****









**Form 10-K**

























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





|                                                                                                               | Name of Each Exchange        
|-------------------------------------------------------------------------------------------------------------- | -----------------------------
|Title of Each Class                                                                                            | on Which Registered          
|                                                                                                               |                              
|Common Shares, without par value                                                                               | New York Stock Exchange, Inc.
|                                                                                                               |                              
|Depositary Shares, each representing                                                                           | New York Stock Exchange, Inc.
|1/10 of a Share of 9-3/4% Class A Cumulative                                                                   |                              
|Redeemable Preferred Shares, without par value                                                                 |                              
|                                                                                                              
|Securities registered pursuant to Section 12(g) of the Act: None                                              
|                                                                                                               |                              
|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 [ ]                                      
|                                                                                                              
|Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not       
|contained herein, and will not be contained, to the best of registrant's knowledge,                           
|in definitive proxy or  information statements incorporated by reference in                                   
|Part III of this Form 10-K or any amendment to this Form 10-K. [ x ]                                          
|                                                                                                              
|Indicate by check mark whether the registrant is an accelerated filer                                         
|as defined in Exchange Act Rule 12b-2.   Yes [x] No [ ]                                                       
|                                                                                                              
|The aggregate market value of the voting stock held by nonaffiliates                                          
|of the Registrant, was $113.6 million as of June 30, 2003.                                                    
|                                                                                                              
|The number of Common Shares outstanding as of March 3, 2004 was 19,514,526.                                   
|                                                                                                              
|DOCUMENTS INCORPORATED BY REFERENCE                                                                           
|(To The Extent Indicated Herein)                                                                              
|                                                                                                              
|Notice of Annual Meeting and Proxy Statement for the Annual Meeting                                           
|of Shareholders to be held on May 5, 2004 (in Part III).                                                      

****



**TABLE OF CONTENTS**

**FORM 10-K ANNUAL REPORT**

**FOR THE YEAR ENDED DECEMBER 31, 2003**

|                                                                         | **Page**
|------------------------------------------------------------------------ | --------
|**Item**                                                                 | ****    
|**PART I**                                                               |         
|1.	Business                                                              | 1       
|General Development of Business                                          | 1       
|Overview of Business Segments                                            | 1       
|Acquisition/Disposition                                                  | 2       
|Market Rate                                                              | 2       
|Affordable Housing                                                       | 2       
|Management and Service Companies                                         | 2       
|Strategy                                                                 | 2       
|Overall Portfolio Strategy                                               | 2       
|Disposition/Acquisition                                                  | 3       
|Market Rate Properties                                                   | 3       
|Affordable Housing                                                       | 3       
|Fee Management/Advisory Business                                         | 3       
|Financing and Leverage                                                   | 3       
|Income Taxes                                                             | 3       
|Competitive Conditions                                                   | 3       
|Customers                                                                | 4       
|Employees                                                                | 4       
|Available Information                                                    | 4       
|Reports to Security Holders                                              | 4       
|2.	The Properties                                                        | 4       
|Company's Portfolio                                                      | 4       
|Noteholder Interest                                                      | 6       
|Indebtedness Encumbering the Properties                                  | 6       
|3.	Legal Proceedings                                                     | 6       
|4.	Submission of Matters to a Vote of Security Holders                   | 6       
|Executive Officers of the Registrant and Other Key Employees             | 7       
|                                                                         |         
|**PART II**                                                              |         
|                                                                         |         
|5.	Market for Registrant's Common Equity and Related Stockholder Matters | 8       
|6.	Selected Financial and Other Data                                     | 8       
|7.	Management's Discussion and Analysis of Financial                     | 11      
|Condition and Results of Operations                                      |         
|7A.	Quantitative and Qualitative Disclosures About Market Risk           | 26 & 27 
|8.	Consolidated Financial Statements and Supplementary Data              | 27      
|9.	Changes in and Disagreements with Accountants                         |         
|on Accounting and Financial Disclosure                                   | 27      
|9A.	Controls and Procedures                                              | 27      
|**PART III**                                                             |         
|                                                                         |         
|10.	Directors and Executive Officers of the Registrant                   | 28      
|11.	Executive Compensation                                               | 28      
|12.	Security Ownership of Certain Beneficial Owners and Management       | 28      
|and Related Shareholder Matters                                          |         
|13.	Certain Relationships and Related Transactions                       | 29      
|14.	Principal Accountant Fees and Services                               | 29      
|**PART IV**                                                              |         
|                                                                         |         
|15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K      | 30      



**Item 1.  Business**

**GENERAL DEVELOPMENT OF BUSINESS**

****	Associated Estates Realty Corporation (the "Company") is a self-administered and self-managed equity
real estate investment trust ("REIT").  The Company was incorporated in the state of Ohio in July 1993 to
continue the business of the Associated Estates Group ("AEG") which was in the business of acquiring,
developing and operating multifamily assets.  The Company became a publicly traded company through an
initial public offering ("IPO") of its common shares in November 1993 and is currently traded on the New York
Stock Exchange ("NYSE") under the ticker symbol "AEC."  The Company's headquarters is located at 5025
Swetland Court in Richmond Heights, Ohio.  The headquarters is comprised of one office building of
approximately 41,000 square feet and an adjacent 3.7 acre parcel of land suitable for further development or
expansion, both of which are owned by the Company under a ground lease.



The Company is a fully integrated multifamily real estate company engaged in property acquisition,
advisory, development, management, disposition, operation and ownership activities.  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 (collectively the "Service Companies").  As of March 1,
2004, the Company owns or property manages 106 apartment communities in twelve states consisting of
24,022 units.  The Company owns, either directly or through subsidiaries, or holds ownership interests in 78
of the 106 apartment communities containing 18,313 units in 10 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.  The managed properties are owned by
large pension funds, non-profit organizations, affiliated or non-affiliated third party owners. (See Item 2 for a
complete listing of the Company's Portfolio).  The consolidated financial statements of the Company include
the accounts of the Company, all subsidiaries and qualified REIT subsidiaries, which include but are not limited
to, separate legal entities that were formed in connection with project specific, nonrecourse mortgage
refinancing for which records, books of accounts and depository accounts must be maintained separately and
apart from any other person or entity; the Service Companies, each of which is taxed as a Taxable REIT
Subsidiary ("TRS") under the REIT Modernization Act ("RMA") implemented in 1999, and an Operating
Partnership structured as a DownREIT, which is 97.0% owned by the Company.

**OVERVIEW OF BUSINESS SEGMENTS**

****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.  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 Note 1, "Basis
of Presentation and Significant Accounting Policies" of the Notes to the Consolidated Financial Statements
presented in Part II, Item 8 of this Form 10-K.  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, Market Rate and Affordable Housing
segments and deducting direct property management and service companies expense, and painting service
expense 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.  Effective
January 1, 2003, the Company revised its method of allocating expenses to its service companies.  Previously,
the Company allocated an amount equal to 85.0% of the Management and Service Companies revenues as
service companies expense. The Company now identifies expenses which are directly associated with the
management and service companies and classifies them as service companies expense for the current and
all prior periods.  NOI should not be considered as an alternative to net income determined in accordance with
Generally Accepted Accounting Principles ("GAAP"), or as an indicator of the Company's financial performance,
cash flow from operating activities (determined in accordance with GAAP) or 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.  Other real
estate companies may define NOI in a different manner.  See Part II, Item 6 of this Form 10-K for a
reconciliation of NOI to the Company's net income.

See Note 17 of the Notes to the Consolidated Financial Statements presented in Part II, Item 8 of this
report on Form 10-K for the segment financial information.

***Acquisition/Disposition***.The Acquisition/Disposition properties represent acquired or developed
properties which have not yet reached stabilization (the Company considers a property stabilized when its
occupancy rate reaches 93.0% or one year following the purchase or delivery of the final units, whichever occurs
first) and properties that have been sold.  During 2003, two owned properties were classified in this segment;
however, effective January 1, 2004, these two properties are now considered Market Rate properties.  Also, two
of the Company's joint venture properties and the two joint venture properties that the Company and its partners
disposed of during 2003 were classified in this segment.  Effective January 1, 2004, one of these joint venture
properties is now considered a Market Rate property.  During 2003, approximately 3.1% of the total NOI of the
Company was generated by this segment.

***Market  Rate***.The Market Rate Properties are same store wholly owned conventional multifamily
residential properties.  As of March 1, 2004, the Company has 62 owned properties, two of which are the
properties referenced above that were moved to this segment effective January 1, 2004 and two of which are
congregate care facilities, classified in this segment.  Additionally, two of the joint venture properties, one of
which is the property referenced above, in which the Company has an investment is classified in this segment.
During 2003, approximately 86.8% of the total NOI of the Company was generated by this segment.

***Affordable Housing***.The Affordable Housing Properties are multifamily properties for which the rents
are subsidized and certain aspects of the operations are regulated by U.S. Department of Housing and Urban
Development ("HUD") pursuant to Section 8 of the National Housing Act of 1937.  As of March 1, 2004, the
Company has 12 wholly owned properties classified in this segment.  Additionally, one of the joint venture
properties in which the Company has an investment is classified in this segment.  During 2003, approximately
7.3% of the total NOI of the Company was generated by this segment.

***Management and Service Operations***.The Management and Service Operations provide
management and advisory services to the Acquired, Market Rate and Affordable Housing properties owned or
partially owned by the Company, as well as to non-owned properties managed by the Company.  During 2003,
approximately 2.8% of the total NOI of the Company was generated by this segment.

**STRATEGY**

***Overall Portfolio Strategy*.**The Company's primary business objectives are to maximize NOI and to
increase the value of the Company's owned and managed properties.  The Company's operating strategy is
designed to achieve these objectives.  One focus of this operating strategy is to maximize funds from
operations, thereby enhancing value through (i) rental rate increases to the extent that competitive conditions
permit; (ii) emphasis on expense controls consistent with the proper maintenance of the properties; and (iii)
strategic capital investments including changing the composition of the portfolio in order to increase the
competitive position of the portfolio.

The Company's disciplined business planning for each property and its annual budgeting process,
complemented by its capital expenditure program, allow the Company to identify opportunities across the
portfolio, thereby maximizing long term wealth creation.

***Disposition/Acquisition.***The Company has successfully disposed of over 14 Company owned
properties during the last three years generating gross sales proceeds in excess of $100.0 million at an
aggregate gain of approximately $16.9 million.  Most of these were smaller properties located in Northeast or
Central Ohio.  Others were located in markets where the Company did not have a significant presence.

***Market Rate Properties.*****  The consistent goal for the wholly owned portfolio of multifamily assets is
income and value enhancement through reinvestment in these assets.  Internal growth is achieved through
realization of all marginal revenue opportunities, contained operating expenses and efficient management.
Management believes development opportunities available to the Company will enhance the income potential
to the Company.  The general investment goals include institutional quality properties in rent growth locations
of major metropolitan markets.

The Company plans to continue its ongoing practice of regular maintenance and periodic renovation.

***Affordable Housing.***The Company's wholly owned portfolio, as of March 1, 2004, includes 12
Affordable Housing Properties (comprised of 1,246 units) that have been part of the portfolio since the IPO.

Although rent growth in these properties is limited due to regulatory restrictions, these properties have
provided a stabilizing influence on the portfolio.  Additionally, the Company has developed detailed systems
and processes to effectively operate these properties, which by their nature, exist within a complex, highly
regulated environment.  Economic efficiencies are realized in conjunction with the management of another 21
affordable housing properties (3,797 units) owned by third parties.

***Fee Management/Advisory Business*****.  Over the years, the Company has applied its management
approach to the management of properties for third parties.  The Company believes that third party property
management broadens the Company's knowledge of a market, creates opportunities for future acquisitions,
enhances purchasing power and provides a network for new personnel while generating fee income.

***Financing and Leverage****.* As of December 31, 2003, conventional mortgages payable, which totaled
$533.8 million, were comprised of 54 non-recourse loans, each of which was collateralized by the respective
real estate and resident leases.  Federally insured mortgage debt, which totaled $4.6 million, encumbered two
of the properties at December 31, 2003 (including one property that was funded through Industrial Development
Bonds).  The Company's $14.0 million line of credit is secured by two properties.  Outstanding letters of credit
totaling $4.1 million and a $1.6 million credit risk sublimit relative to derivative transactions currently limit the
amount available under this line of credit to $8.3 million.  There were no borrowings outstanding under this line
at December 31, 2003 or at December 31, 2002.  During 2003, the Company replaced its $20.0 million secured
line of credit with a new $15.0 million secured line of credit, which is secured by one property.  Borrowings
under this new line of credit are currently limited to $8.9 million.  At December 31, 2003, there were $5.0 million
of borrowings outstanding under this line of credit.  There were no borrowings outstanding at December 31, 2002
under the old line of credit.

Additionally, the Company had one Medium-Term Note outstanding with a balance of $105,000 at
December 31, 2003.  This note is unsecured.

**INCOME TAXES**

See Note 1 of the Notes to the Consolidated Financial Statements presented in Part II, Item 8 of this
report on Form 10-K.

**COMPETITIVE CONDITIONS**

See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report on Form 10-K.

**CUSTOMERS**

The business of the Company, taken as a whole, is not dependent upon any single customer or a few
customers.

**EMPLOYEES**

At March 2, 2004, the Company employed approximately 772 people.  Satisfactory relations have
generally prevailed between the Company and its employees.

**AVAILABLE INFORMATION**

Shareholders may obtain, free of charge from the Company's Internet site at http://www.aecrealty.com,
a copy of the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
of 1934, as amended, as soon as reasonably practicable after the Company files such material electronically
with, or furnishes it to, the Securities and Exchange Commission ("SEC").

**REPORTS TO SECURITY HOLDERS**

The Company issues annual reports to its security holders which contain financial statements.

