**Form 10-Q**

















**Associated Estates Realty Corporation**



|Ohio                                     | 34-1747603            
|---------------------------------------- | ----------------------
|(State or other jurisdiction of          | (I.R.S. Employer      
|incorporation or organization)           | Identification Number)
|                                         |                       
|                                         |                       
|5025 Swetland Court, Richmond Hts., Ohio | 44143-1467            
|(Address of principal executive offices) | (Zip Code)            





|Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
|-----------------------------------------------------------------------------------------------
|Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding                
|12 months (or for such shorter period that the registrant was required                         
|to file such reports), and (2) has been subject to such                                        
|filing requirements for the past 90 days.                                                      
|Yes [ x ]   No [   ]                                                                           













**INDEX**

|**PART I  -  FINANCIAL INFORMATION**  | Page                                                                             
|------------------------------------- | ---------------------------------------------------------------------------------
|                                      |                                                                                  
|ITEM 1                                | Consolidated Financial Statements (Unaudited)                                    
|                                      |                                                                                  
|                                      | Consolidated Balance Sheets as of                                                
|                                      | June 30, 2004 and December 31, 2003                                              
|                                      |                                                                                  
|                                      | Consolidated Statements of Operations for the three and six                      
|                                      | month periods ended June 30, 2004 and 2003                                       
|                                      |                                                                                  
|                                      | Consolidated Statement of Shareholders' Equity for the six                       
|                                      | month period ended June 30, 2004                                                 
|                                      |                                                                                  
|                                      | Consolidated Statements of Cash Flows for the six                                
|                                      | month periods ended June 30, 2004 and 2003                                       
|                                      |                                                                                  
|                                      | Notes to Consolidated Financial Statements                                       
|                                      |                                                                                  
|ITEM 2                                | Management's Discussion and Analysis of Financial                                
|                                      | Condition and Results of Operations                                              
|                                      |                                                                                  
|ITEM 3                                | Quantitative and Qualitative Disclosures About Market Risk                       
|                                      |                                                                                  
|ITEM 4                                | Controls and Procedures                                                          
|                                      |                                                                                  
|**PART II**  -  **OTHER INFORMATION** |                                                                                  
|                                      |                                                                                  
|ITEM 1                                | Legal Proceedings                                                                
|                                      |                                                                                  
|ITEM 2                                | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
|                                      |                                                                                  
|ITEM 4                                | Submission of Matters to a Vote of Security Holders                              
|                                      |                                                                                  
|ITEM 6                                | Exhibits and Reports on Form 8-K                                                 
|                                      |                                                                                  
|**SIGNATURES**                        | 32                                                                               

*****Index*****

**PART I.	FINANCIAL INFORMATION**

**ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

|                                                                 |           |             
|---------------------------------------------------------------- | --------- | ------------
|                                                                 | June 30,  | December 31,
|                                                                 | 2004      | 2003        
|(In thousands, except share amounts)                             |           |             
|**ASSETS**                                                       |           |             
|Real estate assets                                               |           |             
|Land                                                             | $	91,364  | $	91,367    
|Buildings and improvements                                       | 800,819   | 796,158     
|Furniture and fixtures                                           | 33,329    | 32,919      
|                                                                 | 925,512   | 920,444     
|Less:  accumulated depreciation                                  | (279,868) | (264,386)   
|                                                                 | 645,644   | 656,058     
|Construction in progress                                         | 3,596     | 5,527       
|Real estate, net                                                 | 649,240   | 661,585     
|Cash and cash equivalents                                        | 1,909     | 2,212       
|Restricted cash                                                  | 20,900    | 10,889      
|Accounts and notes receivable, net                               |           |             
|Rents                                                            | 710       | 631         
|Affiliates and joint ventures                                    | 6,968     | 5,367       
|Other                                                            | 2,983     | 2,294       
|Investments in joint ventures, net                               | 7,958     | 8,727       
|Goodwill                                                         | 1,725     | 1,725       
|Intangible and other assets, net                                 | 9,477     | 11,363      
|                                                                 | $	701,870 | $	704,793   
|**LIABILITIES AND SHAREHOLDERS' EQUITY**                         |           |             
|Secured debt                                                     | $	539,698 | $	543,391   
|Unsecured debt                                                   | 105       | 105         
|Total indebtedness                                               | 539,803   | 543,496     
|Accounts payable and accrued expenses                            | 24,771    | 24,295      
|Dividends payable                                                | 3,339     | 3,311       
|Resident security deposits                                       | 4,259     | 4,187       
|Funds held on behalf of managed properties                       |           |             
|Affiliates and joint ventures                                    | 2,907     | 2,189       
|Other                                                            | 1,684     | 1,066       
|Accrued interest                                                 | 2,467     | 2,649       
|Commitments and contingencies (Note 9)                           | -         | -           
|Total liabilities                                                | 579,230   | 581,193     
|                                                                 |           |             
|Operating partnership minority interest                          | 2,172     | 2,172       
|                                                                 |           |             
|Shareholders' equity                                             |           |             
|Preferred shares, Class A cumulative, without par value;         |           |             
|3,000,000 authorized; 225,000 issued and outstanding             | 56,250    | 56,250      
|Common shares, without par value, $.10 stated value; 50,000,000  |           |             
|authorized; 22,995,763 issued and 19,640,844 and 19,478,681 out- |           |             
|standing at June 30, 2004 and December 31, 2003, respectively    | 2,300     | 2,300       
|Paid-in capital                                                  | 278,224   | 279,087     
|Accumulated distributions in excess of accumulated net income    | (186,369) | (184,436)   
|Less: Treasury shares, at cost, 3,354,919 and 3,517,082 shares   |           |             
|at June 30, 2004 and December 31, 2003, respectively             | (29,937)  | (31,773)    
|Total shareholders' equity                                       | 120,468   | 121,428     
|                                                                 | $	701,870 | $	704,793   





*****Index***ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

|                                                                 | For the three months ended | For the six months ended
|---------------------------------------------------------------- | -------------------------- | ------------------------
|                                                                 | June 30,                   | June 30,                
|(In thousands, except per share amounts)                         | 2004                       | 2003                    
|Revenues                                                         |                            |                         
|Rental                                                           | $	 33,888                  | $	33,639                
|Property management fees and reimbursements                      | 2,725                      | 2,838                   
|Asset management fees                                            | 217                        | 436                     
|Asset disposition fees                                           | -                          | -                       
|Painting services                                                | 2,445                      | 482                     
|Other                                                            | 1,154                      | 963                     
|Total revenues                                                   | 40,429                     | 38,358                  
|Expenses                                                         |                            |                         
|Property operating and maintenance                               | 16,471                     | 18,056                  
|Depreciation and amortization                                    | 8,349                      | 8,745                   
|Direct property management and service companies expenses        | 3,030                      | 2,948                   
|Painting services                                                | 1,784                      | 502                     
|General and administrative                                       | 1,879                      | 1,767                   
|Total expenses                                                   | 31,513                     | 32,018                  
|Operating income                                                 | 8,916                      | 6,340                   
|Interest income                                                  | 54                         | 39                      
|Interest expense                                                 | (9,966)                    | (10,413)                
|(Loss) income before equity in net loss of joint ventures,       |                            |                         
|minority interest and income from discontinued operations        | (996)                      | (4,034)                 
|Equity in net loss of joint ventures                             | (168)                      | (64)                    
|Minority interest in operating partnership                       | (16)                       | (21)                    
|(Loss) income from continuing operations                         | (1,180)                    | (4,119)                 
|Income from discontinued operations:                             |                            |                         
|Operating income                                                 | 50                         | 235                     
|Gain on disposition of property                                  | 9,682                      | -                       
|Income from discontinued operations                              | 9,732                      | 235                     
|**Net income (loss)**                                            | 8,552                      | (3,884)                 
|Preferred share dividends                                        | (1,371)                    | (1,372)                 
|**Net income (loss) applicable to common shares**                | $	7,181                    | $	(5,256)               
|                                                                 |                            |                         
|**Earnings per common share - basic:**                           |                            |                         
|(Loss) income applicable to common shares from continuing        |                            |                         
|operations                                                       | $	(.13)                    | $	(.28)                 
|Income from discontinued operations                              | .50                        | .01                     
|Net income (loss) applicable to common shares                    | $	.37                      | $	(.27)                 
|                                                                 |                            |                         
|**Earnings per common share - diluted:**                         |                            |                         
|(Loss) income applicable to common shares  from continuing       |                            |                         
|operations                                                       | $	(.13)                    | $	(.28)                 
|Income from discontinued operations                              | .50                        | .01                     
|Net income (loss) applicable to common shares                    | $	.37                      | $	(.27)                 
|                                                                 |                            |                         
|**Dividends declared per common share**                          | $	.17                      | $	.17                   
|                                                                 |                            |                         
|**Weighted average number of common shares outstanding	-	basic** | 19,538                     | 19,404                  
|**- 	diluted**                                                   | 19,538                     | 19,404                  







*****Index***ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY**

**(UNAUDITED)**

|                                             |           |            |                        |                       |              | Accumulated   |           
|-------------------------------------------- | --------- | ---------- | ---------------------- | --------------------- | ------------ | ------------- | ----------
|                                             |           | Class A    |                        |                       |              | Distributions |           
|                                             |           | Cumulative |                        | Total Paid-in Capital | In Excess Of | Treasury     
|                                             |           | Preferred  | Common Shares          | Paid-In               | Unearned     | Accumulated   | Shares    
|(In thousands, except share amounts)         | Total     | Shares     | (at $.10 stated value) | Capital               | Compensation | Net Income    | (at cost) 
|                                             |           |            |                        |                       |              |               |           
|Balance, December 31, 2003                   | $	121,428 | $	56,250   | $	2,300                | $	279,354             | $	(267)      | $	(184,436)   | $	(31,773)
|Comprehensive income:                        |           |            |                        |                       |              |               |           
|Net income                                   | 7,487     | -          | -                      | -                     | -            | 7,487         | -         
|Total comprehensive income                   | 7,487     | -          | -                      | -                     | -            | 7,487         | -         
|Amortization of unearned compensation        | 136       | -          | -                      | -                     | 136          | -             | -         
|Forfeiture of 1,970 restricted common shares | (1)       | -          | -                      | 7                     | 14           | -             | (22)      
|Issuance of 66,889 restricted common shares  |           |            |                        |                       |              |               |           
|from treasury shares                         | 41        | -          | -                      | (203)                 | (508)        | -             | 752       
|Purchase of 8,756 treasury shares            | (74)      | -          | -                      | -                     | -            | -             | (74)      
|Issuance of 106,000 common shares for stock  |           |            |                        |                       |              |               |           
|option exercises from treasury shares        | 871       | -          | -                      | (309)                 | -            | -             | 1,180     
|Common share dividends declared              | (6,678)   | -          | -                      | -                     | -            | (6,678)       | -         
|Preferred share dividends declared           | (2,742)   | -          | -                      | -                     | -            | (2,742)       | -         
|Balance, June 30, 2004                       | $	120,468 | $	56,250   | $	2,300                | $	278,849             | $	(625)      | $	(186,369)   | $	(29,937)





