minority partners in excess of their
      basis were less than the distributions paid out in 2004.





**Provision
      for Income Taxes - U.S. Operations:**


The
      effective tax rates for the years ended December 31, 2006, 2005, and 2004 were
      41%, 54% and 40%, respectively.  The statutory rate is 40%.  The
      effective tax rates for 2006, 2005 and 2004 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, 2006, our Puerto Rico segment generated $9,696,000
      of
      operating income compared to $2,659,000 of operating income generated by the
      segment for the same period in 2005 and $1,511,000 in 2004. Additional
      information and analysis of the Puerto Rico operations can be found
      below.





**Rental
      Property Revenues and Operating Expenses - Puerto Rico
      Operations:**


Effective
      January 1, 2006, the Company implemented new consolidation guidance required
      by
      EITF 04-05. Under the new consolidation guidance, nine Puerto Rico based
      apartment partnerships, operating twelve apartment properties, (“Puerto Rico
      Apartments”) in which we hold an ownership interest now qualify for the
      consolidation method of accounting. As a result, we included within our
      financial statements the consolidated apartment properties’ total revenues and
      operating expenses. The portion 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. As of December 31, 2006, these twelve consolidated properties
      are HUD subsidized projects with rental rates governed by HUD.


**-39-**
 *Table
          of Contents*


The
      following table presents the results of rental property revenues and operating
      expenses for the years ended December 31, 2006, 2005 and 2004:


($
                in thousands)
            **December
                31, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31, 2006**
              **Excluding
                the impact of**
              **EITF
                04-05**
            **D****ecember
                31,**
              **2005**
            **Difference****Rental
                property revenues**
            $21,524
            $21,168
            $356
            $58
            $298**Rental
                operating expenses**
            $10,963
            $
                9,862
            $1,101
            $661
            $440





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.


In
      September 2005, the Company commenced the operations of the new 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 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.


For
      the
      year ended December 31, 2006, the commercial rental property generated $356,000
      of rental property income compared to $58,000 for the same period in 2005.
      Operating expenses for the commercial rental property during 2006 were $580,000,
      as compared to $188,000 for the same period in 2005. As of December 31, 2006,
      42% of the office space was leased with an additional 15% of office space
      generating rent income under an option agreement. The option agreement requires
      the tenant to make lease payments until the tenant completes certain permitting,
      at which point a final lease will be executed as the tenant will occupy the
      facility. However, until a lease is executed, the tenant can terminate the
      option.





2005
      compared to 2004


For
      the
      year ended December 31, 2005, the commercial rental property generated $58,000
      of rental property income, net of IGP’s rent that is eliminated in consolidation
      of $126,000. Operating expenses for the commercial rental property were
      $188,000, producing an operating loss of $130,000. As of December 31, 2005,
      32%
      of the office space was leased.





**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.





2006
      compared to 2005


There
      were no community development land sales during the year ended December 31,
      2006. Community land sales during the same period in 2005 were $10,397,000.
      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, 2006.


**-40-**
 *Table
          of Contents*


2005
      compared to 2004


Community
      development land sales for the year ended December 31, 2005 were $10,397,000
      compared to $2,676,000. During 2005, the Company sold 9.7 commercial acres
      in
      the master-planned community of Parque Escorial. The gross profit margin for
      the
      years ended December 31, 2005 and 2004 were 28% and 26%, respectively. There
      were no residential or commercial acres in backlog at December 31,
      2005.





*Customer
      Dependence*


In
      2005,
      within our Puerto Rico segment, we sold commercial acres in our office park
      to
      Jalexis, Inc. for $7,448,000 which represents 31% of the Puerto Rico segment’s
      revenue and 12% of our total consolidated revenue for the year (See Note 5
      to
      the consolidated financial statements). No other customers within the Puerto
      Rico segment accounted for more than 10% of our consolidated revenue in
      2005.





**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 new 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. During 2004,
      the
      Company completed and closed out its 208 unit complex known as Brisas de Parque
      Escorial (“Brisas”). The condominium units are sold individually from an onsite
      sales office to pre-qualified homebuyers.





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.


As
      of
      December 31, 2006, 15 units of Torres were under contract at an average selling
      price of $282,000 per unit. Each sales contract is backed by a $6,000 deposit.
      For the year ended December 31, 2006, the Company had 68 new contracts and
      42
      canceled contracts.  For the same period in 2005, the Company had 111 new
      contracts and 11 canceled contracts. The Puerto Rico real estate market has
      slowed substantially from 2005 to 2006. 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 continues to believe that the remaining 50 units
      in
      Torres will sell in a reasonable period of time at favorable
      prices.





2005
      compared to 2004


During
      the fourth quarter of 2005, 32 units within the Torres project were closed
      at
      average selling price of $232,000 per unit generating $7,424,000 in home sales
      revenue. For the year ended December 31, 2004, the last 55 units within the
      Brisas project were sold at a selling price of $179,000 per unit generating
      $9,861,000 in home sales revenue.


The
      gross
      margin on home sales in 2005 was 18% as compared to 24% in 2004. The decrease
      in
      the gross margin on home sales is attributable to several factors. First, Brisas
      units sold in 2004 benefited from increases in the market prices of homes sold
      at the end of the project as compared to the beginning of the project. In
      addition, certain deferred commission expenses were charged as period costs
      for
      the first units sold in Torres with no comparable expenses for the final Brisas
      units sold in 2004. Finally, the gross profit percentage in 2004 was positively
      impacted by Brisas units selling faster than anticipated resulting in less
      than
      expected interest costs.


As
      of
      December 31, 2005, 68 units were under contract at Torres with an average
      selling price of $252,000 per unit.


**-41-**
 *Table
          of Contents*


**Management
      and Other fees - Puerto Rico Operations:**


We
      earn
      monthly fees from our management of four non-owned apartment properties and
      four
      property-owner associations operating in Parque Escorial. This section currently
      includes only the fees earned from the non-owned managed entities. For 2005
      and
      2004, this section also included fees earned from our previously unconsolidated
      Puerto Rico Apartments. However, these fees are now eliminated in
      consolidation.





($
                in thousands)
            **December
                31,**
              **2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31,**
              **2006**
              **Excluding
                the**
              **impact
                of EITF**
              **04-05**
            **December
                31,**
              **2005**
            **Difference****Management
                and other fees**
            $592
            $(2,358)
            $2,950
            $2,128
            $822





2006
      compared to 2005


Due
      to
      the required elimination of management fees in consolidation, total management
      fees decreased $1,536,000 for the year ended December 31, 2006, as compared
      to
      the year ended December 31, 2005 as a result of the impact of EITF 04-05.


On
      a
      comparative basis, the increase in management fees is primarily related to
      incentive management fees and refinancing fees of $1,025,000 from the
      refinancing of the non-recourse mortgages of Colinas de San Juan in April 2006
      and Carolina Associates in December 2006, as compared to a refinancing fee
      of
      $96,000 earned from Bayamon Garden in April 2005. Also, management fees from
      Parque Escorial Associations increased $53,000 during the year ended December
      31, 2006. In 2005, we managed one commercial property owned by the Wilson Family
      which was sold to a third party in April 2005. Fees earned from that property
      in
      2005 of $162,000 included a broker’s fee from the sale of the property with no
      comparable fees earned in 2006.





2005
      compared to 2004


Management
      fees and other fees increased 1% in 2005 to $2,128,000 as compared to $2,106,000
      in 2004. The increase is attributable to a special fee of $139,000 earned in
      April 2005 from the sale of a non-owned commercial property that we managed,
      a
      $96,000 fee recognized in connection with the refinancing of one of our managed
      properties in the second quarter of 2005 as well as an increase in the annual
      rents of the apartment properties. Results for 2005 were affected by a reduction
      in the recognition of management fees from the commercial properties sold in
      December 31, 2004 and April 2005 and deferred financing fees that were fully
      recognized in 2004.





**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.





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.


**-42-**
 *Table
          of Contents*


2005
          compared to 2004
 General,
        administrative, selling and marketing expenses decreased 9% or $289,000 in
        2005
        to $2,832,000 compared to $3,121,000 in 2004. This decrease is primarily
        attributable to a $190,000 reduction in miscellaneous, computer and other
        expenses and a decrease in SARS expense of $62,000. Although our share price
        increased substantially during the year, the number of shares vested and
        outstanding decreased due to significant exercises during 2004.




**Depreciation
      Expense - Puerto Rico Operations:**


($
                in thousands)
            **December
                31, 2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31,**
              **2006**
              **Excluding
                the**
              **impact
                of EITF**
              **04-05**
            **December
                31,**
              **2005**
            **Difference****Depreciation
                expense**
            $3,615
            $3,238
            $377
            $213
            $164








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.





2005
      compared to 2004


Depreciation
      expense, on a comparable basis, increased $97,000 to $213,000 for the year
      ended
      December 31, 2005, compared to $116,000 for the same period in 2004. The
      increase is primarily due to the depreciation expense in Escorial Building
      One,
      our new commercial office building, which commenced operation in September
      2005.





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


With
      the
      implementation of the EITF 04-05, effective January 1, 2006, the Company
      consolidated the operating results of its apartment partnerships. Accordingly,
      equity in earnings is no longer recorded for these apartment
      partnerships.


We
      account for our limited partner investment in the commercial rental property
      owned by ELI and El Monte under the equity method of accounting. The earnings
      from our investment in commercial rental property 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.







($
                  in thousands)
              **December
                  31,**
                **2006**
                **as
                  presented**
              **Less**
                **Effect
                  of**
                **EITF
                  04-05**
              **December
                  31,**
                **2006
                  Excluding**
                **the
                  impact of**
                **EITF
                  04-05**
              **December
                  31,**
                **2005**
              **Difference****Equity
                  in earnings**
              $683
              $262
              $421
              $1,008
              $(587)


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.


**-43-**
 *Table
          of Contents*


2005
      compared to 2004


Equity
      in
      earnings from partnerships, on a comparable basis, decreased $1,959,000 to
      $1,008,000 during the twelve months of 2005, compared to $2,967,000 for the
      same
      period of 2004. The decrease is the result of $1,771,000 of distributions
      received in excess of our investment base from two of our partnerships for
      which
      the Company has no required funding obligation. The year 2005 decrease also
      includes a reduction in the equity in earnings from our apartment partnerships
      of $217,000 attributable to the increases in financial and operating expenses
      within our apartment properties.





**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, 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 Puerto Rico segment is applied. Any excess
      interest is reflected as interest expense. For 2006 and 2005, the excess
      interest primarily relates to the interest incurred on the non-recourse debt
      from our investment partnerships.








($
                in thousands)
            **December
                31,**
              **2006**
              **as
                presented**
            **Less**
              **Effect
                of**
              **EITF
                04-05**
            **December
                31,**
              **2006
                Excluding**
              **the
                impact of**
              **EITF
                04-05**
            **December
                31,**
              **2005**
            **Difference****Interest
                expense**
            $7,057
            $6,324
            $733
            $(836)
            $1,569





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.





2005
      compared to 2004


Interest
      expense decreased 437% in 2005 to ($836,000) compared to $248,000 in 2004.
      The
      decrease in 2005 is attributable to the $982,000 reversal of accrued interest
      no
      longer necessary as a result of the closing agreement reached with the IRS.
      Refer to Note 10 in the Consolidated Financial Statements found in Item 8 of
      the
      2005 10-K for an additional discussion. The Company capitalized $1,371,000
      of
      interest in the Puerto Rico segment in 2005 compared to $770,000 of interest
      capitalized in 2004.





**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
      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.


Minority
      interest for the year ended December 31, 2006, was $2,404,000. 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.


**-44-**
 *Table
          of Contents*


**Provision
      for Income Taxes - Puerto Rico Operations:**


The
      effective tax rate for 2006, 2005 and 2004 were 28%, (20%) and 35%,
      respectively. The statutory rate is 29%.  The statutory tax rate and the
      effective tax rate for the years ended December 31, 2006 and 2004, differ 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, 2006, the Company had cash and cash equivalents of $27,459,000
      and
      $19,677,000 in restricted cash. The following table sets forth the changes
      in
      the Company’s cash flows ($ in thousands):





Years
                Ended December 31**2006**
            
            2005
            
            2004Operating
                Activities
            
            **$**
            **9,317**
            
            $
            (3,148
            )
            $
            8,656Investing
                Activities
            
            
            **(39,161**
            **)**
            
            (9,265
            )
            
            (28,761
            )Financing
                Activities
            
            
            **36,147**
            
            
            17,431
            
            
            22,527Net Increase in Cash
            
            **$**
            **6,303**
            
            $
            5,018
            
            $
            2,422





For
      the
      year ended December 31, 2006 operating activities provided $9,317,000 of cash
      flows compared to $3,148,000 of cash flows used in operating activities for
      the
      year ended December 31, 2005. The $12,465,000 increase in our operating cash
      is
      primarily due to increased home sales for the year ended December 31, 2006
      along
      with a decrease in our homebuilding construction activities as a result of
      being
      in different phases of the Torres del Escorial project for the respective years
      presented. The Company sold 78 condominium units within Torres during 2006
      compared to the sale of 32 units in 2005 resulting in an additional $12,414,000
      in homebuilding sales for 2006. The project was also nearing the end of the
      construction phase during 2006 and used $6,438,000 of cash from operating
      activities compared to $13,068,000 of operating cash used during 2005. The
      increase in operating cash is also attributable to the operating cash flows
      of
      the 11 apartment partnerships now included within our consolidated results
      for
      2006 as a result of implementing the provisions of EITF 04-05. These increases
      were offset by a decrease in community development land sales as a result of
      a
      $7,448,000 land sale in Puerto Rico in 2005 with no comparable sale in 2006
      and
      an increase in the Company’s investment in community development assets as well
      as a $5,245,000 increase in cash paid for income taxes. Within our community
      development operations in the U.S., the Company continues to develop residential
      lots for delivery to Lennar as part of its March 2004 agreement with the
      homebuilder. Also, in accordance with an agreement with the Charles County
      government, the Company is accelerating the construction of two major roadway
      links to the Charles County roadway system.  For the year ended December
      31, 2006, the Company added $25,120,000 of additions to our community
      development assets in connection with these projects compared to $20,793,000
      in
      2005. From year to year, cash flow from operating activities depends primarily
      upon changes in our net income, as discussed more fully above under "Results
      of
      Operations," as well as changes in our receivables and payables.