**Item 2.  The Properties**



***Company's Portfolio****.*  The following table represents the Company's portfolio as of March 1, 2004,
which consists of properties owned, directly or indirectly, by the Company or by a subsidiary of the Company,
properties in which the Company is a joint venture partner and properties managed by the Company and its
subsidiaries.

|                                        | **Total Number**  | **Total Number**     
|--------------------------------------- | ----------------- | ---------------------
|**Owned by the Company:**               | **of Properties** | **of Units**         
|                                        |                   |                      
|Market Rate Properties:                 |                   |                      
|Arizona                                 | 1                 | 204                  
|Florida                                 | 3                 | 1,128                
|Georgia                                 | 2                 | 706                  
|Indiana                                 | 3                 | 836                  
|Maryland                                | 3                 | 667                  
|Michigan                                | 11                | 2,888                
|North Carolina                          | 1                 | 276                  
|Ohio                                    | 36                | 8,551                
|Pennsylvania                            | 1                 | 468                  
|Texas                                   | 1                 | 104                  
|                                        | 62                | 15,828               
|Affordable Housing Properties:          |                   |                      
|Ohio                                    | 12                | 1,246                
|Total owned by the Company              | 74                | 17,074               
|                                        |                   |                      
|**Joint Ventures:**                     |                   |                      
|Acquired Market Rate Properties:        |                   |                      
|49.0% owned - Georgia                   | 1                 | 535                  
|24.0% owned - Florida                   | 1                 | 288                  
|                                        | 2                 | 823                  
|Market Rate Properties:                 |                   |                      
|49.0% owned - Georgia                   | 1                 | 308                  
|Affordable Housing                      |                   |                      
|50.0% owned - Ohio                      | 1                 | 108                  
|Total joint ventures                    | 4                 | 1,239                
|                                        |                   |                      
|**Management and Service Operations:**  |                   |                      
|**Managed for Pension Fund Clients:**   |                   |                      
|Market Rate Properties:                 |                   |                      
|Colorado                                | 2                 | 680                  
|Illinois                                | 1                 | 340                  
|Michigan                                | 1                 | 301                  
|Pennsylvania                            | 1                 | 396                  
|                                        | 5                 | 1,717                
|**Managed for Other Third Parties:**    |                   |                      
|Affordable Housing:                     |                   |                      
|Ohio                                    | 16                | 3,195                
|Pennsylvania                            | 4                 | 494                  
|                                        | 20                | 3,689                
|Market Rate:                            |                   |                      
|Ohio                                    | 3                 | 303                  
|                                        | 23                | 3,992                
|Total managed properties                | 28                | 5,709                
|**Total Portfolio**                     | **106**           | **24,022**           
|                                        |                   |                      
|**********Other Properties:**           | ****              | **Units/Square Feet**
|**Property Managed for Third Parties:** | ****              |                      
|****Commercial                          |                   |                      
|Ohio                                    | 1                 | 270,000              
|**Asset Managed for Third Parties:**    |                   |                      
|Multifamily                             |                   |                      
|Texas                                   | 1                 | 186                  
|Commercial                              |                   |                      
|California                              | 1                 | 145,000              
|                                        | 3                 |                      

|                               |                  |           | **Anticipated**
|------------------------------ | ---------------- | --------- | ---------------
|                               | **Location**     | **Units** | **Completion** 
|                               |                  |           |                
|**Undeveloped Land Parcels:**  |                  | **Acres** |                
|Aspen Lakes Land               | Grand Rapids, MI | 19.5      | On Hold        
|Landings at the Preserve Land  | Battle Creek, MI | 4.3       | On Hold        
|Westlake Land                  | Westlake, OH     | 39.0      | On Hold        
|Wyndemere Land                 | Franklin, OH     | 10.0      | On Hold        
|Total Undeveloped Land Parcels |                  | **72.8**  |                

*****Noteholder Interest**.*The Company acquired a Noteholder Interest with respect to a property in
connection with its IPO in 1993 in which one of the principals of the Company has a general partnership
interest.  The Note was placed on the Company's books at a value of zero.  Therefore, the Company has not
recorded any interest income as the noteholder.  Additionally, should the Company foreclose on the Note, there
would be no effect on the Company's books as the Note has a zero value.  The Company is effectively entitled
to all cash flow from the property by virtue of its Noteholder Interest.  The Company placed the property on its
books as a result of having full economic benefit and control of the property's operations.  For further information
concerning this property,  reference is made to Note 9 of the Notes to Consolidated Financial Statements
presented in Part II, Item 8 of this report on Form 10-K.

***Indebtedness Encumbering the Properties****.*The Company has financed and, in many cases,
refinanced the acquisition, development and rehabilitation of its properties with a variety of sources of mortgage
indebtedness.  Two of the mortgages are insured by HUD under programs administered pursuant to Section
221(d)(4) of the National Housing Act (reference is made to Affordable Housing in Item 1).  Currently, the
Company has 56 properties (all Market Rate properties) which are encumbered by debt totaling $538.4 million,
three properties which secure lines of credit and 15 properties (3 Market Rate properties, one of which may be
sold pursuant to a purchase agreement (as referenced in Note 18 of the Notes to Consolidated Financial
Statements presented in Part II, Item 8 of this report on Form 10-K) and 12 Affordable Housing properties) which
are unencumbered.

**Item 3.  Legal Proceedings**

For information concerning current legal proceedings, reference is made to Note 10 of the Notes to
Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

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

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered
by this report.

**Executive Officers of the Registrant and Other Key Employees**

The following information regarding executive officers of the Company is provided pursuant to Instruction
3 to Item 401(b) of Regulation S-K.

|Name                | Age | Position with the Company                                   
|------------------- | --- | ------------------------------------------------------------
|Jeffrey I. Friedman | 52  | Chairman of the Board, President and Chief Executive Officer
|Martin A. Fishman   | 62  | Vice President, General Counsel and Secretary               
|Lou Fatica          | 37  | Vice President, Treasurer and Chief Financial Officer       

Jeffrey I. Friedman has served as Chairman of the Board and Chief Executive Officer of the Company
since its organization in 1993 and served as the Company's President from the Company's organization until
February 24, 2000.  In August 2002, Mr. Friedman reassumed the role of the Company's President.  Mr.
Friedman is also the CEO and President of MIG II Realty Advisors, Inc. ("MIG").  Mr. Friedman joined AEG in
1974 and was the Chief Executive Officer and President of Associated Estates Corporation, a company in the
AEG group, from 1979 to 1993.

Martin A. Fishman has been Vice President, General Counsel and Secretary of the Company since
its organization.  Mr. Fishman joined AEG in 1986 as Vice President - General Counsel of Associated Estates
Corporation, a position he held until the formation of the Company.

Lou Fatica joined the Company in 1999 as Controller, and was promoted to Vice President-Controller
during 2000.  Mr. Fatica  is a Certified Public Accountant (CPA), member of the American Institute of Certified
Public Accountants (AICPA), and the Ohio Society of CPA's.  On March 15, 2001, Mr. Fatica became Vice
President, Treasurer and Chief Financial Officer of the Company and effective September 30, 2002, Mr. Fatica
assumed the role of Chief Financial Officer of MIG.

In addition to the executive officers named in the table above, the following persons have been
appointed as officers of the Company and hold positions in senior management with the Company as indicated:

Barbara E. Hasenstab, Vice President of Investor Relations and Corporate Communications,  joined
the Company in 1996 as Director of Investor Relations and was elected Vice President of Investor Relations
in 1998.  Ms. Hasenstab has 25 years of experience in investor relations, is a member of the National Investor
Relations Institute and is 50 years old.

Daniel L. Powers joined the Company in 1998.  He is currently Vice President of Operations and is
responsible for the Market Rate properties owned and managed by the Company.  Mr. Powers has been
involved in multifamily property management for 24 years.  Mr. Powers is a Certified Property Manager and is
50 years old.

Nan R. Zieleniec joined AEG in 1990 and was elected Vice President of Human Resources in 1998,
having responsibility for all areas of human resource planning and administration and national training.  Ms.
Zieleniec is a member of the Society of Human Resource Management and American Compensation
Association and is 45 years old.

**PART II**

**Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters**

The Company's common shares are traded on the New York Stock Exchange under the trading symbol
"AEC."

The following table sets forth for the periods indicated the high and low closing sale prices per common
share as reported on the New York Stock Exchange (composite tape) and the dividends declared per common
share.

|               |             | Dividends Declared
|-------------- | ----------- | ------------------
|               | Price Range | Per Share         
|               | 2003        | 2002              
|               | High        | Low               
|               |             |                   
|First Quarter  | $6.88       | $5.15             
|Second Quarter | 6.57        | 5.74              
|Third Quarter  | 6.59        | 5.80              
|Fourth Quarter | 7.45        | 6.36              
|               |             |                   

On March 2, 2004, there were approximately 917 holders of record of the Company's common shares.

For information concerning security ownership of certain beneficial owners and management and related
shareholder matters, reference is made to Part III, Item 12 of this report on Form 10-K.

The Company maintains a dividend reinvestment plan under which shareholders may elect to reinvest
their dividends automatically in common shares of the Company.  Under the plan, the plan agent purchases
common shares in the open market on behalf of participating shareholders.

**Item 6.  Selected Financial and Other Data**

The following tables set forth selected financial and other data for the Company on a consolidated
basis.  The historical financial information contained in the tables has been derived from and should be read
in conjunction with (i) the consolidated financial statements and notes thereto of the Company and (ii)
Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company both
included elsewhere herein.

|**Associated Estates Realty Corporation**                      |            |                |               |           |          
|-------------------------------------------------------------- | ---------- | -------------- | ------------- | --------- | ---------
|*(Dollars in thousands except per share*                       |            |                |               |           |          
|*amounts and average monthly rental revenues)*                 |            |                |               |           |          
|                                                               | **2003     | 2002           | 2001          | 2000      | 1999     
|**Operating Data:**                                            |            |                |               |           |          
|*Revenues*                                                     |            |                |               |           |          
|Rental                                                         | $ 136,743  | $ 137,028      | $ 139,087     | $	140,457 | $	140,227
|Property and asset management, acquisition and                 |            |                |               |           |          
|disposition fees and reimbursements                            | 14,053     | 20,142         | 23,471        | 21,675    | 23,075   
|Painting services                                              | 2,827      | 1,642          | 2,196         | 1,530     | 1,524    
|Other                                                          | 3,702      | 3,542          | 4,122         | 3,191     | 2,884    
|Total revenues                                                 | 157,325    | 162,354        | 168,876       | 166,853   | 167,710  
|                                                               |            |                |               |           |          
|*Expenses and charges*                                         | 168,320    | 168,644        | 170,270       | 169,393   | 169,107  
|                                                               |            |                |               |           |          
|(Loss) income before gain on disposition of properties and     |            |                |               |           |          
|land, net, equity in net (loss) income of joint ventures, gain |            |                |               |           |          
|on sale of partnership interest, minority interest, income     |            |                |               |           |          
|from discontinued operations, and cumulative effect of         |            |                |               |           |          
|a change in accounting principle                               | (10,995)   | (6,290)        | (1,394)       | (2,540)   | (1,397)  
|Gain on disposition of properties and land, net                | -          | 227            | 7,047         | 7,512     | 19,630   
|Equity in net (loss) income of joint ventures                  | (1,157)    | (1,627)        | (328)         | (164)     | 585      
|Gain on sale of partnership interest                           | 1,314      | -              | -             | -         | -        
|Minority interest expense                                      | (75)       | (324)          | (478)         | (400)     | (241)    
|**(Loss) income from continuing operations**                   | (10,913)   | (8,014)        | 4,847         | 4,408     | 18,577   
|Income from discontinued operations:                           |            |                |               |           |          
|Operating (loss) income                                        | -          | (167)          | 60            | 534       | 813      
|Gain on disposition of properties, net                         | -          | 9,660          | -             | -         | -        
|Income from discontinued operations                            | -          | 9,493          | 60            | 534       | 813      
|Cumulative effect of a change in accounting principle          | -          | -              | -             | -         | 4,319    
|**Net (loss) income**                                          | (10,913)   | 1,479          | 4,907         | 4,942     | 23,709   
|Preferred share dividends                                      | (5,484)    | (5,485)        | (5,484)       | (5,484)   | (5,484)  
|**Net (loss) income applicable to common shares**              | $ (16,397) | $   (4,006)    | $      (577)  | $	(542)   | $	18,225 
|****                                                           |            |                |               |           |          
|**Earnings per common share  - Basic:**                        |            |                |               |           |          
|(Loss) income from continuing operations applicable to         |            |                |               |           |          
|common shares                                                  | $	(.85)    | $        (.70) | $       (.03) | $	(.05)   | $	.59    
|Income from discontinued operations                            | -          | .49            | -             | .02       | .04      
|Cumulative effect of a change in accounting principle          | -          | -              | -             | -         | .20      
|Net (loss) income applicable to common shares                  | $	 (.85)   | $        (.21) | $       (.03) | $	(.03)   | $	.83    
|Weighted average number of common shares outstanding           | 19,401     | 19,343         | 19,415        | 19,733    | 22,051   
|**Earnings per common share - Diluted:**                       |            |                |               |           |          
|(Loss) income from continuing operations applicable to         |            |                |               |           |          
|common shares                                                  | $	(.85)    | $        (.70) | $       (.03) | $	(.05)   | $	.59    
|Income from discontinued operations                            | -          | .49            | -             | .02       | .04      
|Cumulative effect of a change in accounting principle          | -          | -              | -             | -         | .20      
|Net (loss) income applicable to common shares                  | $	 (.85)   | $        (.21) | $       (.03) | $	(.03)   | $	.83    
|Weighted average number of common shares outstanding           | 19,401     | 19,343         | 19,415        | 19,733    | 22,053   
|                                                               |            |                |               |           |          
|**Dividends declared per common share**                        | $	.68      | $          .92 | $       1.25  | $	1.25    | $	1.125  
|                                                               |            |                |               |           |          
|**Cash flow data:**                                            |            |                |               |           |          
|Cash flow provided by operations                               | $	28,758   | $    32,897    | $   26,845    | $	31,618  | $	40,130 
|Cash flow (used for) provided by investing activity            | (11,509)   | 13,260         | (7,983)       | (16,892)  | (9,140)  
|Cash flow (used for) provided by financing activity            | (15,937)   | (48,421)       | (16,264)      | (50,545)  | 4,361    

|                                                                     | 2003        | 2002         | 2001         | 2000     | 1999    
|-------------------------------------------------------------------- | ----------- | ------------ | ------------ | -------- | --------
|***Other Data*:**                                                    |             |              |              |          |         
|Net Operating Income (a) (d)                                         | $  70,676   | $   75,998   | $   81,692   | $	83,063 | $	80,539
|Total properties (at end of period) - includes joint ventures        | 78          | 79           | 84           | 90       | 93      
|                                                                     |             |              |              |          |         
|Total multifamily units (at end of period) - includes joint ventures | 18,313      | 18,313       | 19,807       | 20,738   | 20,103  
|Average monthly rental revenues per multifamily unit                 | $       670 | $        659 | $        653 | $	646    | $	633   
|Physical occupancy (b)                                               | 92.7%       | 87.4%        | 90.5%        | 91.5%    | 93.4%   

|**Balance Sheet Data at December 31:** |           |           |           |           |           
|-------------------------------------- | --------- | --------- | --------- | --------- | ----------
|Real estate assets, net                | $ 661,585 | $ 683,058 | $ 716,079 | $ 742,183 | $  777,072
|Total assets                           | 704,793   | 735,303   | 775,624   | 819,559   | 882,810   
|Total debt (c)                         | 543,496   | 540,498   | 552,069   | 568,177   | 579,186   
|Total shareholders' equity             | 121,428   | 150,865   | 171,996   | 196,456   | 238,182   

(a)The Company evaluates the performance of its reportable segments based on NOI.  NOI is determined by deducting property
operating and maintenance expenses, direct property management and service companies expenses and painting service
expense from total revenues.  The Company considers NOI to be an appropriate supplemental measure of our performance
because it reflects the operating performance of our real estate portfolio and management and service company at the property
and management and service company level and is used to assess regional property and management and service company
level performance.  NOI should not be considered an alternative to net income as a measure of performance or cash generated
from operating activities in accordance with GAAP and, therefore, it should not be considered indicative of cash available to fund
cash needs.  Other real estate companies may define NOI in a different manner.