*****Index***ASSOCIATED ESTATES REALTY CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE SIX MONTH PERIODS ENDED JUNE 30,**

**(UNAUDITED)**

|                                                                                         | 2004     | 2003     
|---------------------------------------------------------------------------------------- | -------- | ---------
|(In thousands)                                                                           |          |          
|Cash flow from operating activities:                                                     |          |          
|Net income (loss)                                                                        | $	7,487  | $	(7,866)
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |          |          
|Depreciation and amortization                                                            | 16,581   | 17,443   
|Loss on fixed asset replacements write-off                                               | 127      | 126      
|Minority interest in operating partnership                                               | 32       | 43       
|Gain on disposition of property                                                          | (9,682)  | -        
|Equity in net loss of joint ventures                                                     | 426      | 418      
|Capitalized costs on investment in joint ventures                                        | -        | (24)     
|Earnings distributed from joint ventures                                                 | 341      | 13       
|Net change in assets and liabilities:                                                    |          |          
|- Accounts and notes receivable                                                          | (767)    | 1,536    
|- Accounts and notes receivable of affiliates and joint ventures                         | (1,601)  | (72)     
|- Accounts payable and accrued expenses                                                  | 1,857    | (1,495)  
|- Other operating assets and liabilities                                                 | 1,236    | 1,684    
|- Restricted cash                                                                        | (417)    | 3,099    
|- Funds held for non-owned managed properties                                            | 617      | (601)    
|- Funds held for non-owned managed properties of affiliates                              |          |          
|and joint ventures                                                                       | 719      | (33)     
|Total adjustments                                                                        | 9,469    | 22,137   
|Net cash flow provided by operations                                                     | 16,956   | 14,271   
|Cash flow from investing activities:                                                     |          |          
|Recurring fixed asset additions                                                          | (3,018)  | (3,059)  
|Investment/revenue enhancing and/or non-recurring fixed asset additions                  | (2,304)  | (1,766)  
|Proceeds from sale of operating property                                                 | 9,593    | -        
|Deposit of sale proceeds to escrow account                                               | (9,593)  | -        
|Purchase of operating partnership units                                                  | -        | (211)    
|Joint venture distribution from sales proceeds                                           | -        | 475      
|Net cash flow used for investing activities                                              | (5,322)  | (4,561)  
|Cash flow from financing activities:                                                     |          |          
|Principal payments on secured debt                                                       | (20,257) | (8,007)  
|Payment of debt procurement costs                                                        | -        | (54)     
|Proceeds from secured debt                                                               | 19,947   | 9,268    
|Line of credit borrowings                                                                | 21,000   | 27,650   
|Line of credit repayments                                                                | (24,000) | (27,650) 
|Common share dividends paid                                                              | (6,650)  | (6,618)  
|Preferred share dividends paid                                                           | (2,742)  | (2,743)  
|Operating partnership distributions paid                                                 | (32)     | (47)     
|Issuance of treasury shares related to exercise of stock options                         | 871      | -        
|Other (purchase) issue of treasury shares - net                                          | (74)     | (66)     
|Net cash flow used for financing activities                                              | (11,937) | (8,267)  
|(Decrease) increase in cash and cash equivalents                                         | (303)    | 1,443    
|Cash and cash equivalents, beginning of period                                           | 2,212    | 900      
|Cash and cash equivalents, end of period                                                 | $	1,909  | $	2,343  
|Supplemental disclosure of cash flow information:                                        |          |          
|Dividends declared but not paid                                                          | $	3,339  | $	3,309  
|Adjustment for purchase of minority interest                                             | -        | 589      
|Cash paid for interest (excluding capitalized interest)                                  | 19,615   | 20,175   
|Fixed asset replacement and other write-offs                                             | 1,035    | 960      
|Costs related to prepayment of debt                                                      | -        | 339      





*****Index*******ASSOCIATED ESTATES REALTY CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**



**1.**	**BASIS OF PRESENTATION AND ACCOUNTING POLICIES**

**Business**

Associated Estates Realty Corporation (the "Company") is a self-administered and self-managed equity real
estate investment trust ("REIT") which specializes in multifamily property management, advisory, development,
acquisition, disposition, operation and ownership activities.  The Company and its affiliates receive certain property
and asset management fees, acquisition, disposition and incentive fees, loan origination and consultation fees, and
mortgage servicing fees.  MIG II Realty Advisors, Inc. ("MIG"), a subsidiary of the Company, is a registered
investment advisor and serves as a real estate advisor to pension funds.  The Company owns three taxable REIT
subsidiaries (previously the Company had four taxable REIT subsidiaries, however, effective December 31, 2003, the
Company merged two taxable REIT subsidiaries into one) which provide management and other services for the
Company and third parties.  These corporations are referred to herein as "Service Companies."

As of June 30, 2004, the Company owns or property manages 105 apartment communities in twelve states
consisting of 23,563 units.  The Company wholly owns, either directly or through subsidiaries, or holds ownership
interests in 77 of the 105 apartment communities containing 17,854 units in ten states.  Thirteen of those owned
or partially owned apartment communities, consisting of 1,354 units, are affordable housing communities.  The
Company, or one of its subsidiaries, also property manages 28 communities in which it does not have an ownership
interest, consisting of 5,709 units.  Additionally, the Company property manages one commercial property containing
approximately 270,000 square feet and asset manages a 186-unit apartment community and one commercial
property containing approximately 145,000 square feet.

**Basis of Presentation**

The accompanying unaudited financial statements have been prepared by the Company's management in
accordance with generally accepted accounting principles ("GAAP") for interim financial information and applicable
rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all
adjustments (consisting only of normal and recurring adjustments) considered necessary for a fair presentation have
been included.  The reported results of operations are not necessarily indicative of the results that may be expected
for the full year.  These financial statements should be read in conjunction with the audited financial statements and
accompanying notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

**Stock Based Employee Compensation**

The Company uses the intrinsic value method in accordance with the Accounting Principles Board Opinion
No. 25 ("APB No. 25") to account for stock-based employee compensation arrangements.  Under this method, the
Company does not recognize compensation cost for stock options when the option exercise price equals or exceeds
the market value of the common shares on the date of the grant.  Restricted stock grants are recorded initially as
a reduction to shareholders' equity and recognized as compensation expense over the vesting periods based upon
the market value on the date of the grant.  The amount of compensation recorded as a reduction to shareholders'
equity related to restricted stock grants was $625,000 and $267,000 at June 30, 2004 and December 31, 2003,
respectively.  If the fair value method had been applied to the stock option grants as prescribed by Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the fair values of
the options granted at the grant dates would be recognized as compensation expense over the vesting periods, and
the Company's net income (loss) and earnings per share for the periods ended June 30, 2004 and 2003 would have
been as follows:

|                                                        | For the three months | For the six months
|------------------------------------------------------- | -------------------- | ------------------
|                                                        | ended June 30,       | ended June 30,    
|(In thousands, except per share data)                   | 2004                 | 2003              
|                                                        |                      |                   
|Net income (loss)                                       | $	8,552              | $	(3,884)         
|Total stock compensation cost recognized                | 74                   | 65                
|Total stock compensation cost had SFAS 123 been adopted | (108)                | (94)              
|Proforma net income (loss) had SFAS 123 been adopted    | $	8,518              | $	(3,913)         
|                                                        |                      |                   
|Net income (loss) applicable to common shares:          |                      |                   
|Net income (loss) as reported                           | $	7,181              | $	(5,256)         
|Total stock compensation cost recognized                | 74                   | 65                
|Total stock compensation cost had SFAS 123 been adopted | (108)                | (94)              
|Pro forma net income (loss) had SFAS 123 been adopted   | $	7,147              | $	(5,285)         
|                                                        |                      |                   
|Income (loss) per common share - Basic                  |                      |                   
|Net income (loss) as reported                           | $	.37                | $	(.27)           
|Total stock compensation cost recognized                | -                    | -                 
|Total stock compensation cost had SFAS 123 been adopted | -                    | (.01)             
|Pro forma net income (loss) had SFAS 123 been adopted   | $	.37                | $	(.28)           
|                                                        |                      |                   
|Income (loss) per common share - Diluted                |                      |                   
|Net income (loss) as reported                           | $	.37                | $	(.27)           
|Total stock compensation cost recognized                | -                    | -                 
|Total stock compensation cost had SFAS 123 been adopted | -                    | (.01)             
|Pro forma net income (loss) had SFAS 123 been adopted   | $	.37                | $	(.28)           

**Derivative Instruments and Hedging Activity**

****On June 30, 2004, the Company terminated a reverse interest rate swap that had a notional amount of
$17,200,000.  The Company received a termination payment of $36,000, which the Company recorded as a credit
to interest expense since the hedged fixed rate loan, on which the swap was executed, was prepaid on June 30,
2004.  See Note 3 for further information regarding the prepayment of the fixed rate loan.****

**Recent Accounting Pronouncements**

In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus regarding Issue 03-6,
"Participating Securities and the Two-Class Method under FAS 128."  Issue 03-6 addresses a number of questions
regarding the computation of earnings per share ("EPS") by companies that have issued securities other than
common stock that participate in dividends and earnings of the issuing entity.  Such securities are contractually
entitled to receive dividends when and if the entity declares dividends on common stock.  Issue 03-6 also provides
further guidance in applying the two-class method of calculating EPS once it is determined that a security is
participating.  The two-class method is an earnings allocation formula that determines earnings per share for each
class of common stock and participating security according to dividends declared (or accumulated) and participation
rights in undistributed earnings.  Issue 03-6 is effective for the period ended June 30, 2004, and should be applied
by restating prior period earnings per share.  The Company has determined that this consensus has no impact on
the Company's EPS calculations.

In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities."  In
December 2003, the FASB issued a revision of Interpretation No. 46 which superceded the January 2003 issuance.
This Interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," addresses
consolidation by business enterprises of variable interest entities in which the equity investment at risk is not
sufficient to permit the entity to finance its activities without additional subordinated financial support from other
parties or in which the equity investors do not have the characteristics of a controlling financial interest.  This
Interpretation requires a variable interest entity to be consolidated by a company that is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns
or both.  The Interpretation also requires disclosures about variable interest entities that the company is not required
to consolidate, but in which it has a significant variable interest.  The consolidation requirements of this Interpretation
apply immediately to variable interest entities created after January 31, 2003 and for the consolidated financial
statements for periods ending after March 15, 2004 for all variable interest entities.  The Company has adopted the
provisions of this Interpretation effective January 1, 2004.  The Company has completed the evaluation of all of its
legal entities in order to determine whether the entities are variable interest entities and whether the Company is
considered to be the primary beneficiary or whether it holds a significant variable interest.  The Company has
determined that certain legal entities, which are currently included in the Company's consolidated financial
statements, are variable interest entities.  The Company is the primary beneficiary of these entities and therefore
will continue to include them in its consolidated financial statements.