For
      the
      year ended December 31, 2006, the Company had $39,161,000 of net cash used
      in
      its investing activities compared to $9,265,000 of net cash used in 2005. 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. On April 28, 2006, the Company completed the acquisition of two
      apartment properties in Baltimore, Maryland containing a total of 250 units
      for
      approximately $14,300,000. Also, during 2006, we invested $19,972,000 in the
      construction of an apartment project in St. Charles compared to construction
      expenditures of $3,739,000 incurred in 2005 related to the construction of
      our
      office building in Parque Escorial and the start of the apartment project in
      St.
      Charles. Finally, as a result of


**-45-**
 *Table
          of Contents*


adding
      11
      additional properties to our consolidation as of January 1, 2006, under the
      new
      provisions of EITF-04-05, we added $4,723,000 to the opening consolidated cash
      balance. For further discussion of the impact at the implementation of EITF
      04-05, see Note 2 to our consolidated financial statements.


For
      the
      year ended December 31, 2006, $36,147,000 of cash was provided by our financing
      activities compared to $17,431,000 of cash provided by financing activities
      in
      2005. Cash used in or provided by financing activities generally relates to
      dividend distributions to our shareholders, distributions made to our minority
      interest partners and advances and repayment of debt. The increase in
      distributions to minority interest partners to $2,973,000 for the year ended
      December 31, 2006 is primarily the result of including the results of the 11
      additional apartment properties as discussed above. The increase in dividends
      paid to shareholders from $2,048,000 for the year ended December 31, 2005 to
      $4,261,000 for the year ended December 31, 2006 is the result of a special
      $2,230,000 dividend paid related to the resolution of certain tax matters (see
      Note 10 to the consolidated financial statements). Related to changes in our
      debt items, generally, new debt incurred during a period depends upon the net
      effect of our acquisition, development and refinancing activity. We received
      proceeds from debt financing of $121,694,000 for 2006 as compared to $38,494,000
      for 2005. The increase was attributable to the refinancings of several apartment
      properties with proceeds totaling $73,820,000, new mortgage proceeds of
      $11,836,000 related to the acquisition of Milford I and Milford II and proceeds
      from the construction loan for Sheffield Greens Apartments of $16,611,000.
      Repayments of debt also increased from $20,481,000 in 2005 to $81,958,000 for
      2006. This increase is attributable to the repayment of prior mortgages which
      were refinanced totaling $46,622,000 and the payoff of the Torres construction
      loan of $19,325,000. Other debt repayments include normal principal payments
      on
      our amortizing mortgages. The Company also used a revolving acquisition and
      development loan during the period which was repaid in full by the end of 2006.





*Contractual
      Financial Obligations*


The
      following table provides a summary of our fixed, non-cancelable, contractual
      financial obligations as of December 31, 2006:





**Payments
                Due By Period****Less Than**
            
            
            
            
            
            **After****Total**
            
            
            **1
                Year**
            
            
            **1-3
                Years**
            
            
            **3-5
                Years**
            
            
            **5
                Years**Recourse
                debt-community developmentand
                homebuilding
            
            $
            24,694
            
            $
            1,224
            
            $
            6,591
            
            $
            2,974
            
            $
            13,905Recourse
                debt-investment properties
            
            
            4,473
            
            
            145
            
            
            2,770
            
            
            144
            
            
            1,414Capital
                lease obligations
            
            
            184
            
            
            53
            
            
            101
            
            
            30
            
            
            -Total
                Recourse Debt
            
            
            29,351
            
            
            1,422
            
            
            9,462
            
            
            3,148
            
            
            15,319Non-recourse
                debt-community development
            
            
            500
            
            
            500
            
            
            -
            
            
            -
            
            
            -Non-recourse
                debt-investment properties
            
            
            270,220
            
            
            3,440
            
            
            18,540
            
            
            9,003
            
            
            239,237Total
                Non-Recourse Debt
            
            
            270,720
            
            
            3,940
            
            
            18,540
            
            
            9,003
            
            
            239,237Operating
                lease obligations
            
            
            1,325
            
            
            369
            
            
            916
            
            
            40
            
            
            -Purchase
                obligations
            
            
            35,995
            
            
            19,987
            
            
            15,833
            
            
            50
            
            
            125Total
                contractual financial obligations
            
            $
            337,391
            
            $
            25,718
            
            $
            44,751
            
            $
            12,241
            
            $
            254,681








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, 2006. As of December 31, 2006, no amounts
      were outstanding on the Revolver. Management expects to fund development
      operations from current cash balances and operating cash flows rather than
      borrowings from the line of credit.


**-46-**
 *Table
          of Contents*


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 of 5.6%, and call
      for
      semi-annual interest payments and annual principal payments and mature in
      fifteen years. Under the terms of bond repayment agreements with 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 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 also requires ACPT to fund an escrow
      account from lot sales that will be used to repay these bonds.


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. The funds for this project will be repaid
      by
      ACPT over a 15-year period. In addition, the County agreed to increase the
      baseline 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.


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.


In
      June
      2005, the Company signed a two year, $3,000,000 recourse note that carries
      a
      fixed interest rate of 6.98%, requires the Company to pay monthly principal
      and
      interest payments until its maturity on May 15, 2007 and is collateralized
      by
      the Company's cash receipts from the two apartment properties acquired in
      October 2004 and two parcels of land in St. Charles acquired in the second
      quarter of 2005. This loan and another acquisition loan with an outstanding
      balance of $1,778,000 as of December 31, 2006 were repaid in full subsequent
      to
      year end.





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, 2006. 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 the 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 (7.37% at December 31, 2006) and matures on August 31, 2008. The
      outstanding balance of this facility on December 31, 2006, was
      $2,600,000.





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, 2006, approximately 45% of this
      debt is secured by the Federal Housing Administration ("FHA") or the Maryland
      Housing Fund.


Non-recourse
      debt within our U.S. operations also includes a construction loan for a new
      apartment project in St. Charles. On August 11, 2005, Sheffield Greens
      Apartments, LLC ("Sheffield Greens"), a wholly owned subsidiary of the Company,
      obtained a non-recourse construction loan of $27,008,000 to fund the
      construction costs for a


**-47-**
 *Table
          of Contents*


new
      apartment property in St. Charles' Fairway Village. The construction loan will
      mature in September 2007 and at such time will convert into a 40-year
      non-recourse permanent mortgage. The loan has a fixed interest rate of 5.47%,
      and requires interest-only payments during the construction phase followed
      by
      principal and interest payments until maturity. The loan is subject to a HUD
      regulatory agreement. The loan documents provide for covenants and events of
      default that are customary for mortgage loans insured by the Federal Housing
      Authority.


On
      April
      28, 2006, the Company completed the acquisition of two apartment properties
      in
      Baltimore, Maryland containing a total of 250 units for approximately
      $14,300,000. The acquisition was financed through a combination $11,836,000
      of
      non-recourse notes and borrowing $3,755,000 from the Revolver, which included
      funding improvement escrows and payment of closing costs.


On
      October 2, 2006, Fox Chase Apartments, LLC (“Fox Chase”), a majority-owned
      subsidiary of the Company, secured a non-recourse mortgage of $13,000,000.
      The
      ten-year loan, amortized over 30 years, has a fixed interest rate of 6.06%,
      requires principal and interest payments through maturity and a balloon payment
      at the maturity date, November 1, 2016. The prior mortgage of $6,537,000 was
      repaid and the net proceeds from the refinancing will be used for overall
      apartment property improvements, the repayment of recourse debt, future
      development efforts and potential acquisitions.


On
      November 1, 2006, New Forest Apartments, LLC (“New Forest”), a majority-owned
      subsidiary of the Company, secured a non-recourse mortgage of $23,000,000.
      The
      ten-year loan, amortized over 30 years, has a fixed interest rate of 6.075%,
      requires principal and interest payments through maturity and a balloon payment
      at the maturity date, November 1, 2016. The prior mortgage of $12,144,000 was
      repaid and the net proceeds from the refinancing will be used for overall
      apartment property improvements, the repayment of recourse debt, future
      development efforts and potential acquisitions.


In
      the
      fourth quarter of 2005, the Company purchased 22 residential acres adjacent
      to
      the Sheffield Neighborhood in St. Charles for $1,000,000. The Company paid
      $500,000 in cash and signed a two-year, non-interest bearing, non-recourse
      note,
      for $500,000 due in November 2007.





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 apartment properties' debt is collateralized
      by
      the apartment projects.  As of December 31, 2006, approximately 1% of this
      debt is secured by the Federal Housing Administration ("FHA").


Non-recourse
      debt within our Puerto Rico operations also includes a permanent mortgage of
      $8,600,000 for the office building. The permanent loan facility consists of
      a
      thirty-year loan with a ten year fixed rate equal to 7.33%. At the end of the
      first ten years the interest rate will be reset, at the discretion of
      management, to a fixed rate for an additional five, seven or ten years equal
      to
      the SWAP rate plus 2.25%.


On
      April
      5, 2006, the non-recourse mortgage for one of our consolidated apartment
      properties in Puerto Rico, Colinas de San Juan Associates Limited Partnership,
      was refinanced with a ten-year, 6.59% non-recourse mortgage loan of $9,680,000.
      The proceeds from the refinancing were used for capital improvements at the
      property site and distributions to the general and limited
      partners.


On
      December 20, 2006, the non-recourse mortgage of one of our consolidated
      apartment properties in Puerto Rico, Carolina Associates LP S.E.
      (“Carolina”),  was
      refinanced with a ten-year, 5.95% non-recourse mortgage loan of $28,140,000.
      The
      proceeds from the refinancing were used to establish an escrow for capital
      improvements to be made at the property site as well as to repay management
      fees, and intercompany loans. In January 2007, the Company made an $800,000
      distribution to the partners of Carolina which includes $400,000 to the limited
      partners and $400,000 to the Company.





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
      corporate expenditures such as improvements at our investment properties, the
      construction of the new apartment project in St. Charles, which was completed
      in
      February 2007, 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


**-48-**
 *Table
          of Contents*


development.
      In 2007, the Company plans to continue its development activity within the
      master planned communities in St. Charles and Puerto Rico and may commit to
      future contractual obligations at that time.





*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 dividends to common shareholders.
      The Company has historically met its liquidity requirements from cash flow
      generated from residential and commercial land sales, home sales, property
      management fees, and rental property revenue. However, a significant reduction
      in the demand for real estate or a decline in the prices of real estate could
      adversely impact our cash flows. Anticipated cash flow from operations, existing
      loans, refinanced or extended loans, and new financing are expected to meet
      our
      financial commitments for the year. However, there are no assurances that these
      funds will be generated.


We
      are
      actively seeking additions to our rental property portfolio. We are currently
      pursuing various opportunities to purchase additional apartment properties
      in
      the Baltimore, Maryland and Washington, D.C. areas. Future acquisitions may
      be
      financed through a combination of Company equity, third party equity and market
      rate mortgages. During 2007, we may seek additional development loans and
      permanent mortgages for continued development and expansion of St. Charles
      and
      Parque Escorial and other potential rental property opportunities.


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**


Certain
      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, 2006.


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, 2006, no balances were outstanding on the Revolver so 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, 2006, no
      balances were outstanding on the Revolver so no amounts were restricted at
      year
      end.


**-49-**
 *Table
          of Contents*


**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
                7A.**
            **QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**





The
      use
      of financial instruments, such as debt instruments, subjects our Company to
      market risks, which may affect our future earnings and cash flows as well as
      the
      fair value of our assets. Market risk generally refers to the risk of loss
      from
      changes in interest rates and market prices. We are exposed to market risk
      primarily due to fluctuations in interest rates. We utilize both fixed-rate
      and
      variable-rate debt. For fixed-rate debt, changes in interest rates generally
      affect the fair market value of the debt instrument, but not our earnings or
      cash flow. Conversely, for variable- rate debt, changes in interest rates
      generally do not impact the fair market value of the debt instrument but do
      affect our earnings and cash flow. It is the Company's policy to minimize the
      impact of variable rate debt to the greatest extent possible by pursuing equity
      and long term fixed rate financing and refinancings of current fixed rate debt
      at lower rates when favorable market conditions exist. The following table
      provides information about the Company's financial instruments that are
      sensitive to changes in interest rates. The table presents the Company's debt
      obligations, principal repayments, and related weighted average interest rates
      by expected maturity dates and fair values. The Company has no derivative
      financial instruments. We believe that the change in the fair value of our
      financial instruments resulting from a foreseeable fluctuation in interest
      rates
      would be immaterial to our total assets and total liabilities.