(b)	Physical occupancy represents the actual number of units leased divided by the total number of units available at the end of the
period.

(c)	Amount excludes the Company's share of mortgage indebtedness relating to the unconsolidated joint ventures of approximately
$26,406, $32,659, $42,245, $24,986, and $17,249 at December 31, 2003, 2002, 2001, 2000 and 1999, respectively.

(d)	Reconciliation of NOI to net (loss) income:

|                                                      | 2003       | 2002     | 2001     | 2000      | 1999     
|----------------------------------------------------- | ---------- | -------- | -------- | --------- | ---------
|Net Operating Income                                  | $ 70,676   | $	75,998 | $	81,692 | $	 83,063 | $ 	80,539
|Depreciation and amortization                         | (34,828)   | (34,431) | (33,878) | (33,901)  | (33,763) 
|General and administrative expense                    |            |          |          |           |          
|excluding service companies expense                   | (6,084)    | (7,016)  | (6,964)  | (7,849)   | (9,337)  
|Interest expense                                      | (40,759)   | (40,841) | (42,244) | (43,853)  | (38,836) 
|Gain on disposition of properties and land, net       | -          | 227      | 7,047    | 7,512     | 19,630   
|Equity in net (loss) income of joint ventures         | (1,157)    | (1,627)  | (328)    | (164)     | 585      
|Gain on sale of partnership interest                  | 1,314      | -        | -        | -         | -        
|Minority interest in operating partnership            | (75)       | (324)    | (478)    | (400)     | (241)    
|Income from discontinued operations:                  |            |          |          |           |          
|Operating (loss) income                               | -          | (167)    | 60       | 534       | 813      
|Gain on disposition of properties, net                | -          | 9,660    | -        | -         | -        
|Cumulative effect of a change in accounting principle | -          | -        | -        | -         | 4,319    
|Net (loss) income                                     | $ (10,913) | $	1,479  | $	4,907  | $	4,942   | $	23,709 

**Item 7.	Management's Discussion and Analysis of FinancialCondition and Results of Operations**

The following discussion should be read in conjunction with the consolidated financial statements
and notes thereto included in Part II, Item 8 of this report on Form 10-K.  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", and
similar expressions are intended to identify forward-looking statements.  Readers are cautioned not to place
undue reliance of 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 management services  to third party
owners of multifamily residential units for which the Company is paid fees.  Approximately 87% of the
Company's consolidated revenues are generated from the leasing of the owned residential units.  Approximately
90% of the revenues generated by the owned properties 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.  Increasing
insurance costs and real estate taxes across the multifamily housing industry have also increased property
operating expenses and reduced cash flows from operations.

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 2.0% to 2.5% 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 3.0% to 3.5%, which it expects to accomplish through continued careful
management of controllable expenses.  As a result, the Company anticipates growth in NOI for the market rate
portfolio in the range of 6.5% to 8.5% for the year 2004.  The Company does not anticipate changes in
acquisition, disposition or development activity in 2004 that would materially change these expected results.

***Federal Income Taxes*****.  The Company has elected to be taxed as a Real Estate Investment Trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with
its taxable year ending December 31, 1993.  REITs are subject to a number of organizational and operational
requirements including a requirement that 90.0% of the income that would otherwise be considered as taxable
income be distributed to shareholders.  Providing the Company continues to qualify as a REIT, it will generally
not be subject to federal income tax on net income.  However, the Company's Service Companies are subject
to federal income tax.

On December 17, 1999, as part of a larger bill, the REIT Modernization Act ("RMA") was signed into
law.  Effective beginning January 1, 2001, the RMA amended the tax rules relating to the composition of a
REIT's assets.  Under prior law, REIT's were precluded from owning more than 10.0% of the outstanding voting
securities of any one issuer, other than a wholly owned subsidiary or another REIT.  Beginning in 2001, a REIT
will generally remain subject to this current restriction and will also be precluded from owning more than 10.0%
of the value of all securities of any one issuer.

As an exception to this prohibition, a REIT will be allowed to own up to 100% of the securities of a
Taxable REIT Subsidiary ("TRS") that can provide non-customary services to REIT tenants and others without
disqualifying the rents that a REIT receives from its tenants.  However, no more than 20.0% of the value of a
REIT's total assets can be represented by securities of one or more TRS's.  The amount of intercompany
interest and other expenses between a TRS and a REIT are subject to arms length allocations.  The Company
has elected TRS status for all of its Service Companies.

***LIQUIDITY AND CAPITAL RESOURCES***

***Long Term Contractual Obligations.***The following table summarizes the Company's long term
contractual obligations at December 31, 2003.

|                          | Payments Due In
|------------------------- | ---------------
|(In thousands)            |                
|Contractual Obligations   | Total          
|Debt                      | $	546,145      
|Capital lease obligations | 147            
|Operating leases          | 4,779          
|Purchase obligations      | 7,745          
|Total                     | $	558,816      

***Debt.***Debt  includes  principal  payments on all property specific mortgages, lines of credit,  medium-term notes of the Company, and accrued interest at December 31, 2003, but not any interest for subsequent
periods.  For detailed information about the Company's debt, see Note 6 of the Notes to Consolidated Financial
Statements presented in Part II, Item 8 of this report on Form 10-K.

***Capital and Operating Leases.***The Company leases certain equipment and facilities under both
capital and operating leases.  For detailed information about the Company's lease obligations, see Note 10 of
the Notes to Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

***Purchase Obligations.***Purchase obligations represent agreements to purchase goods or services
that are legally binding and enforceable and that specify all significant terms of the agreement.  Purchase
obligations of the Company include, but are not limited to, contracts that individual properties have entered into
in the normal course of operations, such as landscaping, snow removal, elevator maintenance, security, etc,
as well as obligations entered into at the corporate level.  Obligations included in the above table represent
agreements dated December 31, 2003 or earlier.

The Company has not included in the above table guarantees that it has with respect to joint venture
debt and possible redemption of OP units.  Both of these items are described in greater detail under
"Guarantees" and "Operating Partnership", respectively.

***Dividends.***On December 11, 2003, the Company declared a dividend of $0.17 per common share
which was paid on February 2, 2004 to shareholders of record on January 15, 2004.  Also, on February 12,
2004, the Company announced that a dividend of $0.60938 per Depositary Share on its Class A Cumulative
Preferred Shares (the "Perpetual Preferred Shares") will be paid on March 15, 2004 to shareholders of record
on March 1, 2004.

The Company anticipates that it will meet its liquidity requirements for the upcoming year generally
through its net cash provided by operations, secured borrowings (primarily through the use of the Company's
two lines of credit, which had $12.2 million available at December 31, 2003), and property sales' proceeds.  The
Company believes that these sources will be sufficient to meet operating requirements, capital additions,
mortgage amortization payments and the payment of dividends in accordance with REIT requirements.

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

**.**	$9.6 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;

**.**	$3.9 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.

**The Company has a shelf registration statement on file with the Securities and Exchange Commission
relating to a possible offering, from time to time, of up to $368.8 million of debt securities, preferred shares,
depositary shares, common shares and common share warrants.  Although $62.5 million of MTN's remain
available under the shelf registration, it is unlikely that the Company will have access to the market for  MTN
securities in the near future.

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, continued low mortgage interest rates, continuation of a recessionary economy (primarily
employment levels) and higher than anticipated insurance and utility costs.  The Company believes that if net
cash provided by operations is below 2004 projections, the other sources of cash previously mentioned will be
sufficient to cover the liquidity requirements of the Company.

***Cash Flows****.*Significant sources and uses of cash in the past three years are summarized as follows:

*Cash Sources (Uses):*

|                                              | For the year ended December 31,
|--------------------------------------------- | -------------------------------
|(In thousands)                                | 2003                           
|                                              |                                
|Net cash provided by operating activities     | $	28,758                       
|Real estate and fixed asset additions         | (13,850)                       
|Net proceeds from property dispositions       | -                              
|Joint venture distribution from sale proceeds | 2,582                          
|Purchase of operating partnership units       | (211)                          
|Investments in joint ventures - net           | (30)                           
|Increases (decreases) in debt - net           | 3,000                          
|Cash dividends and operating partnership      |                                
|distributions paid                            | (18,809)                       
|Net cash from other financing activities      | (128)                          
|Cash increase (decrease)                      | $	1,312                        

*Cash Flows Provided by Operating Activities.*  Cash flows from operating activities have historically
been driven by net income (loss) levels and fluctuations in accounts payable and accounts receivable balances.
The $4.1 million decrease in cash flow from operating activities in 2003 compared to 2002 was primarily a result
of an increase in net loss before property and partnership interest dispositions, equity in net loss of joint
ventures, and minority interest expense of $4.7 million.  Cash flows provided by operating activities increased
in 2002 compared to 2001 primarily as a result of large deposits to escrows in 2001 related to the joint venture
swap and changes in accounts payable and accrued expenses resulting primarily from property sales and the
timing of the payment of liabilities.  This increase in cash flow was partially offset by an increase in net loss
before property and partnership interest dispositions, equity in net loss of joint ventures and minority interest
expense of $4.9 million in 2002 compared to 2001.

*Cash Flows Provided by (Used For) Investing Activities.*Cash provided by investing activities
decreased $24.8  million in 2003 compared to 2002 primarily as a result of $33.9 million received in 2002 from
property dispositions.  This was partially offset by $2.6 million received from the sale of the Company's
partnership interest in a joint venture, a reduction in capital asset expenditures of $2.4 million, and a reduction
in cash paid for the purchase of operating partnership units in 2003.  Cash provided by investing activities
increased $21.2 million in 2002 compared to 2001 primarily as a result of $33.9 million received in 2002 from
property dispositions compared to $11.8 million received in 2001 for property dispositions.

*Cash Flows Used For Financing Activities.*  Cash used for financing activities decreased $32.5 million
in 2003 compared to 2002 primarily as a result of a reduction in principal payments on secured debt of $19.6
million, a net borrowing on the Company's lines of credit of $5.0 million during 2003 compared to a net
repayment of $3.5 million in 2002 that resulted in a net increase in cash flow of $8.5 million, and a reduction
in the amount of common share dividends paid of $6.2 million in 2003 compared to 2002.  The secured debt
and line of credit reductions were primarily related to the cash generated from the property dispositions.  Cash
used for financing activities increased $32.2 million in 2002 compared to 2001 primarily as a result of the
increased principal payments on secured debt of $19.2 million in 2002 related to the property dispositions, a
net repayment on the Company's lines of credit of $3.5 million in 2002 compared to a net borrowing of $3.5
million during 2001 that resulted in a net decrease in cash flow of $7.0 million, and a reduction of $7.0 million
in 2002 compared to 2001 in additional secured debt funding.

***Financing and Other Commitments*****.  At December 31, 2003, the Company had 54 conventional
mortgages payable aggregating $533.8 million, each collateralized by the respective real estate and resident
leases having a net book value of $600.1 million.  Fifty-one of these nonrecourse project specific loans accrue
interest at fixed rates ranging from 6.55% to 7.94% and have maturity dates ranging from 2004 to 2012 and
three of these loans accrue interest at variable rates ranging from 3.14% to 3.19% and have maturity dates
ranging from 2005 to 2007.  Additionally, the Company had two HUD insured mortgages aggregating $4.6
million, each collateralized by the respective real estate and residential leases having a net book value of $2.9
million.  One of these loans accrues interest at a fixed rate of 7.0% and matures in 2012, and the other accrues
interest at a variable rate, which was 3.36% at December 31, 2003, and matures in 2013.  During 2003, the
Company repaid a $2.7 million HUD insured mortgage, replacing it with a $3.9 million conventional mortgage,
and repaid a $2.3 million conventional mortgage, replacing it with a $5.5 million conventional mortgage.  The
Company incurred prepayment penalties totaling $339,000 in connection with the prepayment of these
mortgages.  The Company currently intends to refinance each loan as it matures.  Maturities for such
mortgages in 2004 are nominal at $17.5 million.

The Company currently has 15 properties which are unencumbered (one of which may be sold pursuant
to the purchase agreement referenced under "Dispositions"), 12 of which are Affordable Housing Properties.
These 15 properties had net income of $4.1 million for the year ended December 31, 2003, and a net book value
of $9.5 million at December 31, 2003.  The Company believes that it should be able to obtain financing on these
properties should the need arise; however, certain financing vehicles may be unavailable or limited because
many of these properties are ground leased and one is subject to a right of reverter.

The Company currently has two lines of credit.  The first line of credit is a $15.0 million line secured
by one of the Company's properties.  This line of credit was obtained on July 23, 2003 and replaced the $20.0
million line that matured in 2003.  The new line matures on July 31, 2006.  The Company intends to seek an
extension upon maturity.  Borrowings under this line are currently restricted up to an amount of $8.9 million and
bear interest at a rate of LIBOR plus 1.5% or approximately 2.62% at December 31, 2003.  There were $5.0
million in borrowings outstanding under this line of credit at December 31, 2003.  There were no borrowings
outstanding at December 31, 2002 on the line that was replaced.



The second line of credit is a $14.0 million line secured by two of the Company's properties of which
$1.6 million is reserved exclusively for derivative transactions.  The remaining $12.4 million is available for
regular borrowings and letter of credit transactions.  At December 31, 2003, letters of credit totaling $4.1 million
have been issued against this line.  The maturity of this line of credit was extended from December 31, 2003
to December 31, 2004.  The Company intends to seek an extension upon maturity.  The Company's borrowings
under this line of credit bear interest at either the prime rate or LIBOR plus 2.0% at the Borrower's option
(approximately 3.12% at December 31, 2003).  There were no borrowings outstanding at either December 31,
2003 or December 31, 2002.

At December 31, 2003, the Company had one Medium-Term Note outstanding in the amount of
$105,000.  This loan bears interest at 6.88%, is unsecured and matures in December 2004.  The Company
intends to repay this loan in full at maturity.

The Company leases certain equipment under capital leases.  The Company also leases certain
equipment and facilities under operating leases.  Future minimum lease payments under all capital and
noncancellable operating leases in which the Company is the lessee, principally for ground leases, are included
in the above table of contractual obligations.

The ground lease agreements contain provisions which, upon expiration of the lease, require reversion
of the land and building to the lessor.  Such provisions exist for nine properties included in the consolidated
financial statements and expire at various dates from 2021 to 2086.  Total revenues derived from such properties
were $10.2 million, $10.1 million and $10.3 million for the years ended December 31, 2003, 2002 and 2001,
respectively.  Furthermore, at the end of the term of the lease, any remaining replacement reserves revert to
the lessor.  Management believes that most of the replacement reserves will be utilized for their intended
purpose prior to the end of the lease term.  Such cash reserves included in restricted cash were $681,000 and
$615,000 at December 31, 2003 and 2002, respectively.  With respect to such leases, the Company incurred
ground rent expense of $101,000 for each of the years ended December 31, 2003, 2002 and 2001.