**Classification of Fixed Asset Additions**

The Company considers recurring fixed asset additions to a property to be capital expenditures made to
replace worn out assets so as to maintain the property's value.  The Company considers investment/revenue
enhancing and/or non-recurring fixed assets to be capital expenditures if such improvements increase the value of
the property and/or enable the Company to increase rents.  The Company considers acquisition and development
fixed asset additions to be for the purchase of, or construction of, new properties to be added to the Company's
portfolio.

**Reclassifications**

Certain reclassifications have been made to the 2003 financial statements to conform to the 2004
presentation.

**2.	SALE OF PROPERTIES**

The Company reports, as discontinued operations, the results of operations and gain/loss related to the sale
of real estate assets in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets."  Real estate assets that are classified as "held for sale" are also reported as discontinued operations.  The
Company generally classifies properties as "held for sale" when all significant contingencies surrounding the closing
have been resolved.  In most transactions, these contingencies are not satisfied until the actual closing of the
transaction.

On May 10, 2004, the Company completed the sale of a Market Rate property located in Northeast Ohio.
The sale price was $10.0 million and the Company recorded a gain of $9.7 million which is included in "Income from
discontinued operations" in the Consolidated Statements of Operations.  The results of operations for this property
are also included in "Income from discontinued operations" for all periods presented.  The proceeds from this sale
were deposited directly to escrow with a qualified intermediary as the Company intends to treat this sale as a
Deferred Like-Kind Exchange under Section 1031 of the Internal Revenue Code.  See Note 11 for information
regarding the use of a principal portion of these proceeds.

On April 17, 2003, the Company and its joint venture partner completed the sale of a Market Rate property
located in Northeast Ohio in which the Company was a 50.0% partner.  The sale price was $990,000.  The
Company's proportionate share of the gain was $450,000 which is included in "Equity in net loss of joint ventures"
in the Consolidated Statements of Operations.

The following chart summarizes "Income from discontinued operations" for the three and six months ended
June 30, 2004 and 2003:

|                                                | For the three months | For the six months
|----------------------------------------------- | -------------------- | ------------------
|                                                | ended June 30,       | ended June 30,    
|                                                | 2004                 | 2003              
|(In thousands)                                  |                      |                   
|Total property revenues                         | $	264                | $	534             
|Total revenues                                  | 264                  | 534               
|                                                |                      |                   
|Property operating and maintenance expense      | (213)                | (294)             
|Real estate asset depreciation and amortization | (1)                  | (5)               
|Interest expense                                | -                    | -                 
|Total expenses                                  | (214)                | (299)             
|                                                |                      |                   
|Operating income                                | 50                   | 235               
|Gain on disposition of property                 | 9,682                | -                 
|**Income from discontinued operations**         | $	9,732              | $	235             

**3.	DEBT**

******Conventional Mortgage Debt**

On June 30, 2004, the Company prepaid a $17.2 million nonrecourse conventional loan encumbering a
Market Rate property located in Northeast Ohio with a fixed interest rate of 6.55% and obtained a new nonrecourse
conventional loan secured by this same property in the amount of $20.0 million.  The Company has the right to elect
LIBOR plus 2.0% or the Prime Loan Rate as the interest rate from time to time on the new loan.  The Company
currently has elected to pay interest at LIBOR plus 2.0% for a twelve month period.  The rate at June 30, 2004 was
4.38%.  This loan matures on June 30, 2006 and requires payments of interest only until maturity.  The Company
has two one-year options to extend this loan, each of which is conditioned upon achieving a satisfactory debt service
coverage ratio at the property.  During the extension periods, the Company must make principal payments based
upon a 20-year amortization schedule in addition to payments of interest as provided above.  Additionally,the
Company executed a termination agreement on a reverse interest rate swap that had originally been executed to
hedge the fair market value of the prepaid loan.  See "Derivative Information and Hedging Activity" in Note 1 for further
information regarding the swap.

On May 1, 2003, the Company repaid a $2.7 million nonrecourse loan encumbering a Market Rate property
located in Michigan.  The interest rate on this loan was 7.50%.  On June 30, 2003, the Company obtained a new
loan secured by this same property in the amount of $3.9 million.  The Company has the right to elect LIBOR plus
2.0% or the Prime Loan Rate as the interest rate from time to time on the new loan.  The Company has currently
elected to pay interest at LIBOR plus 2.0%.  The rate at June 30, 2004 was 3.17%. This loan matures on July 1,
2006 and requires payments of only interest until maturity.  The Company has two one-year options to extend this
loan, each of which are conditioned upon achieving a satisfactory debt service coverage ratio at the property.  During
the extension periods, the Company must make principal payments based upon a 20-year amortization schedule
in addition to payments of interest as provided above.

On April 22, 2003, the Company prepaid a $2.3 million nonrecourse loan encumbering a Market Rate
property located in Northeast Ohio.  The interest rate on this loan was 9.63%.  The Company incurred a prepayment
penalty of approximately $330,000 related to this prepayment, which is included in "Interest expense" in the
Company's Consolidated Statements of Operations.  On May 12, 2003, the Company obtained a new loan secured
by this same property in the amount of $5.5 million.  The Company has the right to elect LIBOR plus 2.0% or the
Prime Loan Rate as the interest rate from time to time on the new loan.  The Company has currently elected to pay
interest at LIBOR plus 2.0%.  The rate at June 30, 2004 was 4.07%.  This loan matures on June 1, 2006 and requires
payments of only interest until maturity.  The Company has two one-year options to extend this loan, each of  which
are conditioned upon achieving a satisfactory debt service coverage ratio at the property.  During the extension
periods, the Company must make principal payments based upon a 20-year amortization schedule in addition to
payments of interest as provided above.

**Lines of Credit**

The Company has a $15.0 million secured line of credit with a maturity date of July 31, 2006.  There were
borrowings of $2.0 million and $5.0 million outstanding on this line of credit at June 30, 2004 and December 31,
2003, respectively.  Borrowings under this line of credit bear interest at the rate of LIBOR plus 1.50% or 3.88% at
June  30, 2004, and are currently limited to $10.1 million.

The Company also has a $14.0 million line of credit.  There were no regular borrowings outstanding under
this line at June 30, 2004 or December 31, 2003.  Approximately $1.6 million of this line of credit is reserved
exclusively for derivative transactions.  The remaining $12.4 million is available for regular borrowings and letter of
credit transactions.  At June 30, 2004, letters of credit totaling $2.4 million have been issued against this line.
Borrowings under this line of credit bear interest at either the prime rate or LIBOR plus 2.0% at the Borrower's option.
This line of credit matures December 31, 2004.

**4.**	**GOODWILL AND OTHER INTANGIBLE ASSETS**

In June 1998, the Company merged with MIG Realty Advisors, Inc. and, as a result, recorded  goodwill and
an intangible asset subject to amortization.  The intangible asset has been fully amortized and therefore has a value
of zero at June 30, 2004. This intangible asset represented asset advisory and property management contracts and
was the only intangible asset recorded on the Company's books during the reporting periods covered.  The asset
advisory and property management contracts are attributed to properties owned by pension fund clients and are
generally terminable upon 30 days notice.  The intangible asset and goodwill have been allocated fully to the
Management and Service Operations Segment.

On March 17, 2003, MIG was directed by one of its advisory clients to initiate the sale of all six of the client's
real estate investments.  Two of the six assets were sold in 2003 and two were sold during 2004.  Because of the
sale of these investments, the Company will no longer receive the property and asset management fee revenue
associated with them.

In November 2003, the Company was informed by another of its advisory clients that it intended to sell the
four commercial properties for which MIG provided asset management services.  MIG manages or advises both
commercial and multifamily properties for this client.  Two of these properties were sold during 2003 and one was
sold during 2004.  Because of the sale of these investments, the Company will no longer receive the asset
management fee revenue associated with them.

On April 19, 2004, MIG was informed by another of its advisory clients that it intended to transfer its
business to another advisor.  The Company anticipates the transfer to be effective during the fourth quarter of 2004.
As a result of the transfer of these investments, the Company will no longer receive the fee revenue associated with
them.

Information on the intangible asset is as follows:

**Intangible Asset Subject to Amortization**

|                                          |              |           | Net         
|----------------------------------------- | ------------ | --------- | ------------
|                                          |              |           | Intangible  
|                                          | Intangible   | Deferred  | Asset       
|                                          | Subject to   | Tax       | Subject to  
|(In thousands)                            | Amortization | Liability | Amortization
|Intangible Asset Subject to Amortization: |              |           |             
|Gross carrying amount                     | $	5,405      | $	(625)   | $	4,780     
|Less: Accumulated amortization            | (5,093)      | 625       | (4,468)     
|Less: Impairment write down               | (312)        | -         | (312)       
|Balance as of June 30, 2004               | $	-          | $	-       | $	-         

The net amount of the intangible asset amortization expense recorded was $78,000 for both of the three
month periods ended June 30, 2004 and 2003, and $156,000 for both of the six month periods ended June 30, 2004
and 2003.

**Goodwill**

The carrying amount of goodwill at June 30, 2004 was $1.7 million.  In addition to the annual review of
goodwill completed during the three months ended March 31, 2004, the Company reviewed goodwill during the three
months ended June 30, 2004 due to the above mentioned notice of transfer received on April 19, 2004.  In performing
this analysis, the Company uses a multiple of revenues to the range of potential alternatives and assigns a
probability of the various alternatives under consideration by management.  Based on its analysis, the Company
determined that the goodwill was not impaired as of June 30, 2004.  Therefore, there were no changes to the carrying
amount of goodwill during the six months ended June 30, 2004.  Should the estimates used to determine alternatives
or the probabilities of the occurrence thereof change, an impairment may result which could materially impact the
results of operations of the Company.

**5.**	**TRANSACTIONS WITH AFFILIATES AND JOINT VENTURES**

The Company provides management and other services to (and is reimbursed for certain expenses incurred
on behalf of) certain non-owned properties in which the Company's Chief Executive Officer and/or other related parties
have varying ownership interests.  The entities which own these properties, as well as other related parties, are
referred to as "affiliates."  The Company or one of its subsidiaries or Service Companies also provides similar
services to joint venture properties.

In the normal course of business, the Company has advanced funds on behalf of affiliates and joint ventures
and holds funds for the benefit of affiliates and joint ventures.

The Company holds two notes of equal amounts which are receivable from its Chief Executive Officer
aggregating $3.4 million, both of which mature May 1, 2005.  One of the notes is partially secured by 150,000 of the
Company's common shares; the other note is unsecured.  For the six months ended June 30, 2004 and 2003, the
interest rates charged on these notes were approximately 2.9% and 3.1%, respectively.