**-50-**
 *Table
          of Contents*





Principal
                Amount by Expected MaturityAverage
                Interest Rate(In
                thousands)Fair
                ValueDecember
                31,2007
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            Thereafter
            
            
            Total
            
            2006Long-term
                debt, including current portions:Fixed
                rate debt-principal
            
            $
            7,671
            
            $
            4,809
            
            $
            5,190
            
            $
            5,524
            
            $
            5,850
            
            $
            259,262
            
            $
            288,306
            
            $
            287,858Fixed
                rate debt-interest
            
            
            16,398
            
            
            15,194
            
            
            14,900
            
            
            14,604
            
            
            14,293
            
            
            97,763
            
            
            173,152Average
                interest rate
            
            
            5.77
            %
            
            5.71
            %
            
            5.73
            %
            
            5.73
            %
            
            5.74
            %
            
            5.85
            %
            
            5.76
            %
            
            5.82
            %Variable
                rate debt-principal
            
            
            2,055
            
            
            2,894
            
            
            6,816
            
            
            -
            
            
            -
            
            
            -
            
            
            11,765
            
            
            11,765Variable
                rate debt-interest
            
            
            752
            
            
            652
            
            
            167
            
            
            -
            
            
            -
            
            
            -
            
            
            1,571Average
                interest rate
            
            
            9.21
            %
            
            7.37
            %
            
            7.37
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            7.98
            %
            
            7.98
            %








**ITEM
                8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**


**-51-**
 *Table
          of Contents*


**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, 2006 and 2005, 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, 2006. 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, 2006 and 2005, and the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2006, 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.”





/s/
      Ernst & Young
      LLP





McLean,
      Virginia


March
      21,
      2007


**-52-**
 *Table
          of Contents*




**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF INCOME**(In
                thousands, except per share amounts)**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Revenues**Rental property revenues
            
            $
            54,029
            
            $
            22,566
            
            $
            19,007Community development-land sales
            
            
            20,967
            
            
            22,800
            
            
            9,675Homebuilding-home sales
            
            
            19,838
            
            
            7,424
            
            
            9,861Management and other fees, substantially all from related
                entities
            
            
            1,228
            
            
            3,237
            
            
            3,591Reimbursement of expenses related to managed entities
            
            
            2,101
            
            
            6,286
            
            
            6,877Total revenues
            
            
            98,163
            
            
            62,313
            
            
            49,011**Expenses**Rental property operating expenses
            
            
            27,013
            
            
            10,790
            
            
            8,529Cost of land sales
            
            
            11,607
            
            
            14,233
            
            
            6,383Cost of home sales
            
            
            14,833
            
            
            6,122
            
            
            7,474General, administrative, selling and marketing
            
            
            9,212
            
            
            9,734
            
            
            8,341Depreciation and amortization
            
            
            8,402
            
            
            4,042
            
            
            3,328Expenses reimbursed from managed entities
            
            
            2,101
            
            
            6,286
            
            
            6,877Total expenses
            
            
            73,168
            
            
            51,207
            
            
            40,932**Operating
                Income**
            
            
            **24,995**
            
            
            **11,106**
            
            
            **8,079****Other
                income (expense)**Interest and other income
            
            
            1,673
            
            
            895
            
            
            528Equity in earnings from unconsolidated entities
            
            
            682
            
            
            1,143
            
            
            2,676Interest expense
            
            
            (16,845
            )
            
            (5,363
            )
            
            (5,667
            )Minority interest in consolidated entities
            
            
            (3,020
            )
            
            (926
            )
            
            (1,285
            )**Income
                before provision (benefit) for income taxes**
            
            
            **7,485**
            
            
            **6,855**
            
            
            **4,331****Provision
                (benefit) for income taxes**
            
            
            2,894
            
            
            (690
            )
            
            1,500**Net
                income**
            
            **$**
            **4,591**
            
            **$**
            **7,545**
            
            **$**
            **2,831****Earnings
                per share -Basic and Diluted**
            
            **$**
            **0.88**
            
            **$**
            **1.45**
            
            **$**
            **0.55****Weighted
                average shares outstanding - Basic and Diluted**
            
            
            **5,201**
            
            
            **5,195**
            
            
            **5,192****Cash
                dividends per share**
            
            **$**
            **0.83**
            
            **$**
            **0.40**
            
            **$**
            **0.35***The
                accompanying notes are an integral part of these consolidated
                statements.*




**Note:** The
      income statement for the year ended December 31, 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).





**-53-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                BALANCE SHEETS**(In
                thousands, except share and per share amounts)**As
                of**
              **December
                31, 2006**
            
            As
                of
              December
                31, 2005**ASSETS****ASSETS:**Investments
                in real estate:Operating real estate, net of accumulated depreciation
            
            **$**
            **142,046**
            
            $
            76,578of $142,458 and $46,412 respectivelyLand and development costs
            
            
            **67,745**
            
            
            54,232Condominiums under construction
            
            
            **9,226**
            
            
            17,621Rental projects under construction or development
            
            
            **24,430**
            
            
            4,458Investments in real estate, net
            
            
            **243,447**
            
            
            152,889Cash
                and cash equivalents
            
            
            **27,459**
            
            
            21,156Restricted
                cash and escrow deposits
            
            
            **19,677**
            
            
            8,925Investments
                in unconsolidated real estate entities
            
            
            **6,591**
            
            
            9,738Receivable
                from bond proceeds
            
            
            **13,710**
            
            
            8,422Accounts
                receivable
            
            
            **4,320**
            
            
            1,332Deferred
                tax assets
            
            
            **18,157**
            
            
            5,610Property
                and equipment, net of accumulated depreciation
            
            
            **1,157**
            
            
            1,182Deferred
                charges and other assets, net of amortization of$1,655 and $898 respectively
            
            
            **12,181**
            
            
            7,831**Total Assets**
            
            **$**
            **346,699**
            
            $
            217,085**LIABILITIES
                AND SHAREHOLDERS' EQUITY****LIABILITIES:**Non-recourse
                debt
            
            **$**
            **270,720**
            
            $
            119,865Recourse
                debt
            
            
            **29,351**
            
            
            32,981Accounts
                payable and accrued liabilities
            
            
            **24,191**
            
            
            19,243Deferred
                income
            
            
            **3,591**
            
            
            3,961Accrued
                current income tax liability
            
            
            **2,992**
            
            
            6,545**Total Liabilities**
            
            
            **330,845**
            
            
            182,595**SHAREHOLDERS'
                EQUITY**Common
                shares, $.01 par value, 10,000,000 shares authorized,5,229,954 shares and 5,197,954 shares issued and
                outstandingas of December 31, 2006 and December 31, 2005,
                respectively
            
            
            **52**
            
            
            52Treasury
                stock, 67,709 shares at cost
            
            
            **(376**
            **)**
            
            (376
            )Additional
                paid-in capital
            
            
            **17,238**
            
            
            17,066Retained
                (deficit) earnings
            
            
            **(1,060**
            **)**
            
            17,748**Total Shareholders' Equity**
            
            
            **15,854**
            
            
            34,490**Total Liabilities and Shareholders' Equity**
            
            **$**
            **346,699**
            
            $
            217,085


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





**Note:** The
      balance sheet as of December 31, 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).





**-54-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY**(In
                thousands, except share amounts)**Common
                Shares**
            
            
            
            
            **Additional**
            
            
            **Retained****Par**
            
            
            **Treasury**
            
            
            **Paid-in**
            
            
            **(Deficit)****Number**
            
            
            **Value**
            
            
            **Stock**
            
            
            **Capital**
            
            
            **Earnings**
            
            
            **Total**Balance
                December 31, 2003
            
            
            5,191,554
            
            $
            52
            
            $
            (376
            )
            $
            16,964
            
            $
            11,213
            
            $
            27,853Net income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,831
            
            
            2,831Dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,793
            )
            
            (1,793
            )Balance
                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 restricted shares to Trustees
            
            
            32,000
            
            
            -
            
            
            -
            
            
            172
            
            
            -
            
            
            172**Balance
                December 31, 2006**
            
            
            **5,229,954**
            
            **$**
            **52**
            
            **$**
            **(376**
            **)**
            **$**
            **17,238**
            
            **$**
            **(1,060**
            **)**
            **$**
            **15,854***The accompanying notes are an integral part of these consolidated
                statements.*


**-55-**
 *Table
          of Contents*








**AMERICAN
                COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                STATEMENTS OF CASH FLOWS**(In
                thousands)**YEARS
                ENDED DECEMBER 31,****2006**
            
            
            2005
            
            
            2004**Cash
                Flows from Operating Activities**Net income
            
            **$**
            **4,591**
            
            $
            7,545
            
            $
            2,831Adjustments to reconcile net income to net cash provided
                by(used in) operating activities:Depreciation and amortization
            
            
            **8,402**
            
            
            4,042
            
            
            3,328Distribution to minority interests in excess of
                basis
            
            
            **2,973**
            
            
            922
            
            
            1,230Benefit for deferred income taxes
            
            
            **(2,706**
            **)**
            
            (4,248
            )
            
            (1,878
            )Equity in earnings-unconsolidated entities
            
            
            **(682**
            **)**
            
            (1,143
            )
            
            (2,676
            )Distribution of earnings from unconsolidated
                entities
            
            
            **682**
            
            
            1,388
            
            
            938Cost of land sales
            
            
            **11,607**
            
            
            14,233
            
            
            6,383Cost of home sales
            
            
            **14,833**
            
            
            6,122
            
            
            7,474Stock based compensation expense
            
            
            **244**
            
            
            1,036
            
            
            640Minority interest in consolidated
                entities
            
            
            **3,020**
            
            
            926
            
            
            1,285Amortization of deferred loan
                costs
            
            
            **1,588**
            
            
            392
            
            
            697Changes in notes and accounts receivable
            
            
            **(2,387**
            **)**
            
            300
            
            
            (64
            )Additions to community development assets
            
            
            **(25,120**
            **)**
            
            (20,793
            )
            
            (11,963
            )Homebuilding-construction expenditures
            
            
            **(6,438**
            **)**
            
            (13,068
            )
            
            (8,204
            )Deferred income-joint venture
            
            
            **(370**
            **)**
            
            (122
            )
            
            4,277Changes in accounts payable, accrued
                liabilities
            
            
            **(920**
            **)**
            
            (680
            )
            
            4,358Net cash provided by (used in) operating activities
            
            **$**
            **9,317**
            
            $
            (3,148
            )
            $
            8,656**Cash
                Flows from Investing Activities**Investment in office building and apartment construction
            
            
            **(19,972**
            **)**
            
            (3,739
            )
            
            (5,660
            )Change in investments - unconsolidated entities
            
            
            **61**
            
            
            1,819
            
            
            2,257Cash from newly consolidated properties
            
            
            **4,723**
            
            
            -
            
            
            -Change in restricted cash
            
            
            **136**
            
            
            (936
            )
            
            (1,435
            )Additions to rental operating properties, net
            
            
            **(21,507**
            **)**
            
            (5,687
            )
            
            (23,777
            )Other assets
            
            
            **(2,602**
            **)**
            
            (722
            )
            
            (146
            )Net cash used in investing activities
            
            **$**
            **(39,161**
            **)**
            $
            (9,265
            )
            $
            (28,761
            )**Cash
                Flows from Financing Activities**Cash proceeds from debt financing
            
            
            **121,694**
            
            
            38,494
            
            
            53,149Payment of debt
            
            
            **(81,958**
            **)**
            
            (20,481
            )
            
            (29,845
            )County Bonds proceeds, net of undisbursed funds
            
            
            **3,645**
            
            
            2,388
            
            
            2,246Payments of distributions to minority interests
            
            
            **(2,973**
            **)**
            
            (922
            )
            
            (1,230
            )Dividends paid to shareholders
            
            
            **(4,261**
            **)**
            
            (2,048
            )
            
            (1,793
            )Net cash provided by financing activities
            
            **$**
            **36,147**
            
            $
            17,431
            
            $
            22,527**Net
                Increase in Cash and Cash Equivalents**
            
            
            **6,303**
            
            
            5,018
            
            
            2,422**Cash
                and Cash Equivalents, Beginning of Year**
            
            
            **21,156**
            
            
            16,138
            
            
            13,716**Cash
                and Cash Equivalents, End of Year**
            
            **$**
            **27,459**
            
            $
            21,156
            
            $
            16,138*The accompanying notes are an integral part of these consolidated
                statements.*





**-56-**
 *Table
          of Contents*


**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 Article 8 of the Maryland Trust Law. ACPT was
      formed to succeed to most of Interstate General Company L.P.'s ("IGC" or
      "Predecessor") real estate operations.


On
      October 5, 1998 IGC transferred to ACPT the common shares of four subsidiaries
      that collectively comprised the majority of the principal real estate operations
      and assets of IGC. In exchange, ACPT issued to IGC 5,207,954 common shares
      of
      ACPT, all of which were distributed ("the Distribution") to the partners of
      IGC.
      IGC distributed to its partners the 5,207,954 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.  An IRS regulation eliminating the pass through of these tax
      credits to ACPT’s shareholders has been proposed and is expected to become
      effective in 2007. 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 land in Parque Escorial,
                Puerto
                Rico held by Land Development Associates, S.E. ("LDA") and designated
                for
                development as saleable property.


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


**-57-**
 *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 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 PuertoRico
                corporation organized to hold a limited partner interest in El Monte
                Properties S.E.("EMP").




**(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 which are not variable interest entities as
      defined by 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, beginning January 1, 2006, 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.