The Company owns one property which is subject to a warranty deed reversion provision.  This provision
requires that the land and real estate assets revert to the deed holder at expiration, which is September 2037.
The net book value of this property was $1.1 million at December 31, 2003.  The property generated revenues
and net income of $943,000 and $352,000 for 2003, $943,000 and $378,000 for 2002 and $958,000 and
$449,000 for 2001.

***Guarantees.***In connection with the refinancing of the Watergate Apartments, a 949 unit multifamily
community located in Euclid, Ohio, the Company has guaranteed completion of certain improvements totaling
approximately $7.0 million.  This obligation is secured by a $3.5 million letter of credit.  Furthermore, the
Company has guaranteed the payment of a $26.0 million loan in connection with the Idlewylde Apartments
Phase II, a 535 unit multifamily community located in Atlanta, Georgia in which the Company is a 49.0% owner.
This loan matures December 10, 2005.  The Company has recorded no liability in relation to this guarantee at
December 31, 2003.  Subsequent to December 31, 2003, this guarantee was reduced to 50.0% of the loan
balance, or approximately $13.0 million, per the guarantee provision.  The Company has also guaranteed the
payment of the $15.8 million 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 conditional upon the satisfaction of various conditions and requirements.
The Company has recorded no liability in relation to this guarantee at December 31, 2003.

***Off-Balance Sheet Investments.***The Company has 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 significant 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 significant 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.

For summarized financial information at 100% for these joint ventures, reference is made to Note 7 of
the Notes to the Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

***Joint Venture Financing Commitments.***The Company has two guarantee obligations related to its
joint ventures.  These obligations were previously discussed under Guarantees.

At December 31, 2003, all of the Company's joint venture investments were encumbered by debt.  The
Company's share of this debt was $26.4 million.

***Operating Partnership**.*As provided in the AERC HP Investors Limited Partnership Agreement
("DownREIT Partnership"), the Company, as general partner, has guaranteed the obligation of the DownREIT
Partnership to redeem OP units held by the limited partners.  The DownREIT Partnership was formed in 1998
in connection with the MIG merger transactions.  Under the terms of the DownREIT Partnership Agreement,
the DownREIT Partnership is obligated to redeem OP units for common shares of the Company or cash, at the
Company's discretion, at a price per OP unit equal to the 20 day trailing price of the Company's common
shares for the immediate 20 day period preceding a limited partner's redemption notice.  After giving effect to
the transactions described in the following paragraphs, there are 93,023 OP units remaining having a carrying
value of $2.2 million.  Through December 31, 2003, 429,009 of the original 522,032 OP units have been
redeemed.  These transactions had the effect of increasing the Company's interest in the DownREIT Partnership
from 85.0% to 97.0%.  These redemption transactions are more fully described in the following paragraphs.

In 2003, 35,003 of the OP units were purchased for cash in the amount of $211,000.  These units had
a recorded amount of approximately $800,000 when issued.  The difference of the cash paid and the recorded
amount was approximately $589,000 which reduced the recorded amount of the underlying real estate.  In 2002,
2001 and 2000, a total of 393,976 of the OP units were purchased for cash in the amount of $3.6 million.  These
units had a recorded amount of $9.0 million when issued.  The difference of the cash paid and the recorded
amount was $5.3 million which reduced the recorded amount of the underlying real estate.

***Acquisitions, Dispositions and Development*****.  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.

***Dispositions:***In January 2004, the Company entered into a contract for sale of a Market Rate property
located in Northeast Ohio.  The closing of the transaction is planned to occur in the second quarter of 2004.
The following is a summary of disposition transactions completed for the year ended December 31, 2003.

On April 17, 2003, the Company and its joint venture partner completed the sale of a 36 unit Market
Rate property located in Northeast Ohio in which the Company was a 50.0% partner.  The sales 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.

On October 17, 2003, the Company completed the sale of its partnership interest in a 252 unit
residential joint venture property located in Cranberry Township, Pennsylvania.  The Company received cash
proceeds of $2.0 million and a $491,000 note.  The Company recorded a gain on the sale of its partnership
interest of $1.3 million.

***Development.***During the year ended December 31, 2003, the Company and its joint venture partner
completed the construction of Courtney Chase Apartments, a 288 unit development located in Orlando, Florida.
As of December 31, 2003, 243 units have been leased.  The Company is a 24.0% partner in this project.  In
connection with the construction of this property, the Company has guaranteed the repayment of the $15.8
million construction loan.

***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.  Upon the successful sale of these investments,
the Company will no longer receive the property and asset management fee revenue associated with them.
Revenue received from these investments for the year ended December 31, 2003 was $1.7 million or 1.0% of
total consolidated revenues.  At December 31, 2003, two of these properties have been sold.  Additionally, one
of these properties was sold in January 2004, and another  was sold in February 2004.  The Company
anticipates the two remaining properties will be sold during 2004.  For each property sold for this client, the
Company receives a one time disposition fee.  The Company received disposition fees of $423,000 for the year
ended December 31, 2003.

In November 2003, the Company was informed by one of its advisory clients that it intended to sell the
commercial properties for which MIG provided asset management services.  Upon the successful sale of these
investments, the Company will no longer receive the asset management fee revenue associated with them.
MIG manages or advises both commercial and multifamily properties for this client.  Revenue received from the
commercial investments sold or to be sold for the year ended December 31, 2003, was $528,000.  At December
31, 2003, two of these properties have been sold.  Additionally, a third property was sold in January 2004.

In October 2003, five properties which the Company managed on behalf of an affiliate owner were sold
to an unrelated third party.  The Company was retained by the new owner to continue to manage these five
properties, however, the management fees payable by the new owner are less than those payable under the
old management contracts.  The estimated annual fees for these five properties at the old rate was
approximately $795,000, while the estimated annual fees at the new rate are approximately $625,000, which
represents an estimated annual decline of approximately $170,000.

In November 2003, the Company entered into three new property management contracts for properties
located in Pennsylvania owned by an unrelated third party.  Additionally, in February 2004, the Company
entered into a fourth property management contract for a property owned by an unrelated third party.  This
property is also located in Pennsylvania.  The Company expects to receive fee revenue of approximately
$170,000 in 2004 from these contracts.

***Management Contract Cancellation*****.  During 2003, the Company's property management and/or asset
management contracts associated with the following properties were terminated or transferred:

|                         |            |                                      | Property           | Approximate      
|------------------------ | ---------- | ------------------------------------ | ------------------ | -----------------
|Effective                |            |                                      | and/or Asset       | Property and/or  
|Date of                  | Management | Management Contract                  | Management Fees    | Asset Management 
|Termination              | Company    | Canceled/Transferred                 | Earned During 2003 | Fees Lost in 2003
|                         |            |                                      | (In thousands)    
|04/17/03                 | AERC       | Highland House (50.0% joint venture) | $     3            | $    8           
|10/17/03                 | AERC       | Berkley Manor (49.0% joint venture)  | 57                 | 12               
|                         |            |                                      |                   
|**Advisory Properties:** |            |                                      |                   
|11/06/03                 | AERC       | Advised Asset                        | 74                 | 10               
|12/16/03                 | AERC       | Advised Asset                        | 280                | 11               
|12/23/03                 | AERC       | Advised Asset                        | 335                | 7                
|12/30/03                 | AERC       | Advised Asset                        | 286                | 1                

During 2004, the Company's property management and/or asset management contracts associated
with the following properties will be/could be terminated or transferred:

|            |            |                     |                       
|----------- | ---------- | ------------------- | ----------------------
|Effective   |            |                     | Approximate Annualized
|Date of     | Management |                     | 2004 Property and/or  
|Termination | Company    | Management Contract | Asset Management Fees 
|            |            |                     | (In thousands)        
|01/30/04    | AERC       | Advised Asset       | $   242               
|01/30/04    | MIG        | Advised Asset       | 75                    
|02/13/04    | AERC       | Advised Asset       | 161                   
|Unknown     | AEMC       | University Circle   | 85                    
|Unknown     | MIG        | Advised Asset       | 93                    
|Unknown     | AERC       | Advised Asset       | 300                   
|Unknown     | AERC       | Advised Asset       | 329                   

***RESULTS OF OPERATIONS FOR 2003 COMPARED WITH 2002 AND 2002 COMPARED WITH 2001***

In the following discussion of the comparison of the year ended December 31, 2003 to the year ended
December 31, 2002 and the year ended December 31, 2002 to the year ended December 31, 2001, Market
Rate properties refers to the Same Store Market Rate property portfolio.  Market Rate properties represent 60
wholly owned properties.  Acquired/Disposed properties represent two acquired properties and properties which
have been sold.  Affordable Housing represents 12 properties subject to HUD regulations.

Overall, the loss from continuing operations increased $2.9 million when comparing 2003 to 2002 and
increased $12.9 million when comparing 2002 to 2001.  The decrease in total revenues was primarily the result
of a decrease in reimbursements received from managed properties in both 2003 and 2002 when comparing
each to the previous year.  These reimbursements, which are primarily payroll related, are included in direct
property management expense in the same amounts as they are in revenues.  Therefore, the decrease from
year to year had the same effect on both total revenues and total expenses.  After removing this effect, total
revenues decreased $660,000 in 2003 compared to 2002 and $4.3 million in 2002 compared to 2001.  The 2003
decrease was primarily due to a decrease in property and asset management fees received, offset by an
increase in painting service revenues.  The 2002 decrease was primarily due to decreases in rental revenues
and property and asset management fees received.  Total expenses, after removal of the effect of
reimbursements, increased $4.0 million in 2003 compared to 2002 and $550,000 in 2002 compared to 2001.
The 2003 increase was primarily due to increased property operating and maintenance expenses, which are
partially offset by decreased direct property management expenses.  The 2002 increase was also primarily a
result of increased property operating and maintenance expenses, which were partially offset by decreases in
interest expense.

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 year ended December 31, 2003 to 2002 and 2002
to 2001:

|                                                | Increase (decrease) when comparing the year ended December 31,
|----------------------------------------------- | --------------------------------------------------------------
|                                                | 2003 to 2002                                                  
|(Amounts in thousands)                          |                                                               
|Rental Revenue                                  | $	(285)                                                       
|Property management fees and reimbursements     | (5,693)                                                       
|Asset management fees                           | (819)                                                         
|Asset disposition fees                          | 423                                                           
|Painting services revenue                       | 1,185                                                         
|Other revenues                                  | 160                                                           
|Property operating and maintenance expenses     | 5,630                                                         
|Direct property management expenses             | (6,354)                                                       
|Painting services expenses                      | 1,017                                                         
|General and administrative                      | (932)                                                         
|Interest expense                                | (82)                                                          
|Gain on disposition of properties and land, net | (227)                                                         
|Equity in net loss of joint ventures            | 470                                                           
|Gain on sale of partnership interest            | $              1,314                                          

***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), and 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 years ended December 31, 2003, 2002 and 2001:

|                          | For the year ended December 31, 2003
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | 82.4%                               
|Market Rate               | 84.1%                               
|Affordable Housing        | 99.3%                               

|                          | For the year ended December 31, 2002
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | 84.5%                               
|Market Rate               | 85.1%                               
|Affordable Housing        | 98.8%                               

|                          | For the year ended December 31, 2001
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | N/A                                 
|Market Rate               | 88.8%                               
|Affordable Housing        | 98.9%                               

For the Market Rate properties, the Company focused on increasing physical occupancy rates in 2003.
This was accomplished by reducing rents in certain markets to remain competitive and reflect current market
rents, resulting in an average rent charged per unit of $810 in 2003 compared to $816 in 2002, and by additional
concessions.  This resulted in slightly lower rental revenue in 2003 compared to 2002.  The achievement of the
occupancy goal has positioned the Company to focus on maintaining rent at current levels or potentially
increasing where possible without negatively impacting occupancy during 2004.  The combination of increased
occupancy, reduced concessions and maintained or increased rental rates is expected to result in increased
net collected rent in 2004.  Rental revenue decreased $2.1 million in 2002 compared to 2001 primarily as a
result of increased concessions given and decreased occupancy rates during 2002 compared to 2001.

Rental revenues for the Affordable Housing Properties increased $49,000 in 2003 compared to 2002
primarily as a result of four properties receiving HUD approved rent increases during 2003.  This was partially
offset by a decrease in occupancy rates.  Rental revenue for this segment decreased approximately $81,000
when comparing 2002 to 2001.  These revenues are primarily dependent upon the Company being entitled to
receive rental assistance subsidies from HUD via monthly housing assistance payments ("HAP Payments").
The amount of each monthly HAP Payment is equal to the rent amount (the "Contract Rent") stated in the HAP
Contract with HUD, less the amount payable by the Eligible Resident for such month.

Below is a table setting forth the expiration dates of the HAP Contracts and the HAP revenue
recognized for the Company's Affordable Housing Properties as of December 31, 2003:

|(In thousands)                             | Final           | Revenue Recognized During
|------------------------------------------ | --------------- | -------------------------
|Property                                   | Expiration Date | 2003                     
|                                           |                 |                          
|Ellet Development                          | December 2017   | $	426                    
|Hillwood I                                 | July 2016       | 465                      
|Lakeshore Village (50.0% joint venture)(a) | January 2004    | 789                      
|Puritas Place                              | September 2011  | 699                      
|St. James (Riverview)                      | November 2009   | 462                      
|Shaker Park Gardens II                     | June 2004       | 662                      
|State Road Apartments                      | December 2016   | 420                      
|Statesman II                               | November 2004   | 296                      
|Sutliff Apartments II                      | November 2019   | 805                      
|Tallmadge Acres                            | March 2004      | 726                      
|Twinsburg Apartments                       | June 2009       | 440                      
|Village Towers                             | November 2009   | 429                      
|West High Apartments                       | November 2004   | 554                      

(a) Amounts shown represents 100% payment.

All thirteen properties shown in the above table had positive cash flow during 2003 and are anticipated
to have positive cash flow for the remaining contract terms.  Therefore, none of the HAP contracts are
considered to be loss contracts.

Contract Rents may be adjusted at least annually in accordance with the annual adjustment factor
method for some of the properties.  Generally, these types of adjustments are only permitted if current rents
are below the HUD published Fair Market Rent ("FMR") threshold.  If current rents exceed FMRs, a rent
comparability study must be completed to demonstrate that the property's rents are below "market."

Prior to HAP Contract expiration, "Contract Renewal Request Forms" must be submitted by the
Company 120 days prior to the HAP anniversary date to HUD (or its corresponding contract agent) in order to
renew the existing HAP contract.  Current options available to the Company for the expiring HAP contracts are
as follows: (i) renew at current rents plus an operating cost adjustment factor ("OCAF") that is set by HUD on
an annual basis.  These rents are below the market comparisons for properties that have a mortgage; (ii) renew
at current rents plus an operating cost adjustment factor for properties without a mortgage; or, (iii) opt out of
the Section 8 program.  Opting out of the Section 8 program requires an additional one-year notice to HUD (or
the contract agent) and the affected residents.