At June 30, 2004, Merit Painting Services ("Merit"), a subsidiary of the Company, was retained by JAS
Construction, Inc. ("JAS") under subcontracts for the performance of certain rehabilitation work at seven properties
owned by an unrelated party.  JAS is owned by the son of the Company's Chief Executive Officer.  The total amounts
of the subcontracts are yet to be determined because the contract prices are based upon per unit charges and the
number of units where work is to be performed is currently unknown.  During the three and six months ended June
30, 2004, $2.4 million and $4.2 million, respectively, of revenue in connection with these contracts was reported in
painting revenues in the Company's Consolidated Statements of Operations.

Summarized affiliate and joint venture transaction activity was as follows:

|                                        | For the three months | For the six months
|--------------------------------------- | -------------------- | ------------------
|                                        | ended June 30,       | ended June 30,    
|(In thousands)                          | 2004                 | 2003              
|                                        |                      |                   
|Property management fee and other       |                      |                   
|miscellaneous service revenues          | $	228                | $	466             
|                                        |                      |                   
|Painting service revenues               | 2,393                | 298               
|                                        |                      |                   
|Expenses incurred on behalf             |                      |                   
|of and reimbursed by (1)                | 499                  | 993               
|                                        |                      |                   
|Interest income on Notes due from Chief |                      |                   
|Executive Officer                       | 25                   | 25                

(1)*Primarily payroll and employee benefits, reimbursed at cost.*

|                                                                  | June 30,           | December 31,
|----------------------------------------------------------------- | ------------------ | ------------
|(In thousands)                                                    | 2004               | 2003        
|                                                                  |                    |             
|Accounts and notes receivable from affiliates and joint ventures: |                    |             
|Notes and interest receivable from Chief Executive Officer        | $	3,358            | $	3,358     
|Funds advanced                                                    | 526                | 253         
|JAS Construction, Inc.                                            | 1,853              | 501         
|Property management fees, insurance and                           |                    |             
|miscellaneous receivables                                         | 1,231              | 1,256       
|Total due from affiliates and joint ventures                      | $	6,968            | $	5,368     
|                                                                  |                    |             
|Funds held on behalf of affiliates and joint ventures             | $            2,907 | $	2,189     

**6.	SHARES**

During the six months ended June 30, 2004, the Company issued 66,889 restricted common shares from
treasury shares.  Of these shares, 51,010 vest three years from the date of grant and the remaining 15,879 shares
vest in equal increments over three years from the date of grant.  The Company's policy on the reissuance of treasury
shares is to account for the issuance on the first-in first-out method.  At June 30, 2004, the Company held 3,354,919
treasury shares at a cost of $29.9 million.

**7.	EARNINGS PER SHARE**

Earnings per share ("EPS") has been computed pursuant to the provisions of SFAS No. 128, "Earnings per
Share."  There were 1.9 million and 2.3 million options to purchase common shares outstanding at June 30, 2004
and 2003, respectively.  None of the options were included in the calculation of diluted earnings per share for the
periods presented as their inclusion would be antidilutive to the net loss applicable to common shares from
continuing operations.

The exchange of operating partnership minority interests into common shares was also not included in the
computation of diluted EPS because the Company plans to settle these OP units in cash.



**8.	INTERIM SEGMENT REPORTING**

The Company has four reportable segments: (1) Acquisition/Disposition Multifamily Properties; (2) Same
Store Market Rate ("Market Rate") Multifamily Properties; (3) Affordable Housing Multifamily Properties; and (4)
Management and Service Operations.  The Company has identified these segments based upon how management
makes decisions regarding resource allocation and performance assessment. The Acquisition/Disposition properties
represent acquired or developed properties which have not yet reached stabilization (the Company considers a
property stabilized when its physical occupancy reaches 93.0% or one year following the purchase or delivery of the
final units, whichever occurs first), and properties that have been sold or are classified as "held for sale" in
accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  The Market Rate
properties are same store conventional multifamily residential apartments.  The Affordable Housing properties are
multifamily properties for which the rents are subsidized and certain aspects of the operations are regulated by HUD
pursuant to Section 8 of the National Housing Act of 1937.  The Management and Service Operations provide
management and advisory services to the Acquisition/Disposition, Market Rate and Affordable Housing properties
which are owned by the Company, as well as to clients and properties not owned by the Company.  All of the
Company's segments are located in the United States.

The accounting policies of the reportable segments are the same as those described in the "Basis of
Presentation and Significant Accounting Policies" in the Company's Form 10-K for the year ended December 31,
2003.  The Company evaluates the performance of its reportable segments based on Net Operating Income ("NOI").
NOI is determined by deducting property operating and maintenance expenses from total revenues for the
Acquisition/Disposition (excluding amounts classified as discontinued operations), Market Rate and Affordable
Housing segments and deducting direct property management and service companies expenses and painting
services expenses from total revenues for the Management and Service Operations segment.  The Company
considers NOI to be an appropriate supplemental measure of its performance because it reflects the operating
performance of its real estate portfolio and management and service companies at the property and management
and service company level and is used to assess regional property level performance.  NOI should not be considered
(i) as an alternative to net income (determined in accordance with GAAP), (ii) as an indicator of the Company's
financial performance, (iii) as cash flow from operating activities (determined in accordance with GAAP) or (iv) as a
measure of the Company's liquidity; nor is it necessarily indicative of sufficient cash flow to fund all of the Company's
needs.  Certain other real estate companies may define NOI in a different manner.

Information on the Company's segments for the three and six months ended June 30, 2004 and 2003 is as
follows:

|                                              | For the three months ended June 30, 2004
|--------------------------------------------- | ----------------------------------------
|                                              |                                         
|                                              | Acquisition/                            
|(In thousands)                                | Disposition                             
|                                              |                                         
|Total segment revenues                        | $	-                                     
|Elimination of intersegment revenues          | -                                       
|Consolidated revenues                         | -                                       
|                                              |                                         
|Equity in net income (loss) of joint ventures | 51                                      
|                                              |                                         
|Income from discontinued operations           | 9,732                                   
|                                              |                                         
|*NOI                                          | -                                       
|                                              |                                         
|Total assets                                  | -                                       

*Intersegment revenues and expenses have been eliminated in the computation of NOI for each of the segments.

|                                              | For the six months ended June 30, 2004
|--------------------------------------------- | --------------------------------------
|                                              |                                       
|                                              | Acquisition/                          
|(In thousands)                                | Disposition                           
|                                              |                                       
|Total segment revenues                        | $	 -                                  
|Elimination of intersegment revenues          | -                                     
|Consolidated revenues                         | -                                     
|                                              |                                       
|Equity in net income (loss) of joint ventures | 50                                    
|                                              |                                       
|Income from discontinued operations           | 9,925                                 
|                                              |                                       
|*NOI                                          | -                                     
|                                              |                                       
|Total assets                                  | -                                     

*Intersegment revenues and expenses have been eliminated in the computation of NOI for each of the segments.

|                                              | For the three months ended June 30, 2003
|--------------------------------------------- | ----------------------------------------
|                                              |                                         
|                                              | Acquisition/                            
|(In thousands)                                | Disposition                             
|                                              |                                         
|Total segment revenues                        | $	 -                                    
|Elimination of intersegment revenues          | -                                       
|Consolidated revenues                         | -                                       
|                                              |                                         
|Equity in net income (loss) of joint ventures | 299                                     
|                                              |                                         
|Income from discontinued operations           | 235                                     
|                                              |                                         
|*NOI                                          | -                                       
|                                              |                                         
|Total assets                                  | 691                                     

*Intersegment revenues and expenses have been eliminated in the computation of NOI for each of the segments.

|                                              | For the six months ended June 30, 2003
|--------------------------------------------- | --------------------------------------
|                                              |                                       
|                                              | Acquisition/                          
|(In thousands)                                | Disposition                           
|                                              |                                       
|Total segment revenues                        | $	 -                                  
|Elimination of intersegment revenues          | -                                     
|Consolidated revenues                         | -                                     
|                                              |                                       
|Equity in net income (loss) of joint ventures | 191                                   
|                                              |                                       
|Income from discontinued operations           | 426                                   
|                                              |                                       
|*NOI                                          | -                                     
|                                              |                                       
|Total assets                                  | 691                                   

*Intersegment revenues and expenses have been eliminated in the computation of NOI for each of the segments.

A reconciliation of total segment NOI to total consolidated net income (loss) for the three and six months
ended June 30, 2004 and 2003 is as follows:

|                                           | For the three months | For the six months
|------------------------------------------ | -------------------- | ------------------
|                                           | ended June 30,       | ended June 30,    
|(In thousands)                             | 2004                 | 2003              
|                                           |                      |                   
|Total NOI for reportable segments          | $	 19,198            | $	16,891          
|Depreciation and amortization              | (8,349)              | (8,745)           
|General and administrative expense         | (1,879)              | (1,767)           
|Interest expense                           | (9,966)              | (10,413)          
|Equity in net loss of joint ventures       | (168)                | (64)              
|Minority interest in operating partnership | (16)                 | (21)              
|Income from discontinued operations        | 9,732                | 235               
|Consolidated net income (loss)             | $	8,552              | $	(3,884)         

******9.	CONTINGENCIES**

***Legal Proceedings*****

The Company is subject to legal proceedings, lawsuits and other claims, including proceedings by
government authorities (collectively "Litigation").  Litigation is subject to uncertainties and outcomes are difficult to
predict.  Consequently, the Company is unable to estimate ultimate aggregate monetary liability or financial impact
with respect to the Litigation matters described in the following paragraphs as of June 30, 2004 and no accruals have
been made for these matters.  The Company believes that other Litigation will not have a material adverse impact
on the Company after final disposition.

***Pending Lawsuits*****

On August 10, 2001, Fluor Daniel, Inc. ("FDI") filed a Demand For Arbitration with the American Arbitration
Association ("AAA") arising out of construction services provided by FDI to MIG/Orlando Development, LTD ("MOD"),
an affiliate of the Company, pursuant to a construction contract between FDI and MOD for the construction of a 460-unit apartment community located in Orlando, Florida.  FDI claims that it suffered damages of $1.6 million in
performing the work because of the owner's breach of the construction contract.  Both MOD and the Company were
named as party defendants in this litigation; however, during 2002, the Company was dismissed as a party to this
litigation.  MOD filed a counterclaim with the AAA against FDI seeking liquidated damages of $1.9 million arising
out of FDI's failure to complete the project in a timely manner as required by the terms of the construction contract.
MOD acquired this project in 1998 as part of the Company's acquisition of MIG Realty Advisors, Inc. from a group
that included persons who were officers and directors of the Company, which group could have a material interest
adverse to the Company because of indemnification obligations owing to the Company in connection with this
litigation.  The arbitration proceedings in this matter have been temporarily stayed pending a renewed mediation
effort.  Should such mediation efforts fail, the Company intends to vigorously defend this claim and pursue its
counterclaim, but cannot predict the final outcome of this dispute.