As
      of
      December 31, 2006, 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 American Housing Management Company, American
      Housing Properties L.P., St. Charles Community, LLC, Interstate General
      Properties Limited Partnership, S.E., Land Development Associates S.E., LDA
      Group LLC, Torres del Escorial, Inc., Escorial Office Building I, Inc.,
      Interstate Commercial Properties, Inc., Bannister Associates Limited
      Partnership, Coachman's LLC, Crossland Associates Limited Partnership, Fox
      Chase
      Apartments, LLC, Headen House Associates Limited Partnership, Lancaster
      Apartments Limited Partnership, Milford Station I, LLC, Milford Station II,
      LLC,
      New Forest Apartments, LLC, Nottingham South, LLC, Owings Chase, LLC, Palmer
      Apartments Associates Limited Partnership, Prescott Square, LLC, Sheffield
      Greens Apartments, LLC, Village Lake LLC, Wakefield Terrace Associates Limited
      Partnership, Wakefield Third Age Associates Limited Partnership, 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 S.E., Turabo Limited Dividend Partnership and Valle del Sol
      Associates Limited Partnership.


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





**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.


**-58-**
 *Table
          of Contents*


The
      initial consolidation of those partnerships resulted in increases (decreases),
      net of intercompany eliminations, and included the recording of deferred taxes
      in amounts reported in our consolidated balance sheet as of January 1, 2006,
      as
      follows (in thousands):


**Increase
                (decrease)**Operating
                real estate, net of accumulated depreciation
            
            $
            53,282Cash
                and cash equivalents
            
            
            4,723Investments
                in unconsolidated real estate entities
            
            
            (920
            )Deferred
                tax assets
            
            
            9,841All
                other assets
            
            
            11,618Total
                assets
            
            $
            78,544Non-recourse
                debt
            
            $
            98,556All
                other liabilities
            
            
            (874
            )Shareholders’
                equity
            
            
            (19,138
            )Total
                liabilities and shareholders’ equity
            
            $
            78,544





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.





The
      impact to our consolidated statements of income for the year ended December
      31,
      2006 is summarized as follows (in thousands):


**Balance
                prior**
            
            
            
            **For
                the year****to
                the**
            
            
            
            **Ended****Implementation**
            
            **Increase**
            
            **December
                31,****of
                EITF 04-05**
            
            **(Decrease)**
            
            **2006**Rental
                property revenues
            
            $
            26,359
            
            $
            27,670
            
            $
            54,029Management
                and other fees
            
            
            3,961
            
            
            (2,733
            )
            
            1,228Reimbursement
                of expenses related to managed entities
            
            
            6,238
            
            
            (4,137
            )
            
            2,101Total
                revenues
            
            
            77,363
            
            
            20,800
            
            
            98,163Rental
                property operating expenses
            
            
            13,215
            
            
            13,798
            
            
            27,013Depreciation
                and amortization
            
            
            4,624
            
            
            3,778
            
            
            8,402Expenses
                reimbursed from managed entities
            
            
            6,238
            
            
            (4,137
            )
            
            2,101Total
                expenses
            
            
            59,729
            
            
            13,439
            
            
            73,168Operating
                income
            
            
            17,634
            
            
            7,361
            
            
            24,995Equity
                in earnings from unconsolidated entities
            
            
            1,022
            
            
            (340
            )
            
            682Interest
                expense
            
            
            (9,258
            )
            
            (7,587
            )
            
            (16,845
            )Minority
                interest in consolidated entities
            
            
            (541
            )
            
            (2,479
            )
            
            (3,020
            )Income
                before provision for income taxes
            
            
            10,530
            
            
            (3,045
            )
            
            7,485Provision
                (benefit) for income taxes
            
            
            3,773
            
            
            (879
            )
            
            2,894Net
                income
            
            
            6,757
            
            
            (2,166
            )
            
            4,591Earnings
                per share basic and diluted
            
            $
            1.30
            
            $
            (0.42
            )
            $
            0.88





**-59-**
 *Table
          of Contents*


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.




**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.


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 $1,018,000 and $1,337,000 at December 31, 2006
      and
      2005, 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.


**-60-**
 *Table
          of Contents*


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, 2006, 2005
      and
      2004.


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, 2006, 2005
      and
      2004.





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 equpiment 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.



**-61-**
 *Table
          of Contents*




*Operating
      Real Estate*


The
      table
      below presents the major classes of depreciable assets as of December 31, 2006
      and 2005 (in thousands):








**December
                31,**
            
            December
                31,**2006**
            
            2005Building
            
            **$**
            **240,264**
            
            $
            102,140Building
                improvements
            
            
            **8,022**
            
            
            4,525Equipment
            
            
            **12,569**
            
            
            6,260**260,855**
            
            
            112,925*Less:*Accumulated
                depreciation
            
            
            **142,458**
            
            
            46,412**118,397**
            
            
            66,513Land
            
            
            **23,649**
            
            
            10,065Operating
                properties, net
            
            **$**
            **142,046**
            
            $
            76,578





*Other
      Property and Equipment*


In
      addition, the Company owned other property and equipment of $1,157,000 and
      $1,182,000, net of accumulated depreciation of $2,101,000 and $1,769,000
      respectively, as of December 31, 2006 and December 31, 2005 respectively.





*Depreciation*


Total
      depreciation expense was $8,402,000, $4,042,000 and $3,328,000 for the years
      ended December 31, 2006, 2005 and 2004, respectively.





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, which are included in other
      operating assets in the accompanying balance sheet, over the remaining term
      of
      the related leases, which term is no longer than one year. As of December 31,
      2006, the intangible assets relating to the in-place leases for Nottingham
      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 .


**-62-**
 *Table
          of Contents*


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 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, 2006, 2005 and 2004, we recorded in the
      consolidated financial statements charges for excess partnership losses and
      distributions to minority partners of approximately $2,211,000, $542,000 and
      $1,084,000, respectively.





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. Furthermore, ACPT, ALD and ARMC are subject
      to Puerto Rico income tax on its Puerto Rico source income.





**-63-**
 *Table
            of Contents*
  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). 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 31**2006**
            
            2005
            
            2004Net
                income
            
            **$**
            **4,591**
            
            $
            7,545
            
            $
            2,831Weighted
                average shares outstanding - basic and diluted
            
            
            **5,201**
            
            
            5,195
            
            
            5,192Earnings
                per share:Basic
                and Diluted
            
            **$**
            **0.88**
            
            $
            1.45
            
            $
            0.55





The
      Company
      accrues for dividends when declared. 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. During the year
      ended December 31, 2004, the Company declared and paid cash dividends of $0.35
      per share on the 5,191,554 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.





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. Most notably the Company’s consolidated balance sheet as of
      December 31, 2005 was reclassified to conform to the revised presentation
      elected as of January 1, 2006. The revised presentation is more condensed than
      prior periods and categorizes assets and liabilities by type.





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*


In
      September 2006, the FASB issued SFAS 157, " *Fair
      Value Measurements.*"** 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. We have not yet determined
      the
      impact that SFAS 157 will have on our financial statements.


**-64-**
 *Table
          of Contents*




*FIN
      48*


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
      and
      is effective as of the beginning of our 2007 fiscal year. We are currently
      evaluating the impact, if any, that FIN 48 will have on our financial
      statements.





*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.
      We are evaluating the impact that EITF 06-08 may have, if any, 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, 2006 include two
      partnerships owning 110 rental units compared to 13 partnerships owning 3,463
      rental units in 16 apartment complexes as of December 31, 2005. The two
      remaining unconsolidated complexes are owned by Brookside Gardens Limited
      Partnership and Lakeside Apartments Limited Partnership.


We
      have
      determined that two of our unconsolidated apartment partnerships, Brookside
      Gardens and Lakeside Apartments, are variable interest entities under FIN 46(R),
      however, the Company is not required to consolidate the partnerships due to
      the
      fact that it is not the primary beneficiary and does not bear the majority
      of
      the risk of expected losses. The Company holds less than a 20% economic interest
      in Brookside and Lakeside. As a general partner, we have significant influence
      over operations of Brookside and Lakeside that is disproportionate to our
      economic ownership in these two partnerships. 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 $189,000 and $197,000 and for Lakeside of $172,000 and
      $169,000 as of December 31, 2006 and 2005, 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.


**-65-**
 *Table
          of Contents*







*Commercial
      Partnerships*


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


On
      April
      30, 2004, the Company purchased a 50% limited partnership interest in El Monte
      Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
      ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family,
      a
      related party. In December 2004, a third party buyer purchased El Monte for
      $20,000,000, $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds
      from the sale of the real estate were distributed to the partners. As a result,
      the Company received $2,500,000 in cash and recognized $986,000 of income in
      2004. The gain on sale was reduced by the amount of the seller's note which
      is
      subject to future subordination. In January 2005, El Monte distributed to the
      Company its share of the $3,000,000 note, $1,500,000. The Company will recognize
      income as it receives cash payments on the note which was repaid in full in
      January 2007. See Note 15 for more details. El Monte will distribute any
      remaining cash when it winds up its affairs.





*Land
      Development Joint Venture*


In
      September 2004, the Company entered into a joint venture agreement with Lennar
      Corporation for the development of a 352-unit, active adult community located
      in
      St. Charles, Maryland. The Company manages the project's development for a
      market rate fee pursuant to a management agreement. In September 2004, the
      Company transferred land to the joint venture in exchange for a 50% ownership
      interest and $4,277,000 in cash. The Company's investment in the joint venture
      was recorded at 50% of the historical cost basis of the land with the other
      50%
      recorded within our deferred charges and other assets. The proceeds received
      are
      reflected as deferred revenue. The deferred revenue and related deferred costs
      will be recognized into income as the joint venture sells lots to Lennar. In
      March 2005, the joint venture closed a non-recourse development loan which
      was
      amended in June 2006 and again in December 2006. According to the terms of
      the
      loan, both the Company and Lennar provided development completion guarantees.
      The joint venture sold 61 lots to Lennar’s homebuilding division during 2006
      compared to 25 lots delivered during 2005. As a result, the Company recognized
      $1,300,000 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


**-66-**
 *Table
          of Contents*


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 Assets**December 31, 2006
            
            $
            5,142
            
            $
            27,726
            
            $
            12,154
            
            $
            45,022December 31, 2005
            
            
            77,830
            
            
            28,464
            
            
            11,947
            
            
            118,241**Total
                Non-Recourse Debt**December 31, 2006
            
            
            3,244
            
            
            22,960
            
            
            3,476
            
            
            29,680December 31, 2005
            
            
            101,848
            
            
            23,120
            
            
            4,019
            
            
            128,987**Total Other Liabilities**December 31, 2006
            
            
            1,242
            
            
            722
            
            
            1,744
            
            
            3,708December 31, 2005
            
            
            9,782
            
            
            1,516
            
            
            994
            
            
            12,292**Total Equity/(Deficit)**December 31, 2006
            
            
            656
            
            
            4,044
            
            
            6,934
            
            
            11,634December 31, 2005
            
            
            (33,800
            )
            
            3,828
            
            
            6,934
            
            
            (23,038
            )**Company's Investment, net (1)**December 31, 2006
            
            
            -
            
            
            4,763
            
            
            1,828
            
            
            6,591December 31, 2005
            
            
            (1,597
            )
            
            4,824
            
            
            1,828
            
            
            5,055**Summary
                of Operations:****Total
                Revenue**Year Ended December 31, 2006
            
            $
            790
            
            $
            3,660
            
            $
            5,840
            
            $
            10,290Year Ended December 31, 2005
            
            
            27,729
            
            
            3,658
            
            
            2,711
            
            
            34,098Year Ended December 31, 2004
            
            
            27,350
            
            
            16,009
            
            
            -
            
            
            43,359**Net Income**Year Ended December 31, 2006
            
            
            (113
            )
            
            1,855
            
            
            -
            
            
            1,742Year Ended December 31, 2005
            
            
            1,384
            
            
            1,812
            
            
            -
            
            
            3,196Year Ended December 31, 2004
            
            
            1,139
            
            
            11,336
            
            
            -
            
            
            12,475**Company's recognition of equity in****Earnings**Year Ended December 31, 2006
            
            
            (1
            )
            
            683
            
            
            -
            
            
            682Year Ended December 31, 2005
            
            
            451
            
            
            692
            
            
            -
            
            
            1,143Year Ended December 31, 2004 (2)
            
            
            925
            
            
            1,751
            
            
            -
            
            
            2,676


**-67-**
 *Table
          of Contents*





LandDevelopmentApartment
            
            Commercial
            
            JointProperties
            
            Property
            
            Venture
            
            Total(in
                thousands)**Summary
                of Cash Flows:****Cash flows from operating activities**Year Ended December 31, 2006
            
            $
            95
            
            $
            1,857
            
            $
            6,579
            
            $
            8,531Year Ended December 31, 2005
            
            
            6,460
            
            
            1,840
            
            
            759
            
            
            9,059Year Ended December 31, 2004
            
            
            5,561
            
            
            11,976
            
            
            -
            
            
            17,537**Company's share of cash flows from****operating activities**Year Ended December 31, 2006
            
            
            1
            
            
            840
            
            
            3,290
            
            
            4,131Year Ended December 31, 2005
            
            
            2,131
            
            
            833
            
            
            379
            
            
            3,343Year Ended December 31, 2004
            
            
            1,612
            
            
            5,905
            
            
            -
            
            
            7,517**Operating cash distributions**Year Ended December 31, 2006
            
            
            -
            
            
            1,639
            
            
            -
            
            
            1,639Year Ended December 31, 2005
            
            
            2,968
            
            
            1,600
            
            
            -
            
            
            4,568Year Ended December 31, 2004
            
            
            991
            
            
            6,537
            
            
            -
            
            
            7,528**Company's share of operating****cash distributions**Year Ended December 31, 2006
            