The Company believes, that upon expiration of the contracts, the contracts will be renewed, or the
Company will enter into another government subsidized or mortgage restructuring program, or that the
properties will be operated as conventional, market-rate properties.

The following represents the Company's current expectations concerning those HAP contracts which
expire in 2004.

*Lakeshore Village.*  On October 7, 2002, the Company requested a referral to the Office of Multifamily
Housing Assistance Restructuring ("OMHAR") for the full restructuring of the mortgage and reduction of Section
8 rents to comparable market rents, and to renew the HAP Contract.  On February 20, 2003, the partnership
was notified by HUD that the property is eligible for the full restructuring of the mortgage and that the property
was assigned to a participating administrative entity for further processing.  The current HAP contract was
extended by OMHAR through January 31, 2004 to allow for the closing of the mortgage restructuring deal, which
is scheduled for March 31, 2004.  The corresponding renewed HAP Contract will be at reduced rents retroactive
to February 1, 2004.  In the event that the partnership and HUD fail to reach an agreement on the Restructuring
Application, the current contract rents most likely would be reduced to market rents without a decrease in debt
service.  The Company anticipates that the contract will be renewed and that any reduction of rents to current
market rents would be partially offset by a reduction in debt service payments.  Currently, the estimated new
market rents for the property are approximately $636,000, while the current annual contract rents are
approximately $866,000, a difference of $230,000.  This property is a joint venture property in which the
Company has a 50.0% investment accounted for using the equity method.  Therefore, a reduction in rents,
without a corresponding reduction in debt service payments, would decrease net income to the Company by
approximately $115,000.  This reduction would be reflected in the Consolidated Statements of Operations in
the line "Equity in net (loss) income of joint ventures."

*Shaker Park Gardens II.*  In May 2003, the Company requested a renewal of the current contract for
a one-year term with an increase in rents of 3%, as calculated using the OCAF published on February 11, 2003.
The Company's request for an OCAF increase was granted and the contract was renewed for a one-year term
through June 30, 2004.  Upon expiration of the current contract, the Company intends to request a renewal for
an additional one year period.

*Statesman II.*  In July 2003, the Company requested a renewal of the current contract for a one-year
term with an increase in rents of 3%, as calculated using the OCAF published on February 11, 2003.  The
Company's request for an OCAF increase was granted and the contract was renewed for a one-year term
through November 30, 2004.  Upon expiration of the current contract, the Company intends to request a renewal
for an additional one year period.

*Tallmadge Acres.*  The Company requested a renewal of the current contract for a one-year term with
an increase in rents of 3.1%, as calculated using the OCAF published on February 11, 2004.  The Company
anticipates that its request for an OCAF increase will be granted and the contract will be renewed for a one-year
term through March 31, 2005.

*West High.*  In July 2003, the Company requested a renewal of the current contract for a one-year term
with an increase in rents of 3%, as calculated using the OCAF published on February 11, 2003.  The
Company's request for an OCAF increase was granted and the contract was renewed for a one-year term
through November 30, 2004.  Upon expiration of the current contract, the Company intends to request a renewal
for an additional one year period.

***Fees.***The management and service operations recognized a reduction in property management fee
income (after removing the effect of reimbursements) of $1.3 million when comparing 2003 to 2002, and
$900,000 when comparing 2002 to 2001.  Asset management fees decreased $800,000 when comparing 2003
to 2002, and $200,000 when comparing 2002 to 2001.  These decreases are primarily due to the loss in 2003
of the four advised properties and the two joint venture management contracts, as discussed above in
"Dispositions" and "Management and Service Operations," the 2002 transfer of eleven advisory contracts to
another advisor and the loss of five additional advised properties, and the 2001 termination of six property
management contracts.  These decreases were partially offset by the addition of three property management
contracts in November 2003, as discussed above in "Management and Service Operations."  The Management
and Service Operations segment recognized asset disposition fees in 2003 of $423,000 as a result of the
successful disposition of the two advised assets in the fourth quarter of 2003.  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.

***Direct Property Management Expenses Reimbursements.***Direct property management expenses
include service companies expense and reimbursements received from managed properties.  The
reimbursements, in accordance with EITF 01-14 "Income Statement Recharacterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred," represent  certain expense reimbursements, primarily payroll
expenses, that the Company includes in revenue with an equal amount included in expense.  These revenue
amounts are included in property management fees and reimbursements.  For each of the three years ended
December 31, 2003, 2002 and 2001, the amount included in revenues and expenses was $8.8 million, $13.2
million, and $15.3 million, respectively.  The decreases from year to year are the result of the loss of
management contracts and advised assets in 2003 and 2002.

***Painting Service Revenues and Expenses.***Painting service revenues and expenses both increased
in 2003 compared to 2002 primarily as a result of contracts that were entered into by the Company's subsidiary,
Merit Painting Services.  As of March 1, 2004, contracts for the rehabilitation of seven properties had been
signed.  Work on the above contracts is expected to be completed by the end of 2004.  Painting service
revenues and expenses both decreased in 2002 compared to 2001 primarily as a result of projects at joint
venture and managed properties that were primarily completed in 2001.

***Property Operating and Maintenance Expenses.***Property operating and maintenance expenses
increased $5.6 million when comparing 2003 to 2002 and $2.2 million when comparing 2002 to 2001.  The
increase in 2003 compared to 2002 was primarily a result of an increase of $1.9 million in real estate taxes and
insurance resulting from increases in assessed property values and millage rate increases at certain properties
and increased insurance rates.  Additionally, utility expenses increased $1.2 million in 2003 primarily due to
increased gas consumption as a result of a colder winter and spring in 2003 that affected the Company's
midwest  portfolio.  Repair and maintenance expenses increased $1.5 million in 2003 as a result of increased
unit turnover expenses and landscaping costs.  Personnel costs increased $800,000 primarily as a result of
increased salaries and leasing commission bonuses relating to on-site staff.  The increase in 2002 compared
to 2001 was primarily due to an increase in property and liability insurance and also increased payroll and
benefit costs.

***General and Administrative Expenses.***General and administrative expenses decreased $932,000
when comparing 2003 to 2002 primarily as a result of the reduction in payroll expense related to the 2002
restructuring of the advisory business.

***Interest Expense.***Interest expense in 2003 decreased $82,000 or 0.2% compared to 2002.  Interest
expense decreased $1.4 million in 2002 compared to 2001.  The 2002 decrease was primarily attributable to
both the Market Rate segment, which declined as a result of amortization of existing loans and the refinancing
of an $11.0 million loan whose interest rate dropped to 3.40% from 9.61%, and the Management and Service
Operations segment which declined approximately $371,000.  This decline was due to the Company recording
in 2001 additional interest expense in connection with the additional loan fundings on two joint venture
properties that were guaranteed by the Company and borrowings by the Company for major refurbishment at
the properties.  These two properties were two of the three properties of which the Company became the 100%
owner as a result of the 2002 joint venture exchange.

***Gain on Sales.***The net gain on the disposition of properties and land, net, of $227,000 for 2002 was
primarily due to the sale of a Market Rate Property which was classified as held for sale at December 31, 2001.
The net gain on disposition of properties and land, net, of $7.0 million for 2001 resulted from the sale of seven
Market Rate operating properties.

***Gain on Sale of Partnership Interest.***In 2003, the Company sold its partnership interest in a joint
venture property located in Cranberry Township, Pennsylvania.  The Company recognized a gain of $1.3 million
related to this sale.

***Equity in Net Loss of Joint Ventures***.  The combined equity in net loss of joint ventures decreased
$470,000 in 2003 compared to 2002, and increased $1.3 million in 2002 compared to 2001.  The decrease when
comparing 2003 to 2002 was primarily due to the recognition of a gain on the sale of a 50.0% owned joint
venture of which the Company's proportionate share was $450,000.  The increase in the equity in net loss of
joint ventures when comparing 2002 to 2001 was primarily due to two properties in which the Company is a
49.0% owner, completing construction and having available all of their units for leasing by the end of 2002.  One
of these properties, with 252 units, was approximately 79.0% leased at the end of 2002 and the other was
approximately 49.0% leased.  The Company's share of the net loss for 2002 for these two properties was $1.2
million, while for 2001 the Company's share was $29,000.

The following table presents the historical statements of operations of the Company's beneficial interest
in the operations of the joint ventures for the years ended December 31, 2003, 2002 and 2001.

|                                                 | For the year ended December 31,
|------------------------------------------------ | -------------------------------
|(In thousands)                                   | 2003                           
|Beneficial interests in joint venture operations |                                
|Rental revenues                                  | $	3,521                        
|Cost of operations                               | 2,220                          
|                                                 | 1,301                          
|Interest income                                  | 2                              
|Interest expense                                 | (1,344)                        
|Depreciation                                     | (1,199)                        
|Amortization of joint venture deferred costs     | (70)                           
|(Loss) income before discontinued operations:    |                                
|Operating loss                                   | (297)                          
|Gain on disposition of property                  | 450                            
|(Income) loss from discontinued operations       | 153                            
|Equity in net loss of joint ventures             | $	(1,157)                      

***Income From Discontinued Operations.*****  Effective January 1, 2002, in accordance with FAS 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company presents the results of
operations and the gains/(losses) for operating properties sold, which became held for sale after January 1,
2002, as "Income from discontinued operations."  At December 31, 2003, the Company had no properties
classified as held for sale.  In 2002, five properties were disposed of whose operating results and gains/(losses)
were classified as discontinued operations.  The operating (loss) income for these five properties was $(167,000)
for 2002 and $60,000 for 2001.  The gain on disposition of properties, net, included gains on the sales of three
of these properties of $10.3 million and a loss of $632,000 on the sale of a fourth property.  This property was
purchased in November 2000 as a 6.9 acre parcel of land for $5.2 million.  The Company was developing this
property as a multi-use property to include apartments, commercial building and a marina.  The Company had
recorded $3.4 million of costs in developing the property and had completed and was operating the marina.  In
November 2002, the Company received an unsolicited offer to purchase the property for $8.0 million.  The
Company accepted the offer and completed the sale on December 31, 2002 resulting in the above reported loss.
The fifth property disposed of was Gates Mills III which was involved in the 2002 joint venture swap and for which
no gain or loss was recorded.

For further details on "Income from discontinued operations," reference is made to Note 2 of the Notes
to Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

***Inflation***.  Management's belief is that the effects of inflation would be minimal on the operational
performance of its portfolio primarily due to the high correlation between inflation and housing costs combined
with the short term nature, typically one year, of the leases.  The Company also faces limited exposure to
interest rate fluctuations due to its high proportion of fixed rate financing.

**Critical Accounting Policies and Estimates**.

The consolidated financial statements of the Company include accounts of the Company, all
subsidiaries, the Service Companies and the Operating Partnership structured as a DownREIT.  The preparation
of the consolidated financial statements in  conformity with GAAP requires management to make estimates
and assumptions in certain circumstances that affect amounts reported in the consolidated financial statements
and related notes.  In preparing these consolidated financial statements, management has utilized information
available including industry practice and its own past history in forming its estimates and judgments of certain
amounts included in the consolidated financial statements, giving due consideration to materiality.  It is
possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these
consolidated financial statements may not materialize.  However, application of the accounting policies below
involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual
results could differ from these estimates.  In addition, other companies may utilize different estimates, which
may impact comparability of the Company's results of operations to those of companies in similar businesses.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," requires
management to assess the recoverability of the carrying value of long-lived assets when an event of impairment
has occurred.  In performing this analysis, the Company estimates holding periods of the assets, changes in
fair market value of  the assets and cash flows related to the operations of the assets to determine the range
of potential alternatives and assigns a probability of the various alternatives under consideration by
management.  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.
The Company did not record an impairment loss related to the carrying value of its long-lived assets during any
of the years ended December 31, 2003, 2002 or 2001.

SFAS No. 142, "Goodwill and Other Intangible Assets," requires management to review goodwill
annually and when an event of impairment has occurred.  In performing this analysis, the Company determines
the range of potential alternatives and assigns a probability of the various alternatives under consideration by
management.  In determining the potential alternatives, the Company estimates cash flows from management
fee revenue and the related expenses of management contracts that could be in effect in the future.  The
estimates are based upon expected sale dates of existing assets, anticipated acquisition dates of new assets
and the fee revenue and operating expenses related to these assets.  Should estimates used to determine  the
alternatives considered or the probabilities of the occurrence thereof change, an impairment may result which
could materially impact the results of operations of the Company.  The Company did not record an impairment
loss related to goodwill during any of the years ended December 31, 2003, 2002 or 2001.

The Company estimates the amount of real estate taxes for which it will be liable based upon
assumptions relating to possible changes in millage rates and property value reassessments.  In certain
circumstances, it is possible that the actual millage rates or reassessment values are not available until the
following reporting period and that these rates or values could differ from assumptions and require material
adjustments to the liabilities recorded.

Replacements and improvements, such as HVAC equipment, structural replacements, windows,
appliances, flooring, carpeting and kitchen/bath replacements and renovations are capitalized.  Ordinary repairs
and maintenance, such as unit cleaning and painting and appliance repairs are expensed.

**Recent Accounting Pronouncements**

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 if that company
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 financial statements for periods ending after March 15, 2004 to existing
variable interest entities.  The Company has substantially 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.  The Company currently believes that the impact of
adopting the provisions of this Interpretation will have no material effect to the Company's consolidated financial
statements.

In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (the "Statement").  This Statement establishes standards for the
classification and  measurement in a statement of financial position of certain financial instruments with
characteristics of both liabilities and equity.  It requires a financial instrument that is within its scope be
classified as a liability (or an asset in some circumstances) because that financial instrument embodies an
obligation of the Company.  This Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June
15, 2003, excluding certain mandatorily redeemable non-controlling interests, for which the classification and
measurement provisions of the Statement has been deferred indefinitely pursuant to FASB Staff Position 150-3.
The Company has determined that currently it has no instruments that are within the scope of this statement.

**Quantitative and Qualitative Disclosures About Market Risk**

At December 31, 2003, the Company had $21.6 million of variable rate debt.  Additionally, the Company has interest rate risk associated with fixed rate debt
at maturity.  Management has and will continue to manage interest rate risk as follows:  (i) maintain a conservative ratio of fixed rate, long term debt to total debt such
that variable rate exposure is kept at an acceptable level; (ii) consider hedges for certain long term variable and/or fixed rate debt through the use of interest rate swaps
or interest rate caps; and (iii) use treasury locks where appropriate to hedge rates on anticipated debt transactions.  Management uses various financial models and
advisors to assist them in analyzing opportunities to achieve those objectives.