On or about April 14, 2002, Melanie and Kyle Kopp commenced an action against the Company in the
Franklin County, Ohio Court of Common Pleas seeking undetermined damages, injunctive relief and class action
certification.  This case arose out of the Company's Suredeposit program.  This program allows cash short
prospective residents to purchase a bond in lieu of paying a security deposit.  The bond serves as a fund to pay
those resident obligations that would otherwise have been funded by the security deposit.  Plaintiffs allege that the
non-refundable premium paid for the bond is a disguised form of security deposit, which is otherwise required to be
refundable in accordance with Ohio's Landlord-Tenant Act.  Plaintiffs further allege that certain nonrefundable pet
deposits and other nonrefundable charges required by the Company are similarly security deposits that must be
refundable in accordance with Ohio's Landlord-Tenant Act.  On or about January 15, 2004, the plaintiffs filed a motion
for class certification.  The Company subsequently filed a motion for summary judgment.  Both motions are pending
before the Court.  The Company intends to vigorously defend itself against these claims.

On or about April 29, 2003, Housing Advocates, Inc., filed a lawsuit against the Company and others in the
Cuyahoga County, Ohio Court of Common Pleas.  The complaint alleges violations of handicap design laws in
connection with the development of the Company's Residence at Barrington property located in Aurora, Ohio.  The
complaint seeks injunctive relief, damages and attorneys fees.  On June 2, 2004, the Company reached a tentative
settlement with the plaintiff in this litigation, the results of which did not have a material impact on the results of
operations for the three or six months ended June 30, 2004.

On or about May 21, 2004, the Ohio Civil Rights Commission filed a lawsuit against a subsidiary of the
Company in the Portage County, Ohio Court of Common Pleas.  The complaint alleges violations of handicap design
laws in connection with the development of the Village of Western Reserve property located in Streetsboro, Ohio.
The complaint seeks injunctive relief, damages and attorneys fees.

***Government Investigations***

On or about August 7, 2002, the Maryland Attorney General served the Company with a subpoena seeking
information concerning certain of the Company's leasing practices in connection with the Company's Maryland
properties.  The subpoena seeks extensive information going back a number of years, including information about
the Company's Suredeposit programs and certain non-refundable deposits.  The Company understands that other
landlords operating in Maryland have been served with similar subpoenas.  Presently, the Maryland Attorney General
has not asserted any claims against the Company, however, the Company is aware of at least one instance where
the Maryland Attorney General brought an action against another landlord operating multifamily properties in
Maryland alleging that such landlord was engaging in leasing practices contrary to applicable law.  The Company
is attempting to cooperate with the Maryland Attorney General.

On or about December 22, 2003, the Montgomery County, Maryland Office of Landlord Tenant Affairs
commenced an investigation into possible violations of state and county Landlord-Tenant laws involving two
properties operated by the Company located in Montgomery County, Maryland.  The matters being investigated are
for the most part the same leasing practices being investigated by the Maryland Attorney General.  The Company
is attempting to cooperate with the County.

**10.	GUARANTEES**

The Company has guaranteed completion of certain improvements at the Watergate Apartments totaling
approximately $7.0 million.  This obligation was secured by a $3.5 million letter of credit.  On March 2, 2004, this
letter of credit was reduced to $1.75 million in accordance with the provisions of the original agreement.  On July 8,
2004, this letter of credit was canceled.  The Company has also guaranteed the payment of 50.0% of the  balance
or approximately $12.6 million at June 30, 2004, of the construction loan in connection with Idlewylde Apartments
Phase II, a 535-unit multifamily community located in Atlanta, Georgia which was developed by the Company and
its pension fund joint venture partner.  This loan matures December 10, 2005.  The Company has recorded no liability
in relation to this guarantee at June 30, 2004.  The Company has guaranteed the payment of 50.0% of the balance
or approximately $7.8 million at June 30, 2004, of the construction loan in connection with the development of
Courtney Chase Apartments, a 288-unit multifamily community located in Orlando, Florida which was  developed
by the Company and its pension fund joint venture partner.  This loan matures June 1, 2005, with an option to extend
the maturity for two additional years.  The Company has recorded no liability in relation to this guarantee at June
30, 2004.



**11.	SUBSEQUENT EVENTS**

***Dividends Paid***



On August 2, 2004, the Company paid a dividend of $0.17 per common share, which was declared on June
16, 2004 to shareholders of record on July 15, 2004.

***Noteholder Interest***

The Company acquired a Noteholder Interest in connection with its IPO in 1993.  The Noteholder Interest
was secured by a limited partnership interest in Winchester Hills I Apartments located in Willoughby Hills, Ohio.
The Company has declared the notes to be in default because of nonpayment of interest and principal.  On July 16,
2004, the Company accepted a 98.99% limited partnership interest in the limited partnership that owns Winchester
Hills I Apartments in full satisfaction of all obligations under the notes.  In addition, a Company subsidiary acquired
the remaining 1.001% general partnership interest in that limited partnership held by the President and CEO Jeffrey
I. Friedman and a company controlled by him.  The Company subsidiary acquired such partnership interest in return
for a promise to pay Mr. Friedman and his controlled company 1.001% of the net sale proceeds derived from any
future sale of Winchester Hills I Apartments if and when such sale occurs.  The independent members of the Board
of Directors approved the terms of the buyout.  Following such transactions, the limited partnership that owns
Winchester Hills I Apartments elected to liquidate the partnership and as a consequence title to Winchester Hills
I Apartments is now wholly vested in the Company.  The notes had originally been placed on the Company's books
at a value of zero and no interest income had been recorded relating to the notes.  The Noteholder Interest had
effectively entitled the Company to all cash flow from the property, and the Company had placed the property on its
books as a result of having full economic benefit and control of the property operations.  Therefore, there is no effect
on the Company's consolidated financial statements as a result of the transfer of the ownership interest.****

****On July 21, 2004, the Company prepaid the $2.9 million HUD insured mortgage on this property.****

***Guarantees***

****On July 8, 2004, the $1.75 million letter of credit guaranteeing the completion of certain improvements at
the Watergate Apartments was canceled.****

***Acquisitions***

****On July 16, 2004, with the principal portion of the proceeds from the sale of a Market Rate property located
in Northeast Ohio, the Company acquired its joint venture partner's interest in Courtney Chase Apartments, a
multifamily community located in Orlando, Florida, which was originally developed by the Company and its former
partner.  The Company previously had a 24.0% ownership interest in this partnership.  Consequently, as of July 16,
2004, the results of operations, financial condition and cash flows of this property will be included in the Company's
consolidated financial statements. ****

***Contract for Property Sale***

****Effective July 15, 2004, the Company entered into a contract to sell one of its Affordable Housing properties
located in Northeast Ohio.****

****

*Index*****

**ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.**

The following discussion should be read in conjunction with the consolidated financial statements and notes
thereto included in Part I, Item 1 of this report on Form 10-Q.  Historical results and percentage relationships set
forth in the Consolidated Statements of Operations contained in the consolidated financial statements, including
trends which might appear, should not be taken as indicative of future operations.  This discussion may also contain
forward-looking statements based on current judgments and current knowledge of management, which are subject
to certain risks, trends and uncertainties that could cause actual results to vary from those projected.  Accordingly,
readers are cautioned not to place undue reliance on forward-looking statements.  These forward-looking statements
are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  The
words "expects," "projects," "believes," "plans," "anticipates," and similar expressions are intended to identify
forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of the document.  Investors are cautioned that the Company's forward-looking
statements involve risks and uncertainty, including without limitation the following:

changes in economic conditions in the markets in which the Company owns and manages
properties, including interest rates, the overall level of economic activity, the availability of consumer
credit and mortgage financing, unemployment rates and other factors;

risks of a lessening of demand for the multifamily units owned or managed by the Company;

competition from other available multifamily units and change in market rental rates;

increases in property and liability insurance costs;

changes in government regulations affecting the Affordable Housing Properties and other properties
operated by the Company;

changes in or termination of contracts relating to third party management and advisory business;

inability to renew current Housing Assistance Payment ("HAP") contracts at existing rents;

weather and other conditions that might adversely affect operating expenses;

expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated
repairs, and real estate tax valuation reassessments;

inability of the Company to achieve anticipated reductions in operating expenses and increases in
revenues;

the results of litigation filed or to be filed against the Company;

risks related to the Company's joint ventures; and

risks of personal injury claims and property damage related to mold claims because of diminished
insurance coverage.

**Overview**.  The Company is engaged primarily in the ownership and operation of multifamily residential
units.  Additionally, the Company and its subsidiaries provide asset and property management services  to third party
owners of multifamily residential units for which the Company is paid fees.  Approximately 84.0% of the Company's
consolidated revenues were generated from the leasing of the owned residential units for the six months ended June
30, 2004.  Approximately 93.0% of the revenues generated by the owned properties during the six months ended
June 30, 2004 are related to Market Rate properties.  The operating performance of the properties and cash flows
from operations, particularly the Market Rate properties, have been impacted by low mortgage rates, which have
resulted in an increase in home purchases by existing and potential apartment residents, the overall weak economy
and related unemployment rates.

The Company's total rental revenue collections are impacted by a combination of rental rates, rent
concessions and occupancy levels, which the Company attempts to adjust from time to time in order to maintain
projected revenues.  Indicators that the Company uses in measuring these factors include average economic
occupancy, physical occupancy and net collected rent.  These indicators are more fully described in the Results
of Operations comparison.

For 2004, the Company expects its performance to be driven primarily by improvements in the Market Rate
portfolio.  The Company expects to increase net collected rents within a range of 1.0% to 1.5% for the year, by
focusing on reducing the amount of rent concessions while maintaining the physical occupancy levels achieved at
the end of the fourth quarter of 2003.  The Company anticipates a reduction in property operating expenses of
approximately 5.0% to 6.0%, which it expects to accomplish through continued careful management of controllable
expenses.  As a result, the Company anticipates growth in Net Operating Income ("NOI") for the Market Rate
portfolio in the range of 7.5% to 9.5% for the year 2004 as compared to the year 2003.  The Company does not
anticipate changes in acquisition, disposition or development activity in 2004 that would materially change these
expected results.