            
            -
            
            
            743
            
            
            -
            
            
            743Year Ended December 31, 2005
            
            
            1,320
            
            
            740
            
            
            -
            
            
            2,060Year Ended December 31, 2004
            
            
            344
            
            
            3,255
            
            
            -
            
            
            3,599**Refinancing cash distributions**Year Ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Year Ended December 31, 2005
            
            
            100
            
            
            -
            
            
            2,320
            
            
            2,420Year Ended December 31, 2004
            
            
            2,526
            
            
            -
            
            
            -
            
            
            2,526**Company's share of refinancing****cash distributions**Year Ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Year Ended December 31, 2005
            
            
            1
            
            
            -
            
            
            1,160
            
            
            1,161Year Ended December 31, 2004
            
            
            1,249
            
            
            -
            
            
            -
            
            
            1,249





Notes:


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


(2)
            Increase
                due to El Monte’s sale of primary
                assets


**-68-**
 *Table
          of Contents*





**(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, 2006 and 2005 (in
      thousands):





Maturity
            
            Interest
            
            Outstanding
                as ofDates
            
            Rates
                (a)
            
            **December
                31,**
            
            December
                31,From/To
            
            From/To
            
            **2006**
            
            2005**Recourse
                Debt**Community
                Development (b), ( c), (d)
            
            
            08-31-08/03-01-21
            
            
            P+1%/8
            %
            **$**
            **24,694**
            
            $
            14,161Homebuilding (e)
            
            
            PAID
            
            
            P
            
            
            **-**
            
            
            13,905Investment Properties (f)
            
            
            05-15-07/01-23-13
            
            
            P+1.25%/6.98
            %
            
            **4,473**
            
            
            4,752General obligations (g)
            
            
            07-29-07/01-01-12
            
            
            Non-interestbearing/8.10%
            
            
            **184**
            
            
            163**Total
                Recourse Debt**
            
            
            
            
            
            
            
            
            **29,351**
            
            
            32,981**Non-Recourse
                Debt**Community Development (h)
            
            
            11-23-07
            
            
            Non-interest
                bearing
            
            
            **500**
            
            
            500Investment Properties (i), (j), (k)
            
            
            04-30-09/08-01-47
            
            
            4.95%/10
            %
            
            **270,220**
            
            
            119,365**Total
                Non-Recourse Debt**
            
            
            
            
            
            
            
            
            **270,720**
            
            
            119,865Total debt
            
            
            
            
            
            
            
            **$**
            **300,071**
            
            $
            152,846


(a)   
        "P" = Prime lending interest rate.  (The prime rate at December 31, 2006
        was 8.25%)
 (b)   
        As of December 31, 2006, $22,094,000 of the community development recourse
        debt
        relates to the general obligation bonds issued by the Charles County government
        as described in detail under the heading "Financial Commitments" in Note
        5.
 (c)     
         On April 14, 2006, the Company closed a three year $14,000,000 revolving
        acquisition and development line of credit loan (“the Revolver”)
        secured     by a first lien deed  of trust on property
        located in St. Charles, MD.  The maximum amount of the loan at any one time
        is $14,000,000.  The facility includes various sub-limits on a revolving
        basis for amounts to finance apartment project acquisitions and land development
        in St. Charles.  The terms require certain financial covenants to be
        calculated annually as of December 31, including a tangible net worth to
        senior
        debt ratio for ALD and a minimum net worth test for ACPT.  As of December
        31, 2006, the Company was in compliance with these financial covenants, however
        no amounts were outstanding on the Revolver.
 (d)    
        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 the 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 (7.37% at December 31, 2006) and matures on August 31, 2008.  The
        outstanding balance of this facility on December 31, 2006, was
        $2,600,000.
 (e)     
        This debt was related to the homebuilding operations and was composed of
        a
        $26,000,000 revolving construction loan with a maximum outstanding balance
        limited to $18,000,000 for Torres Del Escorial.  This loan was repaid in
        full by December 31, 2006.
 (f)     
        As of December 31, 2006 and 2005, the outstanding recourse debt within the
        investment properties is comprised of a loan borrowed to finance the acquisition
        of our propertiesVillageLake and Coachman's in January 2003, as well as a
        two-year, $3,000,000 recourse note that the Company obtained in June 2005. 
The loan carries a fixed interest rate of 6.98% and requires the Company
        to pay
        monthly principal and interest payments until its maturity on May 15, 2007
        and
        is collateralized by the Company's cash receipts from the two apartment
        properties acquired in 2004 and two parcels of land in St. Charles acquired
        in
        the second quarter of 2005.  Both of these loans were repaid in full in
        January 2007.
 (g)     
        The general recourse debt outstanding as of December 31, 2006 is made up
        of
        various capital leases outstanding within our U.S. and Puerto Rico operations
        as
        well as vehicle notes.


**-69-**
 *Table
          of Contents*




(h)    
        In the fourth quarter 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 due
        in
        November 2007.  The Company plans to annex the land into the St. Charles
        master plan community.
 (i)      
         The non-recourse debt related to the investment properties is
        collateralized by the multifamily rental properties and an $8,578,000 mortgage
        on the office building in Parque Escorial.  As of December 31, 2006,
        approximately $82,636,000 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).  As of December 31,
        2006, the balance of the construction loan was $22,351,000.  The
        construction loan will convert to a 40 year non-recourse permanent mortgage
        not
        later than September of 2007.
 (j)        
        On April 5, 2006, the non-recourse mortgage for one of our consolidated
        apartment properties in Puerto Rico, Colinas de San Juan Associates L.P.,
        was
        refinanced with a 6.59%, non-recourse mortgage loan of $9,680,000.  On
        October 2, 2006, the non-recourse mortgage of Fox Chase Apartments, LLC (“Fox
        Chase”), a majority-owned subsidiary of the Company, was refinanced with a
        6.06%, non-recourse loan of $13,000,000.  On November 1, 2006, the
        non-recourse mortgage of New Forest Apartments, LLC (“New Forest”), a
        majority-owned subsidiary of the Company, was refinanced with a 6.075%
        non-recourse loan of $23,000,000.  On December 20, 2006, the non-recourse
        mortgage of one of our consolidated apartment properties in Puerto Rico,
        Carolina Associates LP S.E. (“Carolina”), was refinanced with a 5.95%
        non-recourse mortgage loan of $28,140,000.   Each loan is a ten-year
        loan, amortized over 30 years requiring principal and interest payments through
        maturity and a balloon payment at the maturity date.  The proceeds from
        these refinancings were used for capital improvements at the property sites
        and
        distributions to the general and limited partners.
 (k)       
        On April 28, 2006, the Company, through its subsidiary AHP, acquired two
        apartment properties which were financed through a combination of $11,836,000
        of
        non-recourse notes and borrowings of $3,755,000 from the Revolver.
   The
        Company’s loans
        contain various financial, cross collateral, cross default, technical and
        restrictive provisions. As of December 31, 2006, the Company is in compliance
        with the provisions of its loan agreements.





ACPT's
      weighted average interest rate on the amounts outstanding at December 31, 2006
      and 2005 on its variable rate debt was 7.23% and 5.995%,
      respectively.





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





2007
            
            $
            9,7262008
            
            
            7,7032009
            
            
            12,0062010
            
            
            5,5242011
            
            
            5,850Thereafter
            
            
            259,262$
            300,071





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





December
                31,**2006**
            
            2005
            
            2004Expensed
            
            **$**
            **16,845**
            
            $
            5,363
            
            $
            5,667Capitalized
            
            
            **2,729**
            
            
            2,315
            
            
            1,304**$**
            **19,574**
            
            $
            7,678
            
            $
            6,971





**-70-**
 *Table
          of Contents*





**(5)**
            **COMMITMENTS
                AND CONTINGENT LIABILITIES**





*Financial
      Commitments*


Pursuant
      to an agreement reached between ACPT and the Charles County Commissioners in
      2002, the Company agreed to accelerate the construction of two major roadway
      links to the Charles County (the "County") road system. As part of the
      agreement, the County agreed to issue general obligation public improvement
      bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
      letters of credit provided by Lennar as part of a residential lot sales contract
      for 1,950 lots in Fairway Village.  The Bonds were issued in three
      installments with the final $6,000,000 installment issued in March 2006. 
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime
      rate
      of 5.6%, and call for semi-annual interest payments and annual principal
      payments and mature in fifteen years. Under the terms of bond repayment
      agreements with 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
      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
      will also require ACPT to fund an escrow account from lot sales that will be
      used to repay these bonds.


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, $4,000,000 of bonds
      were
      issued for this project. The funds for this project will be repaid by ACPT
      over
      a 15-year period. In addition, the County agreed increase the baseline
      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.


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





** As
      of
      December 31, 2006, ACPT is guarantor of $28,006,000 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 IGC's
      founder and Chief Executive Officer, James J. Wilson, effective October 5,
      1998
      (the "Consulting Agreement"). Under the terms of the Consulting Agreement,
      the
      Company will pay Mr. Wilson $200,000 through October 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, 2006, ACPT has guaranteed
      $26,567,000 of outstanding debt owed by its subsidiaries. IGP has guaranteed
      $2,600,000 of its subsidiaries’ outstanding debt. In addition, Charles Community
      LLC guaranteed $4,473,000 of outstanding debt owed by AHP. 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 fifteen years. We do not expect the guarantees to impair the
      individual subsidiary or the Company's ability to conduct business or to pursue
      its future development plans.


**-71-**
 *Table
          of Contents*


*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. In the status hearing held on August 10, 2005, the court
      initially scheduled the beginning of the trial for November 2006, however the
      trial has been delayed until May 2007.





*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; however, our insurance carrier denies
      any
      obligation to assume responsibility for the defense. The Company believes that
      this lawsuit should be covered by our insurance policy and therefore, we are
      readdressing this issue to the insurance company.





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.


**-72-**
 *Table
          of Contents*





**(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 $147,000, exclusive of $25,000 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, 2006
      (in
      thousands):





OperatingObligations2007
            
            $
            3692008
            
            
            3402009
            
            
            3362010
            
            
            2402011
            
            
            40Thereafter
            
            
            -Total
                minimum lease payments
            
            $
            1,325





Rental
      expense under non-cancelable operating leases was $271,000 in 2006, $441,000
      in
      2005 and $472,000 in 2004 and is included in general, administrative, selling
      and marketing expenses and rental properties operating expenses in the
      accompanying consolidated statements of income.





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, 2006 (in thousands):




LeaseIncome2007
            
            $
            7562008
            
            
            7732009
            
            
            7862010
            
            
            7352011
            
            
            466Thereafter
            
            
            1,604Total
                minimum lease payments
            
            $
            5,120











**(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):


**-73-**
 *Table
          of Contents*





**CONSOLIDATED
                STATEMENT OF INCOME:**Years
                Ended December 31,**2006**
            
            2005
            
            2004**Management
                and Other Fees****(A)**Unconsolidated subsidiaries with third party partners
            
            
            
            
            **$**
            **42**
            
            $
            1,915
            
            $
            2,294Affiliates of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            **334**
            
            
            619
            
            
            706**$**
            **376**
            
            $
            2,534
            
            $
            3,000**Rental
                Property Revenues****(B)**
            
            
            
            
            **$**
            **20**
            
            $
            -
            
            $
            -**Interest
                and Other Income**Unconsolidated real estate entities with third party
                partners
            
            
            
            
            **$**
            **8**
            
            $
            8
            
            $
            33**General
                and Administrative Expense**Affiliates of J. Michael Wilson, CEO and Chairman
            
            
            (C1
            )
            **$**
            **19**
            
            $
            154
            
            $
            392Reserve additions and other write-offs-Unconsolidated real estate entities with third party
                partners
            
            
            (A
            )
            
            **5**
            
            
            (18
            )
            
            138Affiliates of J. Michael Wilson, CEO and Chairman
            
            
            
            
            
            **-**
            
            
            -
            
            
            (28
            )IGC
            
            
            
            
            
            **-**
            
            
            (3
            )
            
            3Reimbursement to IBC for ACPT's share ofJ. Michael Wilson's compensation
            
            
            
            
            
            **470**
            
            
            440
            
            
            380Reimbursement of administrative costs-Affiliates of J. Michael Wilson, CEO and Chairman
            
            
            (C2
            )
            
            **(65**
            **)**
            
            (21
            )
            
            (21
            )James J. Wilson, IGC Chairman and Director
            
            
            (C3
            )
            
            **200**
            
            
            200
            
            
            200Thomas J. Shafer, Trustee
            
            
            (C4
            )
            
            **60**
            
            
            42
            
            
            42**$**
            **689**
            
            $
            794
            
            $
            1,106











**BALANCE
                SHEET:****Balance
                December 31,**
            
            Balance
                December 31,**2006**
            
            2005**Assets
                Related to Rental Properties**Receivables
                - All unsecured and due on demandUnconsolidated real estate entities with third party partners, net
                of
                reserves
            
            **$**
            **-**
            
            $
            506**Other
                Assets**Receivables
                - All unsecured and due on demandAffiliate of J. Michael Wilson, CEO and Chairman
            
            **$**
            **128**
            
            $
            108








(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


**-74-**
 *Table
          of Contents*


evaluated
      quarterly. Any increase or decrease in the reserves is reflected accordingly
      as
      additional bad debt expenses or recovery of such expenses.


On
      September 21, 2004, ARMC exercised its rights under Section 7.3 of the
      Management Agreement with Capital Park Apartments Limited Partnership to
      terminate the agreement due to defaults by the Owner of the apartment
      partnership. The termination was effective October 11, 2004. Management fees
      generated by this property represented less than 1% of the Company’s total
      revenue.