From time to time, the Company may enter into hedge agreements to minimize its exposure to interest rate risks.  In April and May 2002, the Company completed
two interest rate swaps.  The notional amounts of the swaps are approximately $31.2 million.  These swaps were executed to hedge the fair market value of certain fixed
rate loans.  Both swaps terminate at the maturity of the related loans, that is, October 2005 for the $14.0 million swap and August 2004 for the $17.2 million swap.  For
the year ended December 31, 2003, the Company recognized a reduction to interest expense of $896,000 with respect to these two swaps.  The table below provides
information about the Company's financial instruments that are sensitive to changes in interest rates.  For debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity dates.

|                               | **********December 31, 2003** | **December 31, 2002**
|------------------------------ | ----------------------------- | ---------------------
|**(In thousands)**             | ****                          |                      
|**Long term debt**             | **2004**                      | **2005**             
|**Fixed:**                     |                               |                      
|Fixed rate mortgage debt       | $	22,934                      | $	20,187             
|Weighted average interest rate | 8.06%                         | 7.72%                
|                               |                               |                      
|MTN's                          | 105                           | -                    
|Weighted average interest rate | 6.88%                         | -                    
|                               |                               |                      
|Total fixed rate debt          | 23,039                        | 20,187               
|                               |                               |                      
|Variable:                      |                               |                      
|Variable rate mortgage debt    | 166                           | 10,753               
|Weighted average interest rate | 3.4%                          | 3.4%                 
|LIBOR based credit facilities* | 5,000                         | -                    
|Total variable rate debt       | 5,166                         | 10,753               
|Total long term debt           | $	28,205                      | $	30,940             
|                               |                               |                      

*One LIBOR based credit facility matures in July 31, 2006 and the second LIBOR based credit facility matures in December 31, 2004.  At December 31, 2003, there were $5.0 million in  borrowings
outstanding on one of the facilities.

**Sensitivity Analysis**.  At December 31, 2003 and 2002, the Company estimates that a 100 basis point decrease in market interest rates would have changed
the fair value of fixed rate debt to a liability of $620.4 million and $674.7 million, respectively.  The sensitivity to changes in interest rates of the Company's fixed rate
debt was determined with a valuation model based upon changes that measure the net present value of such obligation which arise from the hypothetical estimate as
discussed above.

**CONTINGENCIES**

***Environmental*****.  There are no recorded amounts resulting from environmental liabilities and there are
no known material contingencies with respect thereto.  Future claims for environmental liabilities are not
measurable given the uncertainties surrounding whether there exists a basis for any such claims to be asserted
and, if so, whether any claims will, in fact, be asserted.  Furthermore, no condition is known to exist that would
give rise to a material liability for site restoration, post closure and monitoring commitments, or other costs that
may be incurred with respect to the sale or disposal of a property.  Phase I environmental audits were obtained
at the time of the IPO, property acquisition, or property refinancing, as the case may be, on all of the
Company's wholly owned and joint venture properties.

***Pending Litigation*****.  For a discussion of the pending litigation, see Note 10 of the Notes to the
Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

**Item 7A.  Quantitative and Qualitative Disclosures About Market Risk**

For a discussion of the Quantitative and Qualitative Disclosure about Market Risk and the associated
interest rate sensitivity, reference Management's Discussion and Analysis.

**Item 8.	Consolidated Financial Statements and Supplementary Data**

The response to this item is included in Item 15 of this report.

**Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

None.

**Item 9A.  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 necessarily 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
annual 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.

**PART III**

**Item 10.  Directors and Executive Officers of the Registrant**

The information regarding the Company's Directors, including information regarding the audit
committee's financial expert, contained in the Notice of Annual Meeting and Proxy Statement for the Annual
Meeting of Shareholders to be held on May 5, 2004, is incorporated by reference in this Annual Report on Form
10-K.  Such information will be filed with the SEC no later than 120 days after the year covered by this report.

The information regarding executive officers and other key employees is set forth in Part I of this report
on Form 10-K under the heading "Executive Officers of the Registrant and Other Key Employees."

The Company has adopted a formal Code of Ethics that applies to its Chief Executive Officer, Chief
Financial Officer and Controller.  The Code of Ethics is posted on the Company's website, www.aecrealty.com.
The Company intends to post any future amendments to or waivers from the Code of Ethics that apply to these
individuals on the website also.

**Item 11.  Executive Compensation**

The information on Executive Compensation contained in the Notice of Annual Meeting and Proxy
Statement for the Annual Meeting of Shareholders to be held on May 5, 2004 is incorporated by reference in
this Annual Report on Form 10-K.  Such information will be filed with the SEC no later than 120 days after the
year covered by this report.

**Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters**

The following table summarizes information about the Company's common stock that may be issued
upon exercise of options outstanding and the total number of securities available for future issuance under all
of the existing equity compensation plans as of December 31, 2003.  The equity compensation plans approved
by security holders include the AERC Share Option Plan and the Equity-Based Incentive Compensation Plan.
The Year 2001 Equity Incentive Plan and certain options granted to outside Directors were not approved by
security holders.  For more information regarding these plans, reference is made to Note 15 in the Notes to
Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

|                              |                        |                     | Number of Securities Remaining
|----------------------------- | ---------------------- | ------------------- | ------------------------------
|                              | Number of              |                     | Available for Future Issuance 
|                              | Securities to be       | Weighted Average    | Under Equity Compensation     
|                              | Issued Upon Exercise   | Exercise Price of   | Plans [Excluding Securities   
|Plan Category                 | of Outstanding Options | Outstanding Options | Reflected in the First Column]
|                              |                        |                     |                               
|Equity compensation plans     |                        |                     |                               
|approved by security holders  | 998,633                | $14.91              | 445,180                       
|Equity compensation plans not |                        |                     |                               
|approved by security holders  | 898,750                | $9.43               | 609,277                       
|Total                         | 1,897,383              |                     | 1,054,457                     

Additionally, the information on Security Ownership of Certain Beneficial Owners and Management
contained in the Notice of Annual Meeting and Proxy Statement for the Annual Meeting of Shareholders to be
held on May 5, 2004 is incorporated by reference in this Annual Report on Form 10-K.  Such information will
be filed with the SEC no later than 120 days after the year covered by this report.

**Item 13.  Certain Relationships and Related Transactions**

The information on Certain Relationships and Related Transactions contained in the Notice of Annual
Meeting and Proxy Statement for the Annual Meeting of Shareholders to be held on May 5, 2004 is incorporated
by reference in this Annual Report on Form 10-K.  Such information will be filed with the SEC no later than 120
days after the year covered by this report.

**Item 14.  Principal Accountant Fees and Services**

The information on Principal Accountant Fees and Services contained in the Notice of Annual Meeting
and Proxy Statement for the Annual Meeting of Shareholders to be held on May 5, 2004 is incorporated by
reference in this Annual Report on Form 10-K.  Such information will be filed with the SEC no later than 120
days after the year covered by this report.



**Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K**

(a)	The following documents are filed as part of this Report.

1.	Consolidated Financial Statements: The following documents are filed as part
of this report.

Report of Independent Auditors

Consolidated Balance Sheets at December 31, 2003 and 2002.

Consolidated Statements of Operations for the three years ended
December 31, 2003, 2002 and 2001.

Consolidated Statements of Shareholders' Equity for the three years
ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Cash Flows for the three years ended
December 31, 2003, 2002 and 2001.

Notes to Consolidated Financial Statements.

2.	Financial Statement Schedules:  The following financial statement schedules
of Associated Estates Realty Corporation are filed as part of this Report and
should be read in conjunction with the Consolidated Financial Statements of
Associated Estates Realty Corporation.

Schedules										Page

II	Valuation and Qualifying Accounts						F-38

III	Real Estate and Accumulated Depreciation					F-39

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or Notes
thereto.

(3)	Exhibits:  The Exhibits listed on the accompanying Index to Exhibits immediately following
the financial statement schedules are filed as part of, or incorporated by reference into, this
Report.

(b)	Reports on Form 8-K.

A CurrentReport on Form 8-K was furnished to the SEC on October 30, 2003, under Item 12
(Regulation FD Disclosure), furnishing the Company's earnings press release for the quarter ended
September 30, 2003.



Pursuant to the requirements of Section 13 or 15(d) 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, on the 5th day
of March, 2004.

**ASSOCIATED ESTATES REALTY CORPORATION**

By /s/ Jeffrey I. Friedman

Jeffrey I. Friedman, Chairman of the Board,

and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities indicated on the 5th day of March, 2004.

|Signature               | Title                                        | Date         
|----------------------- | -------------------------------------------- | -------------
|                        |                                              |              
|/s/ Jeffrey I. Friedman | Chairman of the Board and Chief Executive    | March 5, 2004
|Jeffrey I. Friedman     | Officer (Principal Executive Officer)        |              
|                        |                                              |              
|/s/ Lou Fatica          | Chief Financial Officer (Principal Financial | March 5, 2004
|Lou Fatica              | Officer and Principal Accounting Officer)    |              
|                        |                                              |              
|/s/ Albert T. Adams     | Director                                     | March 5, 2004
|Albert T. Adams         |                                              |              
|                        |                                              |              
|/s/ James M. Delaney    | Director                                     | March 5, 2004
|James M. Delaney        |                                              |              
|                        |                                              |              
|/s/ Gerald C. McDonough | Director                                     | March 5, 2004
|Gerald C. McDonough     |                                              |              
|                        |                                              |              
|/s/ Mark L. Milstein    | Director                                     | March 5, 2004
|Mark L. Milstein        |                                              |              
|                        |                                              |              
|/s/ Frank E. Mosier     | Director                                     | March 5, 2004
|Frank E. Mosier         |                                              |              
|                        |                                              |              
|/s/ Richard T. Schwarz  | Director                                     | March 5, 2004
|Richard T. Schwarz      |                                              |              
|                        |                                              |              



|           |                                                                                                                                                                                                                     |  | **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.                                    
|           |                                                                                                                                                                                                                     |  |                                                                                  
|21.1       | List of Subsidiaries.                                                                                                                                                                                               |  | Exhibit 21.1 to Form
10-K filed herewith.                                        
|           |                                                                                                                                                                                                                     |  |                                                                                  
|23.1       | Consent of Independent Accountants                                                                                                                                                                                  |  | Exhibit 23.1 to Form
10-K filed herewith.                                        
|           |                                                                                                                                                                                                                     |  |                                                                                  
|31         | Certification of Chief Executive Officer Pursuant  to Section 302 of the
Sarbanes Oxley Act                                                                                                                         |  | Exhibit 31 to Form 10-K
filed herewith.                                          
|           |                                                                                                                                                                                                                     |  |                                                                                  
|31.1       | Certification of Chief Financial Officer Pursuant to Section 302 of the

Sarbanes Oxley Act.                                                                                                                        |  | Exhibit 31.1 to Form
10-K 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-K
filed herewith.                                          





|Consolidated Financial Statements:                                  | Page
|------------------------------------------------------------------- | ----
|                                                                    |     
|Report of Independent Auditors                                      | F-2 
|Consolidated Balance Sheets at December 31, 2003 and 2002           | F-3 
|Consolidated Statements of Operations for the                       |     
|three years ended December 31, 2003, 2002 and 2001                  | F-4 
|Consolidated Statements of Shareholders' Equity for the three       |     
|years ended December 31, 2003, 2002 and 2001                        | F-5 
|Consolidated Statements of Cash Flows for the three                 |     
|years ended December 31, 2003, 2002 and 2001                        | F-6 
|Notes to Consolidated Financial Statements                          | F-7 
|                                                                    |     
|Financial Statement Schedules:                                      |     
|II - Valuation and Qualifying Accounts                              | F-38
|III - Real Estate and Accumulated Depreciation at December 31, 2003 | F-39
|                                                                    |     

All other schedules are omitted because they are not applicable or the required information is shown
in the consolidated financial statements or notes thereto.



To the Board of Directors and Shareholders of

Associated Estates Realty Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present
fairly, in all material respects, the financial position of Associated Estates Realty Corporation and its
subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.  In addition, in our opinion, the financial statement schedules listed
in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.  These financial statements and
financial statement schedules are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial statement schedules based on our audits.  We
conducted our audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the  financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1 and 2 to the consolidated financial statements, in 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets."  In addition, as discussed in Notes 1 and 4 to the consolidated financial statements,
in 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 5, 2004



**CONSOLIDATED BALANCE SHEETS**

|                                                                | December 31,
|--------------------------------------------------------------- | ------------
|(In thousands, except share amounts)                            | 2003        
|**ASSETS**                                                      |             
|Real estate assets                                              |             
|Land                                                            | $	91,367    
|Buildings and improvements                                      | 796,158     
|Furniture and fixtures                                          | 32,919      
|                                                                | 920,444     
|Less:  accumulated depreciation                                 | (264,386)   
|                                                                | 656,058     
|Construction in progress                                        | 5,527       
|Real estate, net                                                | 661,585     
|Cash and cash equivalents                                       | 2,212       
|Restricted cash                                                 | 10,889      
|Accounts and notes receivable, net                              |             
|Rents                                                           | 1,132       
|Affiliates and joint ventures                                   | 4,922       
|Other                                                           | 2,238       
|Investments in joint ventures, net                              | 8,727       
|Goodwill                                                        | 1,725       
|Intangible and other assets, net                                | 11,363      
|                                                                | $	704,793   
|                                                                |             
|**LIABILITIES AND SHAREHOLDERS' EQUITY**                        |             
|Secured debt                                                    | $	543,391   
|Unsecured debt                                                  | 105         
|Total indebtedness                                              | 543,496     
|Accounts payable and accrued expenses                           | 24,295      
|Dividends payable                                               | 3,311       
|Resident security deposits                                      | 4,187       
|Funds held on behalf of managed properties                      |             
|Affiliates and joint ventures                                   | 2,189       
|Other                                                           | 1,066       
|Accrued interest                                                | 2,649       
|Commitments and contingencies (Note 10)                         | -           
|Total liabilities                                               | 581,193     
|                                                                |             
|Operating partnership minority interest                         | 2,172       
|                                                                |             
|Shareholders' equity                                            |             
|Preferred shares, Class A cumulative, without                   |             
|par value; 3,000,000 authorized; 225,000 issued and outstanding | 56,250      
|Common shares, without par value, $.10 stated value; 50,000,000 |             
|authorized; 22,995,763 issued and 19,478,681 and 19,473,576     |             
|outstanding at December 31, 2003 and 2002, respectively         | 2,300       
|Paid-in capital                                                 | 279,087     
|Accumulated distributions in excess of accumulated net income   | (184,436)   
|Less:  Treasury shares, at cost, 3,517,082 and 3,522,187 shares |             
|at December 31, 2003 and 2002, respectively                     | (31,773)    
|Total shareholders' equity                                      | 121,428     
|                                                                | $	704,793   