**LIQUIDITY AND CAPITAL RESOURCES**

**Cash Flows and Liquidity**.   Significant sources and uses of cash in the six months ended June 30, 2004
and 2003, respectively, are summarized as follows:

Cash Sources (Uses):

|                                                      | For the six months
|----------------------------------------------------- | ------------------
|                                                      | ended June 30,    
|(In thousands)                                        | 2004              
|                                                      |                   
|Net cash provided by operating activities             | $	16,956          
|Real estate and fixed asset additions                 | (5,322)           
|Purchase of operating partnership units               | -                 
|Contributions/distributions related to joint ventures | -                 
|(Decreases) increases in debt - net                   | (3,310)           
|Payment of debt procurement costs                     | -                 
|Cash dividends and operating partnership              |                   
|distributions paid                                    | (9,424)           
|Exercise of stock options                             | 871               
|Net cash from other financing activities              | (74)              
|Cash (decrease) increase                              | $	(303)           

The Company's primary sources of liquidity are cash flow provided by operations and short term borrowings
on the lines of credit.  Cash provided by operations for the six months ended June 30, 2004, was $17.0 million.  The
increase in cash provided by operations, compared to the same period in 2003, was primarily due to increased rental
receipts which resulted from increased occupancy and net collected rent and reductions in operating expenses.
Additionally, the Company received a net of $2.8 million cash proceeds from the refinancing of a property specific
conventional mortgage on June 30, 2004, and $871,000 from the exercise of stock options.  Cash proceeds of $9.6
million from the sale of one operating property were deposited into a restricted escrow account for the purpose of
purchasing a like asset.  (See Note 2 of the Notes to Consolidated Financial Statements presented in Part I, Item
1 of this report on Form 10-Q for further information concerning this transaction).

Significant uses of cash during the six months ended June 30, 2004 include dividends and distributions of
$9.4 million, fixed asset additions of $5.3 million, a reduction of $3.0 million on the lines of credit, and a reduction
of other debt of $3.1 million.

Cash provided by operations for the six months ended June 30, 2003 of $14.3 million was sufficient to pay
for fixed asset additions of $4.8 million and  dividends and distributions of $9.4 million.  Additionally, the Company
received funds, during the six months ended June 30, 2003, in the amount of $1.2 million from a net increase in debt
after procurement costs and $475,000 of proceeds from the sale of a joint venture property.  Operating partnership
units were purchased in the amount of $211,000 from these funds, and the remaining $1.4 million resulted in an
increase in the Company's cash balance.

At June 30, 2004, the Company had a total of $2.0 million outstanding on its two secured lines of credit, and
outstanding letter of credit of $2.4 million leaving $18.1 million available for additional borrowings.

The Company also has one Medium-Term Note in the amount of $105,000 maturing in December 2004 which
the Company intends to pay in full upon maturity.

The Company anticipates the following commitments for capital expenditures for the remainder of 2004:

**.**	$6.6 million for recurring capital expenditures.  This includes replacement of worn carpet and
appliances and property common area parking lots, roofs and similar items in accordance with the
Company's current property expenditure plan.  This commitment is expected to be funded largely
from cash flow provided by operating activities;

**.**	$1.6 million for investment/revenue enhancing expenditures.  This commitment is expected to be
funded largely from borrowings on the Company's lines of credit; and

**.**	$400,000 for non-recurring capital expenditures.  This commitment is expected to be funded largely
from cash flow provided by operating activities.

On June 16, 2004, the Company declared a dividend of $0.17 per common share which was paid on August
2, 2004 to shareholders of record on July 15, 2004.  The Company anticipates that it will continue paying quarterly
dividends and that it will sustain its current dividend rate for the remainder of 2004.

Any future multifamily property acquisitions or developments would be financed with the most appropriate
sources of capital, which may include the assumption of mortgage indebtedness, bank and other institutional
borrowings, through the exchange of properties, undistributed earnings, secured debt financings, or the issuance
of shares or units exchangeable into common shares.  The Company intends to reinvest the proceeds from any
future sales of operating properties in the acquisition of other operating properties.

The Company anticipates that it will meet its liquidity requirements for the remainder of 2004 generally
through its net cash provided by operations.  The Company believes that if net cash provided by operations is below
2004 projections, other sources, such as secured borrowings (primarily the lines of credit) and property sales'
proceeds are available and will be sufficient to meet operating requirements, capital additions, mortgage amortization
payments and the payment of dividends in accordance with REIT requirements.

While the Company currently estimates that its net cash provided by operations for 2004 should exceed
2003, certain factors could adversely impact the Company's results of operations in 2004 including, but not limited
to, less than forecasted job growth and higher than anticipated utility costs.

**Guarantees.**   The Company has guaranteed completion of certain improvements at the Watergate
Apartments totaling approximately $7.0 million.  This obligation was secured by a $3.5 million letter of credit.  On
March 2, 2004, this letter of credit was reduced to $1.75 million in accordance with the provisions of the original
agreement.  On July 8, 2004, this letter of credit was canceled.  The Company has also guaranteed the payment
of 50.0% of the balance or approximately $12.6 million at June 30, 2004, of the construction loan in connection with
Idlewylde Apartments Phase II, a 535-unit multifamily community located in Atlanta, Georgia, which was developed
by the Company and its pension fund joint venture partner.  This loan matures December 10, 2005.  The Company
has recorded no liability in relation to this guarantee at June 30, 2004.  The Company has guaranteed the payment
of 50.0% of the balance or approximately $7.8 million at June 30, 2004, of the construction loan in connection with
the development of Courtney Chase Apartments, a 288-unit multifamily community located in Orlando, Florida which
was  developed by the Company and its pension fund joint venture partner.  This loan matures June 1, 2005, with
an option to extend the maturity for two additional years.  The Company has recorded no liability in relation to this
guarantee at June 30, 2004.  On July 16, 2004, the Company acquired its joint venture partner's ownership interest
in this property.  In addition, the Company routinely guarantees mortgage debt of its wholly owned subsidiaries.  For
additional information regarding this acquisition, see Note 11 of the Notes to Consolidated Financial Statements
presented in Part I, Item 1 of this report on Form 10-Q.

**Off-Balance Sheet Investments and Financing Commitments.**  On June 30, 2004, the Company had
investments in three joint ventures that own a total of four multifamily apartment communities.  The operations of
these properties are similar to the operations of the Company's wholly owned portfolio.  These investments enable
the Company to exercise influence over the operations of the properties and share in their profits, while earning
additional fee income.  The Company accounts for its investments in unconsolidated joint ventures under the equity
method of accounting as the Company exercises influence, but does not control these entities.  These investments
are initially recorded at cost as investments in joint ventures and subsequently adjusted for equity in earnings and
cash contributions and distributions.  On July 16, 2004, the Company acquired its joint venture partner's ownership
interest in one property.  For additional information regarding this acquisition, see Note 11 of the Notes to
Consolidated Financial Statements presented in Part I, Item 1 of this report on Form 10-Q.

The Company has two guarantee obligations related to its joint ventures, which were previously discussed
under Guarantees.  Additionally, all of the joint ventures were encumbered by debt at June 30, 2004.  The Company's
proportionate share of this debt was $26.2 million.

***Acquisitions.***On July 16, 2004, with the principal portion of the proceeds from the sale of a Market Rate
property, as described below, the Company acquired its joint venture partner's interest in Courtney Chase
Apartments, a multifamily community located in Orlando, Florida which was developed by the Company and its
former partner.  The Company previously had a 24.0% ownership interest in this partnership.  Consequently, as of
July 16, 2004, the results of operations, financial condition, and cash flows of this property will be included in the
Company's consolidated financial statements.

**Dispositions.**   On May 10, 2004, the Company completed the sale of a Market Rate property located in
Northeast Ohio.  The sale price was $10.0 million and the Company recorded a gain of $9.7 million which is included
in "Income from discontinued operations" in the Consolidated Statements of Operations.  The results of operations
for this property are also included in "Income from discontinued operations" for all periods presented.

On July 15, 2004, the Company entered into a contract for the sale of an Affordable Housing property located
in Northeast Ohio.  The closing of the transaction is planned to occur in the fourth quarter of 2004.

**Management and Service Operations.**  In March 2003, MIG was directed by one of its clients to initiate
the sale of all of the client's real estate investments.  Two of the six properties were sold during 2003 and two were
sold during the six months ended June  30, 2004.  Because of the sale of these investments, the Company will no
longer receive the property and asset management fee revenue associated with them.  Revenue received for the
properties sold in 2004 was $39,000 for the six months ended June  30, 2004.  Revenue received for the two
remaining properties was $314,000 for the six months ended June 30, 2004.  For each property sold for this client,
the Company receives a one time disposition fee.  The Company recorded disposition fees of $233,000 during the
six months ended June 30, 2004.

In November 2003, the Company was informed by another of its advisory clients that it intended to sell the
four commercial properties for which MIG provided asset management services.  MIG property manages or advises
both commercial and multifamily properties for this client.  Two of these properties were sold during 2003 and one
was sold during the six months ended June 30, 2004.  Because of the sale of these investments, the Company will
no longer receive the asset management fee revenue associated with them.  Revenue received from the property sold
during 2004 was $13,000 for the six months ended June 30, 2004.  Revenue received for the six months ended June
30, 2004 from the remaining property to be sold was $29,000.

In November 2003, the Company entered into three new property management contracts for properties
located in Pennsylvania owned by an unrelated third party.  The Company received fee revenue of approximately
$55,000 during the six months ended June 30, 2004 from these contracts.



In February 2004, the Company entered into a fourth property management contract for a property located
in Pennsylvania owned by an unrelated third party.  The Company received fee revenue of approximately $22,000
during the six months ended June 30, 2004 from this contract.

On April 19, 2004, the Company received notice from one of MIG's pension fund clients of its intention to
transfer its business to another advisor.  Revenue recognized from this client for the six-month period ended June
30, 2004 was $234,000.  Annual revenue budgeted for this client is approximately $465,000.



On July 1, 2004, the Company entered into six additional property management contracts for properties
located in Ohio owned by an unrelated third party.  Revenues related to these contracts are anticipated to total
approximately $300,000 per year.

***RESULTS OF OPERATIONS***

***Comparison of the three and six months ended June 30, 2004 to the three and six months ended June 30,
2003*****

In the following discussion, Market Rate properties refers to the Same Store Market Rate property portfolio.
Market Rate properties represent 61 wholly owned properties.  Affordable Housing represents 12 properties subject
to HUD regulations.

Overall, the net loss from continuing operations decreased $2.9 million and $5.9 million during the three and
six month comparison periods.  These decreases were primarily attributable to a reduction in property operating and
maintenance expenses, an increase in rental revenues and an increase in the net of painting service revenues less
expenses during 2004.  The reduction in property operating and maintenance expenses was primarily due to a
decrease in real estate taxes recognized in 2004 and refunds received in 2004 for prior year real estate taxes which
resulted from successful real estate valuation appeals.  Additionally, beginning in 2003, the Company instituted
expense control measures designed to increase operating efficiencies across the Company's portfolio and focus on
the management of controllable expenses and increased preventative maintenance.  These measures helped reduce
overall property operating and maintenance costs in both comparison periods.  The increase in rental revenue was
primarily the result of an increase in physical occupancy and a decrease in concessions in the Market Rate portfolio
in both comparison periods.  The increase in the net of painting service revenues less expenses in both comparison
periods was a result of rehabilitation work done at several non-owned properties in 2004.