In
      prior
      years, we managed two commercial properties in Puerto Rico owned by the Wilson
      Family. The Wilson Family properties were sold to third parties in two separate
      transactions, one in December 2004 and the other in April 2005. Management
      fees
      generated by these properties represented less than 1% of the Company's total
      revenue.


Effective
      April 30, 2006, ARMC’s management agreement with Chastleton Associates LP
      terminated when the apartment property was sold to a third party. The property
      was previously owned by an affiliate. Management fees generated by this property
      accounted for less than 1% of the Company’s total revenue. The Company earned an
      agreed-upon management fee for administrative services through the end of the
      second quarter 2006.


At
      the
      end of February 2007, one of the properties owned by affiliates of J. Michael
      Wilson was sold to a third party. We do not anticipate continuing to manage
      this
      property subsequent to its sale. See
      Note
      15 for more details.





(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.





(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 a lease that expires in
                2010.
                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. Effective January 27, 2006, the
                office
                building was sold to a third party who assumed the Company’s lease
                agreements.(2)
            Represents
                shared office expense reimbursements.(3)
            Represents
                fees paid to James J. Wilson pursuant to a consulting and retirement
                agreement. At Mr. Wilson's request, payments are made to
                IGC.(4)
            Represents
                fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
                agreement.





**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 notes. The net cash proceeds from the
      sale
      of the real estate were distributed to the partners. As a result, the Company
      received $2,500,000 in cash and recognized $986,000 of income in 2004. El Monte
      distributed the note, $1,500,000 to the Company, in January 2005. The note
      bears
      interest at a rate of prime plus 2% and matures on December 3, 2009. The
      principal and accrued interest due under the note were paid in full in January
      2007. See Note 15 for more details. El Monte will distribute any remaining
      cash
      when it winds up its affairs.


**-75-**
 *Table
          of Contents*







**(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.


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 $172,000 for the year ended December 31,
      2006.


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, 2006, there are 32,400 outstanding Rights which are
      all
      exercisable and expire on April 30, 2011. During 2006, 2005 and 2004, the
      Company recognized $72,000, $951,000, and $640,000, 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 1 st or July
      1 st 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
      $220,000) 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 $560,000, $532,000, and $503,000 in 2006, 2005, and 2004
      respectively.


**-76-**
 *Table
          of Contents*




**(10)**
            **INCOME
                TAXES**


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. During the 4 th 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. Accordingly, the Company restated its
      prior
      period financial statements to accrue for this contingency because we believed
      a
      liability related to this issue was both probable and reasonably estimated.
      The
      Company decreased net income $474,000 and $416,000 for the years ended December
      31, 2004 and 2003, respectively, and decreased retained earnings as of December
      31, 2002 by $3,479,000 for the period 1998 through the end of 2002 for this
      matter. 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 requires 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. As of December 31, 2005, we have accounted for this matter according
      to
      the terms of the closing agreement, and accordingly, have adjusted the accrual
      for income taxes that had been previously recorded in the event ACPT was not
      able to retain its PTP status. The reversal of this accrual and the resolution
      of other 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.


The
      reconciliation below for the provision for income taxes includes income from
      ARMC, ALD, ARPT and Puerto Rico source income. The 2006 permanent differences
      reflect special tax exempt income, the 2005 permanent differences reflect the
      IRS assessment and the 2004 permanent differences reflect special tax exempt
      income and the utilization of previously reserved net operating losses.





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









December
                31,**2006**
            
            2005
            
            2004**%
                of**
            
            
            
            %
                of
            
            
            
            %
                of**Amount**
            
            **Income**
            
            Amount
            
            Income
            
            Amount
            
            IncomeTaxes
                at statutory U.S. federalincome
                tax rate
            
            **$**
            **2,620**
            ****
            ****
            **35**
            **%**
            $
            2,399
            
            
            35
            %
            $
            1,516
            
            
            35
            %State
                income taxes, net offederal
                tax benefit
            
            
            **271**
            ****
            ****
            **4**
            **%**
            
            142
            
            
            2
            %
            
            58
            
            
            1
            %Income
                tax matters adjustment
            
            
            -
            
            
            -
            **%**
            
            (2,421
            )
            
            (35
            )%
            
            -
            
            
            -
            %Income
                only subject to foreign tax
            
            
            **(41**
            **)**
            ****
            **(1**
            **)%**
            
            (290
            )
            
            (4
            )%
            
            (182
            )
            
            (4
            )%Permanent
                differences
            
            
            **(189**
            **)**
            ****
            **(2**
            **)%**
            
            (382
            )
            
            (6
            )%
            
            (106
            )
            
            (2
            )%Other
            
            
            **233**
            ****
            ****
            **3**
            **%**
            
            (138
            )
            
            (2
            )%
            
            214
            
            
            5
            %Income
                tax provision (benefit)
            
            **$**
            **2,894**
            ****
            ****
            **39**
            **%**
            $
            (690
            )
            
            (10
            )%
            $
            1,500
            
            
            35
            %


**-77-**
 *Table
          of Contents*


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





Years
                Ended December 31,**2006**
            
            2005
            
            2004Current:United
                States
            
            **$**
            **3,040**
            
            $
            836
            
            $
            1,875Puerto
                Rico
            
            
            **2,560**
            
            
            2,722
            
            
            1,503**5,600**
            
            
            3,558
            
            
            3,378Deferred:United
                States
            
            
            **(558**
            **)**
            
            (2,401
            )
            
            (2,149
            )Puerto
                Rico
            
            
            **(2,148**
            **)**
            
            (1,847
            )
            
            271**(2,706**
            **)**
            
            (4,248
            )
            
            (1,878
            )Provision
                (Benefit) for Income Taxes
            
            **$**
            **2894**
            
            $
            (690
            )
            $
            1,500





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, made up 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.


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





At
                December 31,**2006**
            
            2005(In
                thousands)Deferred
                income related to long-term receivables from partnerships operating
                in
                Puerto Rico
            
            **$**
            **282**
            ****
            $
            282Receivables
                from partnerships operating in United States
            
            
            **1,170**
            ****
            
            1,170Tax
                benefit on equity in earnings of partnerships operating in Puerto
                Rico
            
            
            **(6,618**
            **)**
            
            (761
            )Tax
                benefit on equity in earnings of partnerships operating in United
                States
            
            
            **(9,287**
            **)**
            
            (3,432
            )Tax
                on deferred income
            
            
            **(956**
            **)**
            
            (633
            )Tax
                on land development costs capitalized for book purposes
                butdeducted
                currently for tax purposes
            
            
            **366**
            
            
            1,425Tax
                on differences in basis related to joint venture in United
                States
            
            
            **(557**
            **)**
            
            (579
            )Tax
                on differences in basis related to land in United States
            
            
            **(2,563**
            **)**
            
            (2,597
            )Tax
                on differences in basis related to land in Puerto Rico
            
            
            **(157**
            **)**
            
            (402
            )Tax
                on basis difference for Puerto Rico commercial venture
            
            
            **913**
            
            
            1,085Allowance
                for doubtful accounts
            
            
            **(155**
            **)**
            
            (382
            )Accrued
                expenses
            
            
            **(277**
            **)**
            
            (368
            )Net
                operating loss carryforwards
            
            
            -
            
            
            (466
            )Alternative
                minimum tax credits
            
            
            **(113**
            **)**
            
            -Other
            
            
            **(205**
            **)**
            
            48$
            **(18,157**
            **)**
            $
            (5,610
            )







At
      December 31, 2006, the Company did not have any net operating loss
      carryforwards.




**-78-**
 *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, 2006 and 2005, the book value of long-term
      fixed
      rate debt was $288,306,000 and $136,102,000, respectively, and the fair value
      of
      total debt was $299,623,000 and $137,456,000, 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 accounting policies of the segments are the same as those
      described in the summary of significant accounting policies.





*Customer
      Dependence*


Residential
      land sales to Lennar within our U.S. segment were $18,204,000 for the year
      ended
      December 31, 2006 which represents 34% of the U.S. segment's revenue and 19%
      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, 2006.


In
      2005,
      within our U.S. segment, r esidential
      land sales to Lennar, amounted to $12,203,000, which represents 32% of the
      U.S.
      segment’s revenue and 20% of our total consolidated revenue for the year. In our
      Puerto Rico segment, we sold commercial acres in our office park to Jalexis,
      Inc. for $7,448,000 which represents 31% of the Puerto Rico segment’s revenue
      and 12% of our total consolidated revenue for the year (See Note 5). No other
      customers accounted for more than 10% of our consolidated revenue for the year
      ended December 31, 2005.


In
      2004
      residential land sales to Lennar amounted to $6,798,000, which represented
      22%
      of the U.S. segment’s revenue and 14% of our consolidated revenue. No other
      customers accounted for more than 10% of our consolidated revenue for the year
      ended December 31, 2004.


**-79-**
 *Table
          of Contents*


The
      following presents the financial information for each reportable segment for
      the
      years ended December 31, 2006, 2005 and 2004 (in thousands):





United
              States
            
            Puerto
              Rico
            
            Segment
            
            Total**2006:**Land
                sales revenue
            
            **$**
            **20,967**
            
            **$**
            **-**
            
            **$**
            -
            $
            **20,967**Cost
                of land sales
            
            
            **11,607**
            
            
            **-**
            
            
            **-**
            
            **11,607**Home
                sales revenue
            
            
            **-**
            
            
            **19,838**
            
            
            **-**
            
            **19,838**Cost
                of home sales
            
            
            **-**
            
            
            **14,833**
            
            
            **-**
            
            **14,833**Rental
                property revenues
            
            
            **32,505**
            
            
            **21,524**
            
            
            **-**
            
            **54,029**Rental
                property operating expenses
            
            
            **16,072**
            
            
            **10,963**
            
            
            **(22**
            **)**
            **27,013**Management
                and other fees
            
            
            **663**
            
            
            **592**
            
            
            **(27**
            **)**
            **1,228**General,
                administrative, selling and marketing expense
            
            
            **6,370**
            
            
            **2,847**
            
            
            **(5**
            **)**
            **9,212**Depreciation
                and amortization
            
            
            **4,787**
            
            
            **3,615**
            
            
            **-**
            
            **8,402**Operating
                income
            
            
            **15,299**
            
            
            **9,696**
            
            
            **-**
            
            **24,995**Interest
                income
            
            
            **968**
            
            
            **137**
            
            
            **(64**
            **)**
            **1,041**Equity
                in earnings from unconsolidated entities
            
            
            **(1**
            **)**
            
            **683**
            
            
            **-**
            
            **682**Interest
                expense
            
            
            **9,852**
            
            
            **7,057**
            
            
            **(64**
            **)**
            **16,845**Minority
                interest in consolidated entities
            
            
            **616**
            
            
            **2,404**
            
            
            **-**
            
            **3,020**Income
                before provision for income taxes
            
            
            **6,170**
            
            
            **1,315**
            
            
            **-**
            
            **7,485**Income
                tax provision
            
            
            **2,530**
            
            
            **364**
            
            
            **-**
            
            **2,894**Net
                income
            
            
            **3,640**
            
            
            **951**
            
            
            **-**
            
            **4,591**Gross
                profit on land sales
            
            
            **9,360**
            
            
            **-**
            
            
            **-**
            
            **9,360**Gross
                profit on home sales
            
            
            **-**
            
            
            **5,005**
            
            
            **-**
            
            **5,005**Total
                assets
            
            
            **241,847**
            
            
            **107,115**
            
            
            **(2,263**
            **)**
            **346,699**Additions
                to long lived assets
            
            
            **38,324**
            
            
            **1,530**
            
            
            **-**
            
            **39,854**





**-80-**
 *Table
          of Contents*





United
            
            Puerto
            
            Inter-States
            
            Rico
            
            Segment
            
            Total**2005:**Land
                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
            
            
            
            
            
            6,122Rental
                property revenues
            
            
            22,508
            
            
            58
            
            
            **-**
            
            
            22,566Rental
                property operating expenses
            
            
            10,129
            
            
            661
            
            
            **-**
            
            
            10,790Management
                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**2004:**Land
                sales revenue
            
            $
            6,999
            
            $
            2,676
            
            $
            -
            
            $
            9,675Cost
                of land sales
            
            
            4,404
            
            
            1,979
            
            
            -
            
            
            6,383Home
                sales revenue
            
            
            -
            
            
            9,861
            
            
            -
            
            
            9,861Cost
                of home sales
            
            
            -
            
            
            7,474
            
            
            -
            
            
            7,474Rental
                property revenues
            
            
            19,007
            
            
            -
            
            
            -
            
            
            19,007Rental
                property operating expenses
            
            
            8,087
            
            
            442
            
            
            -
            
            
            8,529Management
                and other fees
            
            
            1,500
            
            
            2,106
            
            
            (15
            )
            
            3,591General,
                administrative, selling and marketing expense
            
            
            5,235
            
            
            3,121
            
            
            (15
            )
            
            8,341Depreciation
                and amortization
            
            
            3,212
            
            
            116
            
            
            -
            
            
            3,328Operating
                income
            
            
            6,568
            
            
            1,511
            
            
            -
            
            
            8,079Interest
                income
            
            
            199
            
            
            672
            
            
            (645
            )
            
            226Equity
                in earnings from unconsolidated entities
            
            
            (291
            )
            
            2,967
            
            
            -
            
            
            2,676Interest
                expense
            
            
            5,916
            
            
            248
            
            
            (497
            )
            