**CONSOLIDATED STATEMENTS OF OPERATIONS**

|                                                                       | For the year ended December 31,
|---------------------------------------------------------------------- | -------------------------------
|(In thousands, except per share amounts)                               | 2003                           
|Revenues                                                               |                                
|Rental                                                                 | $	136,743                      
|Property management fees and reimbursements                            | 11,811                         
|Asset management fees                                                  | 1,819                          
|Asset disposition fees                                                 | 423                            
|Painting services                                                      | 2,827                          
|Other                                                                  | 3,702                          
|Total revenues                                                         | 157,325                        
|Expenses                                                               |                                
|Property operating and maintenance                                     | 71,382                         
|Depreciation and amortization                                          | 34,828                         
|Direct property management and service companies expenses              | 12,458                         
|Painting services                                                      | 2,809                          
|General and administrative                                             | 6,084                          
|Interest expense                                                       | 40,759                         
|Total expenses                                                         | 168,320                        
|(Loss) income before gain on disposition of properties and land,       |                                
|net, equity in net loss of joint ventures, gain on sale of partnership |                                
|interest, minority interest and income from discontinued operations    | (10,995)                       
|Gain on disposition of properties and land, net                        | -                              
|Equity in net loss of joint ventures                                   | (1,157)                        
|Gain on sale of partnership interest                                   | 1,314                          
|Minority interest in operating partnership                             | (75)                           
|**(Loss) income from continuing operations**                           | (10,913)                       
|Income from discontinued operations:                                   |                                
|Operating (loss) income                                                | -                              
|Gain on disposition of properties, net                                 | -                              
|Income from discontinued operations                                    | -                              
|**Net (loss) income**                                                  | (10,913)                       
|Preferred share dividends                                              | (5,484)                        
|**Net (loss) income applicable to common shares**                      | $	(16,397)                     
|****                                                                   |                                
|**Earnings per common share - basic:**                                 |                                
|(Loss) income from continuing operations applicable to common          |                                
|shares                                                                 | $	(.85)                        
|Income from discontinued operations                                    | -                              
|Net (loss) income applicable to common shares                          | $	(.85)                        
|                                                                       |                                
|**Earnings per common share - diluted:**                               |                                
|(Loss) income from continuing operations applicable to common          |                                
|shares                                                                 | $	(.85)                        
|Income from discontinued operations                                    | -                              
|Net (loss) income applicable to common shares                          | $	(.85)                        
|                                                                       |                                
|**Dividends declared per common share**                                | $	.68                          
|                                                                       |                                
|**Weighted average number of common shares outstanding**               |                                
|**- Basic**                                                            | 19,401                         
|**- Diluted**                                                          | 19,401                         





**ASSOCIATED ESTATES REALTY CORPORATION**

******CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY**

|                                                                                      |           |            |               |                       |              | Accumulated   |               |            
|------------------------------------------------------------------------------------- | --------- | ---------- | ------------- | --------------------- | ------------ | ------------- | ------------- | -----------
|                                                                                      |           | Class A    |               |                       |              | Distributions | Accumulated   |            
|                                                                                      |           | Cumulative | Common Shares | Total Paid-In Capital | in Excess of | Other         | Treasury     
|                                                                                      |           | Preferred  | (at $.10      | Paid-In               | Unearned     | Accumulated   | Comprehensive | Shares     
|                                                                                      | Total     | Shares     | stated value) | Capital               | Compensation | Net Income    | Loss          | (at cost)  
|(In thousands, except share amounts)                                                  |           |            |               |                       |              |               |               |            
|Balance, December 31, 2000                                                            | $	196,456 | $	56,250   | $ 	2,300      | $	280,206             | $	(588)      | $	(108,002)   | $     (2)     | $ 	(33,708)
|Comprehensive income:                                                                 |           |            |               |                       |              |               |               |            
|Net income                                                                            | 4,907     | -          | -             | -                     | -            | 4,907         | -             | -          
|Other comprehensive income:                                                           |           |            |               |                       |              |               |               |            
|Reclassification adjustment for gains included in net income of $2                    | 2         | -          | -             | -                     | -            | -             | 2             | -          
|Company's portion of the unrealized loss on a derivative instrument                   |           |            |               |                       |              |               |               |            
|held at a joint venture property                                                      | (45)      | -          | -             | -                     | -            | -             | (45)          | -          
|Total comprehensive income                                                            | 4,864     | -          | -             | -                     | -            | 4,907         | (43)          |            
|Issuance of 778 common shares from treasury shares                                    | 8         | -          | -             | (1)                   | -            | -             | -             | 9          
|Issuance of 2,000 common shares relating to exercise of options from treasury shares  | 19        | -          | -             | (10)                  | -            | -             | -             | 29         
|Issuance of 82,133 restricted common shares from treasury shares                      | 129       | -          | -             | (385)                 | (584)        | -             | -             | 1,098      
|Amortization of unearned compensation                                                 | 385       | -          | -             | -                     | 385          | -             | -             | -          
|Purchase of 13,087 treasury shares                                                    | (116)     | -          | -             | -                     | -            | -             | -             | (116)      
|Common share dividends declared                                                       | (24,265)  | -          | -             | -                     | -            | (24,265)      | -             | -          
|Preferred share dividends declared                                                    | (5,484)   | -          | -             | -                     | -            | (5,484)       | -             | -          
|Balance, December 31, 2001                                                            | 171,996   | 56,250     | 2,300         | 279,810               | (787)        | (132,844)     | (45)          | (32,688)   
|Comprehensive income:                                                                 |           |            |               |                       |              |               |               |            
|Net income                                                                            | 1,479     | -          | -             | -                     | -            | 1,479         | -             | -          
|Other comprehensive income:                                                           |           |            |               |                       |              |               |               |            
|Company's portion of the unrealized gain on a derivative instrument held at a joint   |           |            |               |                       |              |               |               |            
|venture property                                                                      | 45        | -          | -             | -                     | -            | -             | 45            | -          
|Total comprehensive income                                                            | 1,524     | -          | -             | -                     | -            | 1,479         | 45            | -          
|Issuance of 1,112 common shares from treasury shares                                  | 10        | -          | -             | (3)                   | -            | -             | -             | 13         
|Issuance of 55,669 common shares relating to exercise of options from treasury shares | 438       | -          | -             | (192)                 | -            | -             | -             | 630        
|Issuance of 36,985 restricted common shares from treasury shares                      | -         | -          | -             | (58)                  | (368)        | -             | -             | 426        
|Forfeiture of 24,730 restricted shares to treasury                                    | 3         | -          | -             | (108)                 | 256          | -             | -             | (145)      
|Amortization of unearned compensation                                                 | 457       | -          | -             | -                     | 457          | -             | -             | -          
|Purchase of 16,589 treasury shares                                                    | (162)     | -          | -             | -                     | -            | -             | -             | (162)      
|Other                                                                                 | -         | -          | -             | 32                    | -            | (32)          | -             | -          
|Common share dividends declared                                                       | (17,916)  | -          | -             | -                     | -            | (17,916)      | -             | -          
|Preferred share dividends declared                                                    | (5,485)   | -          | -             | -                     | -            | (5,485)       | -             | -          
|Balance, December 31, 2002                                                            | 150,865   | 56,250     | 2,300         | 279,481               | (442)        | (154,798)     | -             | (31,926)   
|Comprehensive (loss) income:                                                          |           |            |               |                       |              |               |               |            
|Net (loss) income                                                                     | (10,913)  | -          | -             | -                     | -            | (10,913)      | -             | -          
|Other comprehensive income:                                                           |           |            |               |                       |              |               |               |            
|Total comprehensive (loss) income                                                     | (10,913)  | -          | -             | -                     | -            | (10,913)      | -             | -          
|Amortization of unearned compensation                                                 | 257       | -          | -             | -                     | 257          | -             | -             | -          
|Forfeiture of 6,030 restricted common shares to treasury                              | (1)       | -          | -             | (4)                   | 47           | -             | -             | (44)       
|Issuance of 23,075 restricted common shares from treasury shares                      | 13        | -          | -             | (119)                 | (129)        | -             | -             | 261        
|Purchase of 12,790 treasury shares                                                    | (74)      | -          | -             | -                     | -            | -             | -             | (74)       
|Issuance of 850 common shares from treasury shares                                    | 6         | -          | -             | (4)                   | -            | -             | -             | 10         
|Common share dividends declared                                                       | (13,241)  | -          | -             | -                     | -            | (13,241)      | -             | -          
|Preferred share dividends declared                                                    | (5,484)   | -          | -             | -                     | -            | (5,484)       | -             | -          
|Balance, December 31, 2003                                                            | $	121,428 | $	56,250   | $	 2,300      | $	279,354             | $	(267)      | $	(184,436)   | $	-           | $	(31,773) 





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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

****

|                                                                      | For the year ended December 31,
|--------------------------------------------------------------------- | -------------------------------
|(In thousands)                                                        | 2003                           
|Cash flow from operating activities:                                  |                                
|Net (loss) income                                                     | $	(10,913)                     
|Adjustments to reconcile net income to net cash provided by operating |                                
|activities:                                                           |                                
|Depreciation and amortization                                         | 34,828                         
|Loss on fixed asset replacements write-off                            | 347                            
|Minority interest in operating partnership                            | 75                             
|Costs related to prepayment of debt                                   | -                              
|Gain on disposition of properties and land, net                       | -                              
|Equity in net loss of joint ventures                                  | 1,157                          
|Gain on sale of partnership interest                                  | (1,314)                        
|Earnings distributed from joint ventures                              | 13                             
|Net change in assets and liabilities:                                 |                                
|-   Accounts and notes receivable                                     | 1,644                          
|-   Accounts and notes receivable from affiliates and joint ventures  | 1,091                          
|-   Accounts payable and accrued expenses                             | (872)                          
|-   Other operating assets and liabilities                            | 2,443                          
|-   Restricted cash                                                   | 2,437                          
|-   Funds held for non-owned managed properties                       | (719)                          
|-   Funds held for non-owned managed properties of affiliates         | (1,459)                        
|Total adjustments                                                     | 39,671                         
|Net cash flow provided by operations                                  | 28,758                         
|Cash flow from investing activities:                                  |                                
|Recurring fixed asset additions                                       | (9,548)                        
|Revenue enhancing/non-recurring fixed asset additions                 | (4,302)                        
|Acquisition/development fixed asset additions                         | -                              
|Purchase of operating partnership units                               | (211)                          
|Net proceeds received from sale of properties and land                | -                              
|Proceeds from sale of partnership interest                            | 2,107                          
|Joint venture distribution from sale proceeds                         | 475                            
|Capitalized costs on investment in joint venture                      | (30)                           
|Contributions to joint ventures                                       | -                              
|Net cash flow (used for) provided by investing activities             | (11,509)                       
|Cash flow from financing activities:                                  |                                
|Principal payments on secured debt                                    | (11,346)                       
|Payment of debt procurement costs                                     | (54)                           
|Proceeds from secured debt                                            | 9,346                          
|Principal payment on Medium Term Notes                                | -                              
|Line of credit borrowings                                             | 47,323                         
|Line of credit repayments                                             | (42,323)                       
|Common share dividends paid                                           | (13,241)                       
|Preferred share dividends paid                                        | (5,484)                        
|Operating partnership distributions paid                              | (84)                           
|(Purchase) issue of treasury shares - net                             | (74)                           
|Net cash flow used for financing activities                           | (15,937)                       
|Increase (decrease) in cash and cash equivalents                      | 1,312                          
|Cash and cash equivalents, beginning of year                          | 900                            
|Cash and cash equivalents, end of year                                | $	2,212                        





**ASSOCIATED ESTATES REALTY CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**



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

**Business**

Associated Estates Realty Corporation (the "Company") is a self-administered and self-managed 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 December 31, 2003, the Company owns or property manages 107 apartment communities in
twelve sates consisting of 24,351 units.  The Company owns, either directly or through subsidiaries, or holds
ownership interests in 78 of the 107 apartment communities containing 18,313 units in 10 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 29 communities consisting of
6,038 units.  Additionally, the Company property manages one commercial property containing approximately
270,000 square feet and asset manages a 186 unit apartment community and two commercial properties
containing approximately 424,000 square feet.

**Principles of Consolidation**

The accompanying consolidated financial statements of the Company include the accounts of the
Company, all subsidiaries and qualified REIT subsidiaries, which include but are not limited to, separate legal
entities that were formed in connection with project specific, nonrecourse mortgage refinancing for which
records, books of accounts and depository accounts must be maintained that are separate and apart from any
other person or entity; the Service Companies (which are taxed as a Taxable REIT Subsidiary ("TRS") under
the RMA implemented in 1999), and an Operating Partnership structured as a DownREIT of which an aggregate
97.0% is owned by the Company as of December 31, 2003.  Interests held by limited partners in real estate
partnerships controlled by the Company are reflected as "Operating partnership minority interest" in the
Consolidated Balance Sheets.  Capital contributions, distributions and profits and losses are allocated to
minority interests in accordance with the terms of the Operating Partnership agreement.  The DownREIT
structure enabled the Company to acquire and operate two multifamily apartments in an operating partnership
entity that is separate from other properties owned by the Company.  In the DownREIT structure, the limited
partners contributed the two real estate assets to the operating partnership and, in return, received partnership
units entitling them to a share of the profits, based on the number of operating partnership units.  The operating
partnership units entitle the holder to exchange their partnership units at some future time for common shares
in the Company or to redeem such partnership units for cash (at the Company's option).  The Company is the
general partner.  Additionally, the common stock of all qualified REIT subsidiaries included in the Company's
consolidated financial statements is 100% owned by the Company.

Investments in joint ventures, that are 50.0% or less owned by the Company, are presented using the
equity method of accounting as the Company has the ability to exercise significant influence over, but does
not have financial or operating control over such entities.  Since the Company intends to fulfill its obligations
as a partner in the joint ventures, the Company has recognized its share of losses and distributions in excess
of its investment.  For additional information concerning the Company's activity in connection with its joint
venture investments, reference is made to Note 7.  Also, the Company has made certain agreements with its
joint venture partners to guarantee certain debt obligations at various joint venture properties that may require
the Company to incur fundings above its prorata share.  These guarantees are detailed in Note 10.

All significant intercompany balances and transactions have been eliminated in consolidation.

**Use of Estimates**

The preparation of the consolidated financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the reporting periods.  Actual
results could differ from these estimates.

**Cash Equivalents**

The Company considers highly liquid investments with an original maturity of three months or less
when purchased to be cash equivalents.

**Real Estate and Depreciation**

Real estate assets are stated at cost less accumulated depreciation.  Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets as follows:

Buildings and improvements		5 - 30 years

Furniture, fixtures and equipment		5 - 10 years

The Company capitalizes interest costs on funds used in construction, real estate taxes and insurance
from the commencement of development activity through the time the property is ready for leasing.

The Company follows a practice of discontinuing the depreciation of assets specifically identified by
management as held for sale.  There were no properties classified as held for sale at December 31, 2003 or
2002.

**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.

**Impairment of Long-Lived Assets**

Management reviews the carrying value of held for use real estate assets using estimated future cash
flows, including estimated proceeds from disposition, whenever an event or change in circumstance indicates
that the asset value may not be recoverable.

The Company uses the undiscounted cash flow method to determine impairment in the carrying value
of its long-lived assets.  Measurement of an impairment loss is determined by reducing the carrying value of
the assets to fair value.  The Company's estimate of fair value of the asset then becomes the new cost basis
of the asset and this new basis is depreciated over the asset's remaining life.  Assets that are identified by
management as held for sale or abandonment are recorded at the lower of carrying value or fair value less cost
to sell.  Depreciation of these assets is discontinued.