The following chart reflects the amount and percentage change in line items that are relevant to the changes
in overall operating performance when comparing the three and six months ended June 30,  2004 to the three and
six months ended June 30, 2003:

|                                             | Increase (decrease) | Increase (decrease)
|-------------------------------------------- | ------------------- | -------------------
|                                             | when comparing the  | when comparing the 
|                                             | three months ended  | six months ended   
|                                             | June 30, 2004 to    | June 30, 2004 to   
|                                             | June 30, 2003       | June 30, 2003      
|(Amounts in thousands)                       |                     |                    
|Rental revenue                               | $	249               | 0.7%               
|Property management fees and reimbursements  | (113)               | (4.0)%             
|Asset management fees                        | (219)               | (50.2)%            
|Asset disposition fees                       | -                   | N/A                
|Painting services revenue                    | 1,963               | 407.3%             
|Property operating and maintenance expenses: |                     |                    
|Repairs and maintenance                      | (555)               | (14.0)%            
|Real estate taxes and insurance              | (521)               | (10.4)%            
|Advertising                                  | (227)               | (33.1)%            
|Other operating expenses                     | (200)               | (11.7)%            
|Property operating and maintenance expenses  | (1,585)             | (8.8)%             
|Painting services expenses                   | 1,282               | 255.4%             
|Equity in net loss of joint ventures         | (104)               | (162.5)%           
|Income from discontinued operations          | 9,497               | N/A                
|                                             |                     |                    
|**Total revenues**                           | **2,071**           | **5.4%**           
|**Total expenses**                           | **(505)**           | **(1.6)%**         
|**(Loss) income from continuing operations** | **2,939**           | **71.4%**          

*Rental Revenues*.  Rental revenue collections are impacted by a combination of rental rates, rent
concessions and occupancy levels.  The Company measures these factors using indicators such as average
economic occupancy (potential rent less vacancies and allowances divided by potential rent), physical occupancy
(number of units occupied divided by total number of units at the end of the period), and average monthly net
collected rent per unit (gross potential rents less vacancies and allowances divided by total number of units).  This
information is presented in the following table for the three and six months ended June 30, 2004 and 2003:

|                   | For the three months ended June 30, 2004
|------------------ | ----------------------------------------
|                   | Average                                 
|                   | Economic                                
|                   | Occupancy                               
|                   |                                         
|Market Rate        | 85.3%                                   
|Affordable Housing | 99.3%                                   

|                   | For the three months ended June 30, 2003
|------------------ | ----------------------------------------
|                   | Average                                 
|                   | Economic                                
|                   | Occupancy                               
|                   |                                         
|Market Rate        | 82.8%                                   
|Affordable Housing | 99.2%                                   

|                   | For the six months ended June 30, 2004
|------------------ | --------------------------------------
|                   | Average                               
|                   | Economic                              
|                   | Occupancy                             
|                   |                                       
|Market Rate        | 85.5%                                 
|Affordable Housing | 99.0%                                 

|                   | For the six months ended June 30, 2003
|------------------ | --------------------------------------
|                   | Average                               
|                   | Economic                              
|                   | Occupancy                             
|                   |                                       
|Market Rate        | 81.6%                                 
|Affordable Housing | 99.3%                                 

The increase in rental revenue in 2004 compared to 2003 was primarily a result of the performance of the
Market Rate properties.  Average monthly net collected rent increased $6 per unit and $12 per unit during the three
and six month comparison periods for the Market Rate properties.  This increase was primarily the result of the
Company's focus during 2003 on increasing occupancy through a market-by-market property analysis.  Rental rates
were reduced in certain markets, however, increases in physical occupancy and decreases in concessions offset
the effect of the reduced rental rates on gross potential rents resulting in the increase in average monthly net
collected rent.

*Fees.*  The management and service operations recognized a reduction in property management fees,
reimbursements, and asset management fee income of $332,000 and $646,000 during the three and six month
comparison periods, respectfully.   These reductions are primarily the result of the loss of asset management and
property management contracts related to five properties in 2003 and three properties in 2004, and the reduction in
management fees received at five additional properties in 2004 resulting from a change in ownership.  These
reductions were partially offset by the addition of three property management contracts in 2003 and one property
management contract in 2004.  The management and service operations also recognized asset disposition fees of
$233,000 during the six months ended June 30, 2004.  These fees were earned as a result of the successful
disposition of two advised assets.  It should be noted that the management and advisory fees attributed to properties
owned by pension fund clients are earned pursuant to contracts that are generally terminable upon 30 days notice.

*Painting Service Revenues and Expenses.*  Painting service revenues and expense both increased during
the three and six month comparison periods primarily as a result of contracts that were entered into by the
Company's subsidiary, Merit Painting Services.  As of June 30, 2004, contracts for the rehabilitation of seven
properties had been signed.  Work under these contracts is expected to be completed by the third quarter of 2004.

*Property Operating and Maintenance Expenses.*Property operating and maintenance expenses decreased
$1.6 million and $3.0 million during the three and six month comparison periods, respectively. Repairs and
maintenance expenses decreased during both comparison periods primarily due to reductions in landscaping
expenses, painting expenses, and one time major repair projects.  Snow removal costs also decreased during the
six month comparison period.  Real estate taxes and insurance decreased primarily as a result of successful
property valuation appeals.  These appeals resulted in the receipt of net refunds of prior year taxes of $475,000 and
additionally, a reduction in current year real estate tax expense of $376,000 and $551,000 for the three and six
month comparison periods, respectively.  This reduction was partially offset by an increase in insurance expense
of $21,000 and $134,000 during the three and six month comparison periods, respectively.  Advertising costs were
reduced in both comparison periods as a result of the Company's focus on increasing operating efficiencies.
Reductions in other operating expenses in both comparison periods were primarily due to decreased credit
investigation expenses resulting from a reduction in rates following a renegotiation of terms with the provider and a
decrease in bad debt expense.

*****Index*****

*Equity in Net Loss of Joint Ventures.*  The combined equity in net loss of joint ventures increased during
both the three and six month comparison periods primarily as a result of a gain of $450,000 recognized in the second
quarter of 2003 related to the sale of one joint venture property.  This gain was partially offset by improved operating
performances in 2004 at the remaining joint venture properties resulting from increased occupancy rates and the sale
of the Company's interest in Berkley Manor in October 2003.  During the three and six months ended June 30, 2003,
the Company reported equity in net loss of $98,000 and $161,000, respectively, with none in 2004 for this property.

The following table presents the historical statements of operations of the Company's beneficial interest in
the operations of the joint ventures for the three and six months ended June 30, 2004 and 2003.

|                                                 | For the three months | For the six months
|------------------------------------------------ | -------------------- | ------------------
|                                                 | ended June 30,       | ended June 30,    
|(In thousands)                                   | 2004                 | 2003              
|                                                 |                      |                   
|Beneficial interests in joint venture operations |                      |                   
|Rental revenue                                   | $	1,158              | $	794             
|Cost of operations                               | 686                  | 562               
|                                                 | 472                  | 232               
|Interest income                                  | -                    | 1                 
|Interest expense                                 | (323)                | (325)             
|Depreciation                                     | (336)                | (316)             
|Amortization                                     | 20                   | (39)              
|Loss from continuing operations                  | (167)                | (447)             
|(Loss) income from discontinued operations:      |                      |                   
|Operating (loss) income                          | (1)                  | (67)              
|Gain on disposition of property                  | -                    | 450               
|(Loss) income from discontinued operations       | (1)                  | 383               
|Net (loss) income                                | $	(168)              | $	(64)            

The primary reason for the increase in rental revenue and cost of operations for the three and six month
comparison periods was the completion in July 2003 of the construction and the subsequent lease-up of Courtney
Chase Apartments located in Orlando, Florida and increased occupancy at Idlewylde Apartments Phase II in Atlanta,
Georgia, which was in lease-up during 2003.

Discontinued operations represent the operating results of one joint venture property that was sold on April
17, 2003 and one joint venture property in which the Company sold its interest on October 17, 2003.

*Income from Discontinued Operations.*  Included in discontinued operations for the three and six months
ended June 30, 2004, is a gain of $9.7 million that the Company recognized from the sale of a Market Rate property
on May 10, 2004.  Additionally, the operating results of this property are included in the three and six month
comparison periods.  For further details on "Income from discontinued operations, " see Note 2 of the Notes to
Consolidated Financial Statements presented in Part I, Item 1 of this report on Form 10-Q.

**CONTINGENCIES**

For a discussion of contingencies, see Note 9 of the Notes to Consolidated Financial Statements presented
in Part I, Item 1 of this report on Form 10-Q.

*********Index*****

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

The Company is exposed to interest rate changes associated with variable rate debt as well as refinancing
risk on its fixed-rate debt.  The Company's involvement with derivative financial instruments is limited and
management does not expect to use such instruments for trading or other speculative purposes.  The Company
occasionally uses derivative instruments to manage their exposure to interest rates.  See the Company's Form 10-K

"Item 7A Qualitative and Quantitative Disclosures About Market  Risk" for a more complete discussion of its interest
rate sensitive assets and liabilities.  As of June 30, 2004, the fair market value of the Company's fixed rate debt
decreased approximately $22.8 million or 4.2%, primarily as a result of an increase in interest rates since December
31, 2003.

**ITEM 4.  CONTROLS AND PROCEDURES**

The Company maintains disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Also, the Company has investments in certain unconsolidated entities. As the Company does not control these
entities, the Company's disclosure controls with respect to such entities are necessarily substantially more limited
than those maintained with respect to the Company's consolidated subsidiaries.

The Chief Executive Officer and Chief Financial Officer have, as of the end of the period covered by this
quarterly report, evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) and have determined that such disclosure
controls and procedures are effective at the reasonable assurance level.  There have been no changes during the
last fiscal quarter that materially affected or are reasonably likely to affect internal controls.  The Company does not
believe any significant deficiencies or material weaknesses exist in its internal controls.  Accordingly, no corrective
actions have been taken.

*****Index*****

**PART II.  OTHER INFORMATION**

**ITEM 1.	LEGAL PROCEEDINGS**

For information related to legal proceedings, see Note 9 of the Notes to Consolidated Financial Statements
presented in Part I, Item 1 of this Report on Form 10-Q.

**ITEM 2.	CHANGES IN SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES**

|Issuer Purchases of Equity Securities For the Three Months Ended June 30, 2004
|------------------------------------------------------------------------------
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Period                                                                        
|                                                                              
|April 1 through                                                               
|April 30                                                                      
|May 1 through                                                                 
|May 31                                                                        
|June 1 through                                                                
|June 30                                                                       
|Total                                                                         

The Company does not currently have an authorization in effect from the Board of Directors to purchase its
common shares on the open market.  The Company does, however, have a policy which allows employees to pay
their portion of the payroll taxes related to restricted share vesting by surrendering shares to the Company equal in
value on the day of vesting to the amount of taxes due.  Such shares are the only shares purchased by the Company
during the three months ended June 30, 2004.  Forfeitures of restricted shares, if any, are not included in this table,
although they increase the total number of treasury shares.