            5,667Minority
                interest in consolidated entities
            
            
            1,285
            
            
            -
            
            
            -
            
            
            1,285(Loss)Income
                before (benefit)/provision for income taxes
            
            
            (680
            )
            
            5,130
            
            
            (119
            )
            
            4,331Income
                tax (benefit)/provision
            
            
            (274
            )
            
            1,774
            
            
            -
            
            
            1,500Net
                (loss) income
            
            
            (406
            )
            
            3,356
            
            
            (119
            )
            
            2,831Gross
                profit on land sale
            
            
            2,595
            
            
            697
            
            
            -
            
            
            3,292Gross
                profit on home sales
            
            
            -
            
            
            2,387
            
            
            -
            
            
            2,387Total
                assets
            
            
            129,361
            
            
            70,537
            
            
            (15,871
            )
            
            184,027Additions
                to long lived assets
            
            
            22,388
            
            
            5,421
            
            
            -
            
            
            27,809





**-81-**
 *Table
          of Contents*





**(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):





**2006**
            
            2005
            
            2004Interest
                paid
            
            **$**
            **17,535**
            
            $
            7,926
            
            $
            5,369Income
                taxes paid
            
            **$**
            **8,157**
            
            $
            2,912
            
            $
            3,385Assumption
                of non-recourse debt
            
            $
            -
            
            $
            500
            
            $
            -Transfer
                of land to joint venture
            
            $
            -
            
            $
            -
            
            $
            5,625








**(14)**
            **QUARTERLY
                FINANCIAL DATA (Unaudited)**





ACPT’s
      quarterly results are summarized as follows:





Year
                Ended December 31, 20061st
                Quarter
            
            2nd
              Quarter
            
            3rd
              Quarter
            
            4th
              Quarter
            
            Total
                  for
                Year(In
                thousands, except per share amounts)Revenues
            
            $
            21,622
            
            $
            24,070
            
            $
            24,421
            
            $
            28,050
            
            $
            98,163Operating
                income
            
            
            5,187
            
            
            5,790
            
            
            6,343
            
            
            7,675
            
            
            24,995Net
                income
            
            
            501
            
            
            457
            
            
            2,044
            
            
            1,589
            
            
            4,591Earnings
                per shareBasic
                and Diluted
            
            
            0.10
            
            
            0.09
            
            
            0.39
            
            
            0.30
            
            
            0.88Common
                shares trading range (a):High
            
            
            23.25
            
            
            22.25
            
            
            20.20
            
            
            20.24
            
            
            23.25Low
            
            
            19.48
            
            
            20.00
            
            
            19.40
            
            
            17.49
            
            
            17.49Year
                Ended December 31,
                20051st
                Quarter
            
            
            2nd
                Quarter
            
            
            3rd
              Quarter
            
            
            4th
              Quarter
            
            
            Total
                  for
              Year(In
                thousands, except per share
                amounts)Revenues
            
            $
            11,393
            
            $
            17,080
            
            $
            12,136
            
            $
            21,704
            
            $
            62,313Operating
                income
            
            
            1,357
            
            
            3,249
            
            
            2,191
            
            
            4,309
            
            
            11,106Net
                income (b)
            
            
            40
            
            
            1,476
            
            
            389
            
            
            5,640
            
            
            7,545Earnings
                per shareBasic
                and Diluted
            
            
            0.01
            
            
            0.28
            
            
            0.07
            
            
            1.09
            
            
            1.45Common
                shares trading range (a):High
            
            
            14.07
            
            
            19.94
            
            
            25.90
            
            
            26.35
            
            
            26.35Low
            
            
            12.11
            
            
            13.30
            
            
            18.60
            
            
            16.50
            
            
            12.11


(a) 
        Trading ranges are based on the American Stock Exchange.
 (b) 
        Net income for the year and quarter ended December 31, 2005 included a net
        benefit of $3,394,000 and $3,839,000, respectively, related to the reversal
        of
        accruals no longer necessary as a result of the closing agreement reached
        with
        the IRS.


**-82-**
 *Table
          of Contents*





**(15)**
            **SUBSEQUENT
                EVENTS**





*El
      Monte note repayment*


On
      January 24, 2007, the Company received $1,700,000 as payment in full of the
      principal balance and all accrued interest related to the El Monte note
      receivable. As previously noted, the Company deferred revenue recognition on
      this note until the cash was received.





*Multifamily
      Rental Property Mortgage Refinancings*


On
      January 30, 2007, the non-recourse mortgage for one of our consolidated
      multifamily rental properties in the U.S., Coachmans Apartments, LLC, was
      refinanced with a non-recourse mortgage loan of $11,000,000. The proceeds from
      the refinancing will be used for capital improvements at the property site
      and
      distributions to the partners.


On
      February 1, 2007, the non-recourse mortgage for one of our consolidated
      multifamily rental properties in the U.S., Village Lake Apartments, LLC, was
      refinanced with a non-recourse mortgage loan of $9,300,000. The proceeds from
      the refinancing will be used for capital improvements at the property site
      and
      distributions to the partners.





*Debt
      Extinguishment*


In
      January of 2007, the Company repaid two outstanding recourse debt obligations
      totaling $4,473,000 as of December 31, 2006. These obligations were repaid
      in
      conjunction with distributions received from the mortgage refinancings noted
      above.





*Cash
      Dividend*


On
      February 28, 2007, the Board of Trustees declared a cash dividend of $0.10
      per
      share, payable on March 28, 2007 to shareholders of record on March 14,
      2007.





*Termination
      of Management Contract*


Effective
      February 28, 2007, ARMC's management agreement with G.L. Limited Partnerships
      was terminated upon the sale of the apartment property to a third party.
      Management fees generated by this property represent less than 1% of the
      Company's total revenue.





**-83-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006**(In
                thousands)**Initial
                and Subsequent Costs and Encumbrances**
            
            **Total
                Capitalized Costs and Accumulated Depreciation**DateBldgs.
                &
            
            Subsequent
            
            
            
            Bldgs.
                &
            
            
            
            Accumulated
            
            ConstructedDescription
            
            Encumbrances
            
            Land
            
            Improvements
            
            Costs
            
            Land
            
            Improvements
            
            Total
            
            Depreciation
            
            or
                Acquired
            
            Depreciable
                LifeConsolidated
                Partnerships**U.S.
                Partnerships**Bannister
                Apartments
            
            $
            12,692
            
            $
            410
            
            $
            4,180
            
            $
            5,229
            
            $
            410
            
            $
            9,409
            
            $
            9,819
            
            $
            5,723
            
            
            11/30/1976
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDBrookmont
                Apartments
            
            
            7,405
            
            
            162
            
            
            2,677
            
            
            2,710
            
            
            162
            
            
            5,387
            
            
            5,549
            
            
            3,527
            
            
            5/18/1979
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDCoachman's
            
            
            5,313
            
            
            572
            
            
            6,421
            
            
            328
            
            
            572
            
            
            6,749
            
            
            7,321
            
            
            2,916
            
            
            9/5/1989
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDCrossland
                Apartments
            
            
            4,146
            
            
            350
            
            
            2,697
            
            
            274
            
            
            350
            
            
            2,971
            
            
            3,321
            
            
            2,187
            
            
            1/13/1978
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDEssex
                Village Apts.
            
            
            14,272
            
            
            2,667
            
            
            21,381
            
            
            (3,456
            )
            
            2,667
            
            
            17,925
            
            
            20,592
            
            
            16,175
            
            
            1/31/1982
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsRichmond,
                VAFox
                Chase Apartments
            
            
            12,987
            
            
            745
            
            
            7,014
            
            
            801
            
            
            745
            
            
            7,815
            
            
            8,560
            
            
            3,651
            
            
            3/31/1987
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDHeaden
                Apartments
            
            
            6,994
            
            
            205
            
            
            4,765
            
            
            3,425
            
            
            205
            
            
            8,190
            
            
            8,395
            
            
            5,643
            
            
            10/30/1980
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MD


**-84-**
 *Table
          of Contents*




**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006**(In
                thousands)**Initial
                and Subsequent Costs and Encumbrances**
            
            **Total
                Capitalized Costs and Accumulated Depreciation**DateBldgs.
                &
            
            Subsequent
            
            
            
            Bldgs.
                &
            
            
            
            Accumulated
            
            ConstructedDescription
            
            Encumbrances
            
            Land
            
            Improvements
            
            Costs
            
            Land
            
            Improvements
            
            Total
            
            Depreciation
            
            or
                Acquired
            
            Depreciable
                LifeHuntington
                Apartments
            
            
            9,326
            
            
            350
            
            
            8,513
            
            
            1,215
            
            
            350
            
            
            9,728
            
            
            10,078
            
            
            5,922
            
            
            10/7/1980
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDLancaster
                Apartments
            
            
            8,622
            
            
            484
            
            
            4,292
            
            
            1,086
            
            
            484
            
            
            5,378
            
            
            5,862
            
            
            2,957
            
            
            12/31/1985
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDMilford
                Station I
            
            
            10,491
            
            
            2,658
            
            
            9,878
            
            
            513
            
            
            2,659
            
            
            10,391
            
            
            13,050
            
            
            186
            
            
            5/1/2006
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsBaltimore,
                MDMilford
                Station II
            
            
            1,345
            
            
            455
            
            
            1,350
            
            
            31
            
            
            455
            
            
            1,381
            
            
            1,836
            
            
            25
            
            
            5/1/2006
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsBaltimore,
                MDNew
                Forest Apartments
            
            
            22,977
            
            
            1,229
            
            
            12,102
            
            
            1,576
            
            
            1,229
            
            
            13,678
            
            
            14,907
            
            
            6,229
            
            
            6/28/1988
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDNottingham
                South
            
            
            2,560
            
            
            359
            
            
            2,586
            
            
            68
            
            
            359
            
            
            2,654
            
            
            3,013
            
            
            106
            
            
            5/23/2005
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsBaltimore,
                MDOwings
                Chase
            
            
            12,536
            
            
            1,691
            
            
            13,428
            
            
            416
            
            
            1,691
            
            
            13,844
            
            
            15,535
            
            
            915
            
            
            10/29/2004
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsBaltimore,
                MD


**-85-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006**(In
                thousands)**Initial
                and Subsequent Costs and Encumbrances**
            
            **Total
                Capitalized Costs and Accumulated****Depreciation**DateBldgs.
                &
            
            Subsequent
            
            
            
            Bldgs.
                &
            
            
            
            Accumulated
            
            ConstructedDescription
            
            Encumbrances
            
            Land
            
            Improvements
            
            Costs
            
            Land
            
            Improvements
            
            Total
            
            Depreciation
            
            or
                Acquired
            
            Depreciable
                LifePalmer
                Apartments
            
            $
            6,838
            
            $
            471
            
            $
            4,788
            
            $
            3,702
            
            $
            471
            
            $
            8,490
            
            $
            8,961
            
            $
            5,816
            
            
            3/31/1980
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDPrescott
                Square
            
            
            3,636
            
            
            470
            
            
            3,867
            
            
            225
            
            
            470
            
            
            4,092
            
            
            4,562
            
            
            258
            
            
            10/29/2004
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsBaltimore,
                MDTerrace
                Apartments
            
            
            10,179
            
            
            497
            
            
            5,377
            
            
            5,264
            
            
            497
            
            
            10,641
            
            
            11,138
            
            
            6,830
            
            
            11/1/1979
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDVillage
                Lake
            
            
            6,402
            
            
            824
            
            
            6,858
            
            
            271
            
            
            824
            
            
            7,129
            
            
            7,953
            
            
            2,391
            
            
            10/1/1993
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MD**Puerto
                Rico Partnerships**Alturas
                Del Senorial
            
            
            3,551
            
            
            345
            
            
            4,185
            
            
            515
            
            
            345
            
            
            4,700
            
            
            5,045
            
            
            3,274
            
            
            11/17/1979
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsRio
                Piedras, PRBayamon
                Garden
            
            
            9,419
            
            
            1,153
            
            
            12,050
            
            
            975
            
            
            1,153
            
            
            13,025
            
            
            14,178
            
            
            8,542
            
            
            7/6/1981
            
            
            Bldg-40
                YrsWalk-up
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsBayamon,
                PR


**-86-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006**(In
                thousands)**Initial
                and Subsequent Costs and Encumbrances**
            
            **Total
                Capitalized Costs and Accumulated****Depreciation**DateBldgs.
                &
            
            Subsequent
            
            
            
            Bldgs.
                &
            
            
            
            Accumulated
            
            ConstructedDescription
            
            Encumbrances
            
            Land
            
            Improvements
            
            Costs
            
            Land
            
            Improvements
            
            Total
            
            Depreciation
            
            or
                Acquired
            
            Depreciable
                LifeColinas
                De San Juan
            
            
            9,610
            
            
            900
            
            
            10,742
            
            
            976
            
            
            900
            
            
            11,718
            
            
            12,618
            
            
            7,792
            
            
            3/20/1981
            
            
            Bldg-40
                YrsWalk-up
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSan
                Juan, PRDe
                Diego
            
            
            5,600
            
            
            601
            
            
            6,718
            
            
            620
            
            
            601
            
            
            7,338
            
            
            7,939
            
            
            4,983
            
            
            3/20/1980
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsRio
                Piedras, PREscorial
                Office
            
            
            8,578
            
            
            1,596
            
            
            8,202
            
            
            466
            
            
            1,596
            
            
            8,668
            
            
            10,264
            
            
            299
            
            
            9/1/2005
            
            
            Bldg-40
                YrsBuilding
                I, Inc.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsPuerto
                RicoJardines
                De Caparra
            
            
            6,417
            
            
            546
            
            
            5,719
            
            
            1,722
            
            
            546
            
            
            7,441
            
            
            7,987
            
            
            4,921
            
            
            4/1/1980
            
            
            Bldg-40
                YrsHighrise
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsBayamon,
                PRMonserrate
                I
            
            
            7,386
            
            
            543
            
            
            10,436
            
            
            1,750
            
            
            543
            
            
            12,186
            
            
            12,729
            
            
            8,322
            
            
            5/1/1979
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsCarolina,
                PRMonserrate
                II
            
            
            10,120
            
            
            731
            
            
            11,172
            
            
            1,436
            
            
            731
            
            
            12,608
            
            
            13,339
            
            
            8,461
            
            
            1/30/1980
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsCarolina,
                PRSan
                Anton
            
            
            4,218
            
            
            313
            
            
            3,525
            
            
            1,659
            
            
            313
            
            
            5,184
            
            
            5,497
            
            
            3,727
            
            
            12/10/1974
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsCarolina,
                PR


**-87-**
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          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006**(In
                thousands)**Initial
                and Subsequent Costs and Encumbrances**
            
            **Total
                Capitalized Costs and Accumulated****Depreciation**Bldgs.
                &
            
            Subsequent
            
            
            
            Bldgs.
                &
            
            
            
            Accumulated
            
            Date
              ConstructedDescription
            
            Encumbrances
            
            Land
            
            Improvements
            
            Costs
            
            Land
            
            Improvements
            
            Total
            
            Depreciation
            
            or
                Acquired
            
            Depreciable
                LifeSanta
                Juana
            
            
            7,220
            
            
            509
            
            
            6,748
            
            
            744
            
            
            509
            
            
            7,492
            
            
            8,001
            
            
            5,063
            
            
            2/8/1980
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsCaguas,
                PRTorre
                De Las Cumbres
            
            
            5,200
            
            
            466
            
            
            5,954
            
            
            645
            
            
            466
            
            
            6,599
            
            
            7,065
            
            
            4,550
            
            
            12/6/1979
            
            
            Bldg-40
                YrsHighrise
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsRio
                Piedras, PRValle
                Del Sol
            
            
            10,718
            
            
            992
            
            
            14,017
            
            
            835
            
            
            992
            
            
            14,852
            
            
            15,844
            
            
            9,126
            
            
            3/15/1983
            
            
            Bldg-40
                YrsHighrise
                and Walk-up Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsBayamon,
                PRVistas
                Del Turabo
            
            
            1,111
            
            
            354
            
            
            2,508
            
            
            684
            
            
            354
            
            
            3,192
            
            
            3,546
            
            
            1,941
            
            
            12/30/1983
            
            
            Bldg-40
                YrsWalk-up
                Apts.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Acquired
            
            
            Bldg
                Equip-5/7 YrsCaguas,
                PR**Total
                Consolidated Properties**
            
            
            **247,869**
            
            
            **23,648**
            
            
            **224,150**
            
            
            **36,705**
            
            
            **23,649**
            
            
            **260,855**
            
            
            **284,504**
            
            
            **142,458**Unconsolidated
                PartnershipsBrookside
                Gardens Apartments
            
            
            1,264
            
            
            156
            
            
            2,487
            
            
            57
            
            
            156
            
            
            2,544
            
            
            2,700
            
            
            1,125
            
            
            11/10/1994
            
            
            Bldg-40
                YrsGarden
                Shared Housing
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MDLakeside
                Apartments
            
            
            1,983
            
            
            440
            
            
            3,649
            
            
            35
            
            
            440
            
            
            3,684
            
            
            4,124
            
            
            945
            
            
            7/1/1996
            
            
            Bldg-40
                YrsGarden
                Apartments
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Constructed
            
            
            Bldg
                Equip-5/7 YrsSt.
                Charles, MD**Total
                Unconsolidated Properties**
            
            
            **3,247**
            
            
            **596**
            
            
            **6,136**
            
            
            **92**
            
            
            **596**
            
            
            **6,228**
            
            
            **6,824**
            
            
            **2,070****Total
                Properties**
            
            **$**
            **251,116**
            
            **$**
            **24,244**
            
            **$**
            **230,286**
            
            **$**
            **36,797**
            
            **$**
            **24,245**
            
            **$**
            **267,083**
            
            **$**
            **291,328**
            
            **$**
            **144,528**(1)
                Operating real estate shown on the Consolidated Balance Sheets includes
                real estate assets of $284,504 net of accumulated depreciation of
                $142,458.THE
                AGGREGATE COST,NET OF DEPRECIATION AND AMORTIZATION, FOR FEDERAL
                INCOME
                TAX PURPOSES FOR U.S. AND P.R. PROPERTIES IS $107,827





**-88-**
 *Table
          of Contents*





**AMERICAN
                COMMUNITY PROPERTIES TRUST****SCHEDULE
                III****REAL
                ESTATE AND ACCUMULATED DEPRECIATION****AS
                OF DECEMBER 31, 2006 AND 2005**(In
                thousands)Consolidated
            
            UnconsolidatedPartnerships
            
            Partnerships
            
            TotalReal
                Estate at December 31, 2004
            
            $
            108,535
            
            $
            147,373
            
            $
            255,908Additions
                for 2005:Improvements
            
            
            2,503
            
            
            2,622
            
            
            5,125Acquisition
                (land and building)
            
            
            2,945
            
            
            -
            
            
            2,945New
                construction (land and building)
            
            
            9,798
            
            
            -
            
            
            9,798Deductions
                for 2005:Dispositions
            
            
            791
            
            
            516
            
            
            1,307Real
                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
            
            
            1,436**Real
                Estate at December 31, 2006**
            
            **$**
            **284,504**
            
            **$**
            **6,824**
            
            **$**
            **291,328**Accumulated
                depreciation at December 31, 2004
            
            $
            43,464
            
            $
            86,839
            
            $
            130,303Additions
                for 2005:Depreciation
                expense
            
            
            3,739
            
            
            4,955
            
            
            8,694Acquisition
            
            
            
            
            
            -
            
            
            -Deductions
                for 2005:Dispositions
            
            
            791
            
            
            516
            
            
            1,307Accumulated
                depreciation at December 31, 2005
            
            
            46,412
            
            
            91,278
            
            
            137,690Consolidation
                of previously unconsolidated partnerships
            
            
            89,395
            
            
            (89,395
            )
            
            -Additions
                for 2006:Depreciation
                expense
            
            
            8,073
            
            
            201
            
            
            8,274Deductions
                for 2006:Dispositions
            
            
            1,422
            
            
            14
            
            
            1,436**Accumulated
                depreciation at December 31, 2006**
            
            **$**
            **142,458**
            
            **$**
            **2,070**
            
            **$**
            **144,528**





**-89-**
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          of Contents*





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


None.




**ITEM
                9A.**
            **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, because of the material weakness in internal
      control discussed below, were not effective in ensuring that the information
      required to be disclosed in our reports filed with the SEC is recorded,
      processed, summarized and reported on a timely basis.


During
      the preparation of the Company's 2004 tax returns in the fourth quarter 2005,
      the Company became aware that certain intercompany interest income was subject
      to U.S. withholding tax when the interest was paid and certain income from
      its
      Puerto Rico operations could be treated as income of ACPT even though it was
      not
      distributed to ACPT. The Company determined that neither the obligation to
      pay
      the withholding tax or exposure related to the tax status had been previously
      accrued. Accordingly, the Company announced on November 15, 2005, that the
      Company would restate financial statements for the periods covered in its Form
      10-K for the fiscal year ended December 31, 2004 and the Forms 10-Q for the
      first two quarters of fiscal 2005 to correct previously reported amounts related
      to these income tax matters.


The
      Company determined the accounting errors referenced above 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 has
      implemented controls and procedures designed to remediate this material
      weakness. These controls and procedures include 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. In order to remediate the material weakness, management must
      ensure that these new controls and procedures are operating effectively and
      fully address the risks giving rise to the material weakness. Management
      believes that once sufficient evidence of the operating effectiveness of these
      controls exists, the material weakness will be fully remediated.





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


Not
      applicable.




**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, 2006, 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.
      Such incorporation does not include the Performance Graph included in the Proxy
      Statement.





**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 2007.


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
      2007.





**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 2007.





**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 2007.





**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 2007.




**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 2007.


**-91-**
 *Table
          of Contents*





**ITEM
                14.**
            **PRINCIPAL
                ACCOUNTING 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 2007.








**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, 2006, 2005 and
      2004





Consolidated
      Balance Sheets as of December 31, 2006 and 2005





Consolidated
      Statements of Changes in Shareholders' Equity for the years ended December
      31,
      2006, 2005 and 2004





Consolidated
      Statements of Cash Flows for the years ended December 31, 2006, 2005 and
      2004





Notes
      to
      Consolidated Financial Statements for the years ended December 31, 2006 and
      2005




2.  **Financial
      Statement Schedules**





The following financial statement schedules are contained herein:




Schedule III -- Real Estate and Accumulated Depreciation as of December 31,
      2006


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
            Filed
                Herewith4.1
            Form
                of Common Share Certificate
            Exhibit
                4.1 to Form S-1110.1
            Employment
                Agreement, dated August 25, 1998, between the Company and Edwin L.
                Kelly*
            Exhibit
                10.1 to Form S-1110.2
            Employment
                Agreement, dated November 10, 2003, between the Company and Paul
                A.
                Resnik*
            Exhibit
                10.3 to 2003 Form 10-K





**-92-**
 *Table
          of Contents*


10.3
            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, 200410.4
            Form
                of Consulting Agreement, dated August 24, 1998, between the Company
                and
                James J. Wilson*
            Exhibit
                10.4 to Form S-1110.5
            Employment
                and Consulting Agreement for Carlos R. Rodriguez *
            Exhibit
                10.1 to Form 10-Q for quarter ended June 30, 200610.6
            Employees'
                Share Incentive Plan*
            Exhibit
                10.5 to Form S-1110.7
            Trustee's
                Share Incentive Plan*
            Exhibit
                10.6 to Form S-1110.8
            Consulting
                Agreement between St. Charles Community, LLC and Thomas J. Shafer
                dated
                January 1, 1998*
            Exhibit
                10.14 to 1998 Form 10-K10.9
            Amendment
                to Consulting Agreement between St. Charles Community, LLC and Thomas
                J.
                Shafer dated January 28, 2002*
            Exhibit
                10.15 to 2001 Form 10-K10.10
            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, 200610.11
            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, 200610.12
            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, 200610.13
            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, 200610.14
            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, 200210.15
            Consent
                Judgment dated July 22, 2002
            Exhibit
                10.2 to Form 10-Q for the quarter ended June 30, 200210.16
            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, 200210.17
            Amended
                Order to Docket #90 dated July 22, 2002
            Exhibit
                10.2 to Form 10-Q for the quarter ended September 30,
                200210.18
            Certificate
                of Limited Partnership of Village Lake Apartments Limited Partnership
                dated May 17, 1991
            Exhibit
                10.37 to 2002 Form 10-K




**-93-**
 *Table
          of Contents*


10.19
            First
                Amendment to Certificate of Limited Partnership of Village Lake Apartments
                Limited Partnership dated May 13, 1992
            Exhibit
                10.38 to 2002 Form 10-K10.20
            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-K10.21
            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-K10.22
            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-K




10.23
            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-K10.24
            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-K10.25
            Development
                Agreement between St. Charles Community, LLC and Lennar Corporation
                dated
                March 4, 2004
            Exhibit
                10.41 to 2003 Form 10-K10.26
            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,
                200410.27
            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,
                200410.28
            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,
                200510.29
            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, 200510.30
            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, 200510.31
            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, 2005





10.32
              
              
              10.33
            Lease,
                dated as of September 1, 2006, by and between the Company and Caribe
                Waste
                Technologies, Inc.
              
              Deed
                of Trust Note for New Forest Apartments, LLC payable toWells
                Fargo Bank, N.Afor
                principal sum of $23,000,000 dated November 1, 2006
            Exhibit
                10.1 to Form 10-Q for quarter ended September 30, 2006
              
              
              Filed
                herewith21
            List
                of Subsidiaries of American Community Properties Trust
            Filed
                herewith23
            Consent
                of Independent Registered Public Accounting Firm
            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
                herewith99.1
            Letter
                to the Commission regarding Andersen
            Exhibit
                99.1 to 2001 Form 10-K*Denotes
                management agreement or compensatory plan or
                arrangement.





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





**-94-**
 *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 23, 2007
            By:/s/
                J. Michael WilsonJ.
                Michael Wilson
              Chairman
                and Chief Executive Officer
              (Principal
                Executive Officer)Dated:
                March 23, 2007
            By:/s/ Cynthia L. HedrickCynthia
                L. Hedrick
              Executive
                Vice President and Chief Financial Officer
              (Principal
                Financial Officer)Dated:
                March 23, 2007
            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
                23, 2007/s/
                Edwin L. Kelly
              Edwin
                L. Kelly
            President,
                Chief Operating Officer and Trustee
            March
                23, 2007/s/
                Thomas J. Shafer
              Thomas
                J. Shafer
            Trustee
            March
                23, 2007/s/
                T. Michael Scott
              T.
                Michael Scott
            Trustee
            March
                23, 2007/s/
                Antonio Ginorio
              Antonio
                Ginorio
            Trustee
            March
                23, 2007/s/
                Thomas S. Condit
              Thomas
                S. Condit
            Trustee
            March
                23, 2007




















































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      95 -**