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

On May 5, 2004, the Company held its Annual Meeting of Shareholders.  Following are the matters the
Company's shareholders voted upon and the results of the vote:

(a)	Proposal to fix the number of directors at seven:

|For        | Against | Abstain
|---------- | ------- | -------
|16,491,977 | 718,063 | 76,371 



(b)	The election of the following directors:



|                    |            | Withheld 
|------------------- | ---------- | ---------
|                    | For        | Authority
|                    |            |          
|Albert T. Adams     | 13,611,801 | 3,375,637
|James M. Delaney    | 14,363,082 | 2,624,356
|Jeffrey I. Friedman | 14,733,117 | 2,254,321
|Gerald C. McDonough | 16,543,355 | 444,083  
|Mark L. Milstein    | 14,718,658 | 2,268,780
|Frank E. Mosier     | 16,533,551 | 453,887  
|Richard T. Schwarz  | 16,557,677 | 429,761  

**ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K**



(a)	Exhibits

|           |                                                                                                                                                                                                                     |  | **Filed herewith or**                                                            
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|           |                                                                                                                                                                                                                     |  | **incorporated**                                                                 
|           |                                                                                                                                                                                                                     |  | **herein by**                                                                    
|**Number** | **Title**                                                                                                                                                                                                           |  | **reference**                                                                    
|           |                                                                                                                                                                                                                     |  |                                                                                  
|2.01       | Second Amended and Restated Agreement and Plan of Merger by  and
among the Company, MIG Realty Advisors, Inc.  ("MIGRA")  and the MIGRA
stockholders dated as of March 30, 1998.                                    |  | Exhibit 2.01 to Form 8-K filed March 31, 1998.                                   
|           |                                                                                                                                                                                                                     |  |                                                                                  
|3.1        | Second Amended and Restated Articles of Incorporation of the Company.                                                                                                                                               |  | Exhibit 3.1 to Form
S-11 filed June 30,
1994 (File No. 33-80950 as amended)      
|           |                                                                                                                                                                                                                     |  |                                                                                  
|3.2        | Code of Regulations of the Company.                                                                                                                                                                                 |  | Exhibit 3.2 to Form
S-11 filed June 30,
1994 (File No. 33-80950 as amended).     
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.1        | Specimen Stock Certificate.                                                                                                                                                                                         |  | Exhibit 3.1 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended). 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.2        | Form of Indemnification Agreement.                                                                                                                                                                                  |  | Exhibit 4.2 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended). 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.5        | Form of Promissory Note and Form of Mortgage and Security Agreement
dated May 10, 1999 from AERC to The Chase Manhattan Bank.                                                                                       |  | Exhibit 4.5 to Form 10-Q filed August 13,
1999.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.5a       | Form of Promissory Note and Form of Mortgage and Security Agreement
dated September 10, 1999 from AERC to The Chase Manhattan Bank.                                                                                 |  | Exhibit 4.5a to Form
10-Q filed November
12, 1999.                               
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.5b       | Form of Promissory Note and Form of Mortgage and Security Agreement

dated November 18, 1999 from AERC to The Chase Manhattan Bank.                                                                                 |  | Exhibit 4.5b to Form
10-K filed March 15,
2000.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.9        | Form of Medium-Term Note-Fixed Rate-Senior Security.                                                                                                                                                                |  | Exhibit 4(I) to Form S-3
filed December 7, 1995
(File No. 33-80169) as
amended.  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.10       | Form of Preferred Share Certificate.                                                                                                                                                                                |  | Exhibit 4.1 to Form 8-K
filed July 12, 1995.                                     
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.11       | Form of Deposit Agreement and Depositary Receipt.                                                                                                                                                                   |  | Exhibit 4.2 to Form 8-K
filed July 12, 1995.                                     
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.13       | Amended and Restated Loan Agreement between Associated Estates
Realty Corporation and National City Bank.                                                                                                           |  | Exhibit 4.13 to Form
10-Q filed November
13, 2001.                               
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.13a      | Second Amended and Restated Loan Agreement dated April 19, 2002
between Associated Estates Realty Corporation and National City Bank.                                                                               |  | Exhibit 4.13a to Form
10-Q filed August 13,
2002.                                
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.13b      | First Amendment to Second Amended and Restated Loan Agreement dated
May 14, 2002 between Associated Estates Realty Corporation and National
City Bank.                                                              |  | Exhibit 4.13b to Form
10-Q filed August 13,
2002.                                
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.13c      | Second Amendment to Second Amended and Restated Loan Agreement
dated April 17, 2003 between Associated Estates Realty Corporation and
National City Bank.                                                           |  | Exhibit 4.13c to Form
10-Q filed August 1,
2003.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.13d      | Third Amendment to Second Amended and Restated Loan Agreement dated
July 15, 2003 between Associated Estates Realty Corporation and National
City Bank                                                              |  | Exhibit 4.13d to Form
10-Q filed November
20, 2003.                              
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.14       | Guaranty Agreement dated November 28, 2000 from Associated Estates
Realty Corporation to Southtrust Bank.                                                                                                           |  | Exhibit 4.14 to Form
10-K filed March 13,
2001.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|4.15       | Loan Agreement dated July 22, 2003 between The Huntington National Bank
and MIG/Orlando Development, Ltd.                                                                                                           |  | Exhibit 4.15 to Form
10-Q filed November
20, 2003.                               
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10         | Associated Estates Realty Corporation Directors' Deferred Compensation
Plan.                                                                                                                                        |  | Exhibit 10 to Form 10-Q filed November 14,
1996.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.1       | Registration Rights Agreement among the Company and certain holders of
the Company's Common Shares.                                                                                                                 |  | Exhibit 10.1 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended).
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.2       | Stock Option Plan.                                                                                                                                                                                                  |  | Exhibit 10.2 to Form S-11 filed September 2,
1993 (File No. 33-68276 as amended).
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.3       | Amended and Restated Employment Agreement between the Company and
Jeffrey I. Friedman.                                                                                                                              |  | Exhibit 10.1 to Form
10-Q filed May 13,
1996.                                    
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.4       | Equity-Based Incentive Compensation Plan.                                                                                                                                                                           |  | Exhibit 10.4 to Form
10-K filed March 29,
1995.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.5       | Long-Term Incentive Compensation Plan.                                                                                                                                                                              |  | Exhibit 10.5 to Form
10-K filed March 29,
1995.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.6       | Lease Agreement dated November 29, 1990 between Royal American
Management Corporation and Airport Partners Limited Partnership.                                                                                     |  | Exhibit 10.6 to Form
10-K filed March 29,
1995.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.8       | Assignment and Assumption Agreement dated May 17, 1994 between the
Company, as Assignee, and Airport Partners Limited Partnership, as Assignor.                                                                     |  | Exhibit 10.8 to Form
10-K filed March 29,
1995.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.9       | Form of Restricted Agreement dated by and among the Company and Its
Independent Directors.                                                                                                                          |  | Exhibit 10.9 to Form
10-K filed March 28,
1996.                                  
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.10      | Pledge Agreement dated May 23, 1997 between Jeffrey I. Friedman and the
Company.                                                                                                                                    |  | Exhibit 10.01 to Form
10-Q filed August 8,
1997.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.11      | Secured Promissory Note dated May 23, 1997 in the amount of $1,671,000
executed by Jeffrey I. Friedman in favor of the Company.                                                                                     |  | Exhibit 10.02 to Form
10-Q filed August 8,
1997.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.12      | Unsecured Promissory Note dated May 23, 1997 in the amount of $1,671,000
executed by Jeffrey I. Friedman in favor of the Company.                                                                                   |  | Exhibit 10.03 to Form
10-Q filed August 8,
1997.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.13      | Stock Purchase Agreements between the Company and Jeffrey I. Friedman
dated October 25, 2001.                                                                                                                       |  | Exhibit 10.13 to Form
10-K filed March 13,
2002.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.14      | Form of Share Option Agreement by and among the Company and Its
Independent Directors.                                                                                                                              |  | Exhibit 10.14 to Form
10-K filed March 30,
1993.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.15      | Agreement dated March 11, 1999 by and among the Company and The
Milstein Affiliates.                                                                                                                                |  | Exhibit 10.15 to Form
10-Q filed May 17,
1999.                                   
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.16      | Agreement dated March 11, 1999 by and among the Company and The
Milstein Affiliates.                                                                                                                                |  | Exhibit 10.16 to Form
10-Q filed May 17,
1999.                                   
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.20      | Agreement dated October 11, 1999 by and among the Company and certain
of the former holders (the "MIGRA Stockholders") of the issued and
outstanding shares of common stock of MIG Realty Advisors, Inc. ("MIGRA"). |  | Exhibit 10.20 to Form
10-K filed March 15,
2000.                                 
|           |                                                                                                                                                                                                                     |  |                                                                                  
|10.22      | Year 2000 Equity Incentive Plan.                                                                                                                                                                                    |  | Exhibit 10.22 to Form
10-Q filed May 15,
2001.                                   
|           |                                                                                                                                                                                                                     |  |                                                                                  
|18.1       | Letter regarding change in accounting principles.                                                                                                                                                                   |  | Exhibit 18.1 to Form
10-Q filed May 17,
1999.                                    
|           |                                                                                                                                                                                                                     |  |                                                                                  
|31         | Certification of Chief Executive Officer Pursuant  to Section 302 of the
Sarbanes Oxley Act                                                                                                                         |  | Exhibit 31 to Form 10-Q filed herewith.                                          
|           |                                                                                                                                                                                                                     |  |                                                                                  
|31.1       | Certification of Chief Financial Officer Pursuant to Section 302 of the

Sarbanes Oxley Act.                                                                                                                        |  | Exhibit 31.1 to Form
10-Q filed herewith.                                        
|           |                                                                                                                                                                                                                     |  |                                                                                  
|32         | Certification of Chief Executive Officer and Chief Financial Officer Pursuant
to Section 906 of the Sarbanes Oxley Act                                                                                              |  | Exhibit 32 to Form 10-Q filed herewith.                                          

(b)	Reports on Form 8-K.

A CurrentReport on Form 8-K was furnished to the SEC on April 29, 2004, under Item 12
(Regulation FD Disclosure), furnishing the Company's earnings press release for the quarter ended
March 31, 2004.



*Index*****

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.

|               | ASSOCIATED ESTATES REALTY CORPORATION
|-------------- | -------------------------------------
|               |                                      
|               |                                      
|August 3, 2004 | /s/ Lou Fatica                       
|(Date)         | Lou Fatica, Vice President,          
|               | Chief Financial Officer and Treasurer