When there is an impairment indicator, the Company determines whether a real estate asset is
impaired.  In performing this analysis, the Company determines the range of potential alternatives and assigns
a probability of the various alternatives under consideration by management.  Should the alternatives considered
or the probability of the occurrence thereof change, an impairment may result which could materially impact
the results of operations of the Company.

**Deferred Leasing and Financing Costs**

Costs incurred in obtaining long-term financing are deferred and amortized over the life of the associated
instrument on a straight-line basis, which approximates the effective interest method.   External costs incurred
in the leasing of commercial and retail space are amortized on a straight-line basis over the terms of the related
lease agreements.

**Intangible Assets**

The Company currently has only one intangible asset which represents the allocated purchase price
from the MIG Realty Advisors, Inc. ("MIGRA") merger associated with the acquired advisory, property
management and mortgage servicing contracts obtained from the merger.  The Company also has goodwill
recorded associated with this transaction.  Effective January 1, 2002, the Company reviews its intangible asset
and goodwill for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") 142.
SFAS 142 requires an annual review of intangibles and goodwill.  Additionally, the Company  analyzes its
intangible asset and goodwill whenever there is an impairment indicator.  Effective January 1, 2002, in
accordance with SFAS 142, goodwill is no longer being amortized.  See Note 4 for additional information related
to the intangible asset and goodwill.



**Revenue Recognition**

The Company's residential property leases are for terms of generally one year or less.  Rental income
is recognized on the straight-line basis.  Retroactive revenue increases related to budget based Affordable
Housing Properties are generally recognized based on rental applications that are approved by HUD.

Acquisition, management and disposition fees and other fees are recognized when the related services
are performed and the earnings process is complete.  Servicing fee income related to pension fund loans is
recognized when earned and is included in other income in the Consolidated Statements of Operations.

Rent concessions, including free rent and leasing commissions paid to third parties, incurred in
connection with residential property leases, are capitalized and amortized on a straight-line basis over the terms
of the related leases (generally one year) and are charged as a reduction of rental revenues.

**Property Management**

In accordance with EITF 01-14, "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred," effective January 1, 2002, the Company recharacterized as revenues certain
reimbursements received for expenses incurred in connection with the management of properties for third
parties, joint ventures and other affiliates.  Previously, the Company netted reimbursements against the
expenses.  Effective January 1, 2002, the Company is reporting these reimbursements as revenues and the
reimbursed expenditures as direct property management expenses as the Company is the primary obligor with
respect to salaries and benefits relating to employees at these properties.  The presentation for 2001 has been
recharacterized on the same basis.  For the years ended December 31, 2003, 2002 and 2001, the
reimbursements shown as revenues were equivalent to the expenses, which were $8.8 million, $13.2 million
and $15.3 million, respectively.

**Advertising Costs**

The Company recognizes advertising costs as expense when incurred.  The total amount charged to
advertising expense was $2.5 million for the year ended December 31, 2003 and $2.9 million for each of the
years ended December 31, 2002 and 2001, respectively.  There were no advertising costs reported as assets
for the years ended December 31, 2003 and 2002.

**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 stock 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 $267,000, $442,000 and $787,000
at December 31, 2003, 2002 and 2001, respectively.  If the fair value method had been applied to the stock
option grants, as prescribed by SFAS 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 (loss) income and earnings per share at December 31 would have been as follows:

|(In thousands, except per share data)                   | 2003       | 2002      | 2001   
|------------------------------------------------------- | ---------- | --------- | -------
|                                                        |            |           |        
|Net (loss) income                                       | $	(10,913) | $	1,479   | $	4,907
|Total stock compensation cost recognized                | 256        | 457       | 385    
|Total stock compensation cost had SFAS 123 been adopted | (374)      | (751)     | (765)  
|Proforma net (loss) income had SFAS 123 been adopted    | $	(11,031) | $	1,185   | $	4,527
|                                                        |            |           |        
|Net (loss) income applicable to common shares:          |            |           |        
|Net (loss) income as reported                           | $	(16,397) | $	(4,006) | $	(577)
|Total stock compensation cost recognized                | 256        | 457       | 385    
|Total stock compensation cost had SFAS 123 been adopted | (374)      | (751)     | (765)  
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(16,515) | $	(4,300) | $	(957)
|                                                        |            |           |        
|(Loss) income per common share - Basic                  |            |           |        
|Net (loss) income as reported                           | $	(.85)    | $	(.21)   | $	(.03)
|Total stock compensation cost recognized                | .02        | .03       | .02    
|Total stock compensation cost had SFAS 123 been adopted | (.02)      | (.04)     | (.04)  
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(.85)    | $	(.22)   | $	(.05)
|                                                        |            |           |        
|(Loss) income per common share - Diluted                |            |           |        
|Net (loss) income as reported                           | $	(.85)    | $	(.21)   | $	(.03)
|Total stock compensation cost recognized                | .02        | .03       | .02    
|Total stock compensation cost had SFAS 123 been adopted | (.02)      | (.04)     | (.04)  
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(.85)    | $	(.22)   | $	(.05)

**Operating Partnership Minority Interest**

In conjunction with the acquisition of the operating partnership, the Company issued a total of 522,032
operating partnership units ("OP units").  If and when the OP units are presented for redemption, the Company
has the option to redeem, in certain circumstances, the OP units for common shares exchangeable on a one-for-one basis, or the cash equivalent amount.  The OP unitholders are entitled to receive cumulative distributions
per OP unit equal to the per share distributions on the Company's common shares.  The Company charged
$75,000, $324,000 and $478,000 to "Minority interest in operating partnership" in the Consolidated Statements
of Operations  relating to the OP unitholders allocated share of net income for the years ended December 31,
2003, 2002 and 2001, respectively.  There are 93,023 OP units remaining as of December 31, 2003.

The following table identifies the number of OP units redeemed, the cash paid to redeem the units,
the recorded value of the units when issued and the difference between the cash paid and the recorded value
which reduced the recorded amount of the underlying real estate (in thousands, except units redeemed):

|     |          |           | Recorded | Reduction    
|---- | -------- | --------- | -------- | -------------
|     | Units    |           | Value At | in Underlying
|Year | Redeemed | Cash Paid | Issuance | Real Estate  
|     |          |           |          |              
|2000 | 19,662   | $    144  | $    436 | $    292     
|2001 | 39,314   | 393       | 929      | 536          
|2002 | 335,000  | 3,100     | 7,600    | 4,500        
|2003 | 35,033   | 211       | 800      | 589          
|     | 429,009  | $ 3,848   | $ 9,765  | $ 5,917      

**Income Taxes**

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986 (the "Code"),
as amended.  As a REIT, the Company is entitled to a tax deduction for dividends paid to its shareholders,
thereby effectively subjecting the distributed net income of the Company to taxation at the shareholder level
only, provided it distributes at least 90.0% of its taxable income and meets certain other qualifications.

The Service Companies operate as taxable C-corporations under the Code and have accounted for
income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes.  The Service
Companies have elected to be treated as Taxable REIT Subsidiaries.  Taxes are provided for those Service
Companies having net profits for both financial statement and income tax purposes.  The 2003, 2002 and 2001
net operating loss carryforwards for the Service Companies, in the aggregate, are approximately $7.3 million,
$7.1 million,  and $7.2 million, respectively, and expire during the years 2009 to 2023.

The gross deferred tax assets were $4.5 million, $4.3 million and $4.1 million at December 31, 2003,
2002 and 2001, respectively, and relate principally to net operating losses of the Service Companies.  Gross
deferred tax liabilities of $156,000, $163,000 and $517,000 at December 31, 2003, 2002 and 2001, respectively,
relate primarily to tax basis differences in fixed assets and intangibles.  The deferred tax valuation allowance
was $4.3 million, $4.1 million and $3.7 million at December 31, 2003, 2002 and 2001, respectively.  The
Company reserves for net deferred tax assets when management believes it is more likely than not that they
will not be realized.

At December 31, 2003 and 2002, the Company's net tax basis of properties exceeds the amount set
forth in the Company's Consolidated Balance Sheets by $100.8 million and $89.9 million, respectively.

******Reconciliation Between GAAP Net (Loss) Income and Taxable (Loss) Income**

The following reconciles GAAP net (loss) income to taxable income:

|(In thousands)                                           | Year Ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         | 2003                   
|GAAP net (loss) income                                   | $	(10,913)             
|Add:	GAAP net loss of Taxable REIT                       |                        
|Subsidiaries and minority interest in joint venture, net | 443                    
|GAAP net (loss) income from REIT operations (*)          | (10,470)               
|                                                         |                        
|Add:	Book depreciation and amortization                  | 36,792                 
|Less:	Tax depreciation and amortization                  | (27,906)               
|Book/tax differences on gains (losses) from              |                        
|capital transactions                                     | 1,079                  
|Other book/tax differences, net                          | (2,198)                
|Taxable (loss) income before adjustments                 | (2,703)                
|Less: Capital gains                                      | -                      
|Taxable (loss) income subject to dividend requirement    | $	(2,703)              

(*) All adjustments to GAAP net (loss) income from REIT operations are net of amounts attributable to taxable REIT subsidiaries and minority

interests.

**Reconciliation Between Cash Dividends Paid and Dividends Paid Deduction**



|(In thousands)                                     | Year Ended December 31,
|-------------------------------------------------- | -----------------------
|                                                   | 2003                   
|Cash dividends paid                                | $	18,725               
|Less: Portion designated capital gain distribution | -                      
|Less: Return of Capital                            | (18,725)               
|Dividends paid deduction                           | $	-                    

**Dividends Per Share**

Total dividends per common share and the related components for the years ended December 31, 2003,
2002 and 2001, as reported for income tax purposes, were as follows:

|For the year ended December 31, 2003
|------------------------------------
|                                    
|                                    
|                                    
|Date Paid                           
|                                    
|02/1/2003                           
|05/1/2003                           
|08/1/2003                           
|11/1/2003                           
|                                    

|For the year ended December 31, 2002
|------------------------------------
|                                    
|                                    
|                                    
|Date Paid                           
|                                    
|02/1/2002                           
|05/1/2002                           
|08/1/2002                           
|11/1/2002                           
|                                    

|For the year ended December 31, 2001
|------------------------------------
|                                    
|                                    
|                                    
|Date Paid                           
|                                    
|02/1/2001                           
|05/1/2001                           
|08/1/2001                           
|11/1/2001                           
|                                    

Preferred dividends of $5.5 million were paid for each of the years ended December 31, 2003, 2002 and
2001, of which none, $4.0 million and $2.2 million were designated as a capital gain dividend for the years
ended December 31, 2003, 2002 and 2001, respectively.

**Derivative Instruments and Hedging Activities**

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), as amended and interpreted, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging
activities.  As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the
resulting designation.  Derivatives used to hedge the exposure to changes in the fair value of an asset, liability
or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.
Derivatives used to hedge the exposure to variability in expected future cash flows or other types of forecasted
transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged
item related to the hedged risk are recognized in earnings.  For derivatives designated as cash flow hedges,
the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive
income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects
earnings and the ineffective portion of changes in the fair value of the derivative is recognized directly in
earnings.  The Company assesses the effectiveness of each hedging relationship by comparing the changes
in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the
designated hedged item or transaction.  For derivatives not designated as hedges, changes in fair value are
recognized in earnings.

The Company's objective in using derivatives is to add stability to interest expense and to manage its
exposure to interest rate movements or other identified risks.  To accomplish this objective, the Company
primarily uses interest rate swaps as part of its hedging strategy.  Interest rate swaps designated as fair value
hedges involve the payment of variable-rate amounts in exchange for fixed-rate payments over the life of the
agreements without exchange of the underlying principal amount.  During 2003 and 2002, such derivatives were
used to hedge the changes in fair value associated with existing fixed rate loans.

As of December 31, 2003, no derivatives were designated as cash flow hedges or hedges of net
investment in foreign operations.  Additionally, the Company does not use derivatives for trading or speculative
purposes and currently does not have any derivatives that are not designated as hedges.  At December 31,
2003 and 2002, derivatives with a fair value of $867,000 and $1.4 million were included in other assets and
secured debt.  No hedge ineffectiveness on hedges was recognized during 2003 and 2002.

The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $45,000 of
net unrealized gains/losses from accumulated other comprehensive income to interest expense during 2002.

From time to time, the Company may enter into hedge agreements to minimize its exposure to interest
rate risks.  Following is a summary of the Company's hedge agreement activity:

On April 19, 2002, the Company executed an interest rate swap with a notional amount of $14.0 million
(which commenced on May 15, 2002) to hedge the fair market value of a fixed rate loan.  The swap amortizes
monthly in accordance with the amortization of the hedged loan and expires upon the maturity date of the loan.
The Company recorded a credit to interest expense of $450,000 and $241,000 for the years ended December
31, 2003 and 2002, respectively, with regards to this swap.

On May 14, 2002, the Company executed an interest rate swap with a notional amount of $17.2 million
(which commenced on June 3, 2002) to hedge the fair market value of a fixed rate loan.  The hedged loan
requires interest only payments until maturity at which time the total $17.2 million is due.  The swap does not
amortize monthly and expires upon the maturity date of the loan.  The Company recorded a credit to interest
expense of $446,000 and $201,000 for the years ended December 31, 2003 and 2002, respectively, with regards
to this swap.

On February 25, 2000, the Company executed two interest rate swaps.  The notional amounts of the
swaps were approximately $10.6 million (which commenced March 1, 2000) and $54.8 million (which
commenced March 10, 2000).  The swaps amortized monthly in accordance with the amortization of the hedged
loans and were to expire upon maturity of the loans.  These swaps were executed to hedge the fair market value
of five fixed rate loans.  On December 11, 2000, the Company executed termination agreements for both swaps
and received termination payments totaling $3.2 million, which are being amortized over the remaining terms
of the related loans (May 2007 for the $10.6 million swap and October 2007 for the $54.8 million swap).  The
Company recorded a credit to interest expense of $476,000 during each of the years ended December 31, 2003,
2002 and 2001 with regards to the amortization of the termination payments.

**Treasury Shares**

The Company records the purchase of Treasury shares at cost.  From time to time, the Company may
reissue these shares.  When the Company reissues the shares, the Company accounts for the issuance based
on the "First in, first out" method.

**Recent Accounting Pronouncements**

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 if that company
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 to existing variable interest entities.  The Company has substantially 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.  The Company currently
believes that the impact of adopting the provisions of this Interpretation will have no material effect to the
Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" (the "Statement").  This Statement establishes standards for the
classification and  measurement in a statement of financial position of certain financial instruments with
characteristics of both liabilities and equity.  It requires a financial instrument that is within its scope be
classified as a liability (or an asset in some circumstances) because that financial instrument embodies an
obligation of the Company.  This Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15,
2003, excluding certain mandatorily redeemable non-controlling interests, for which the classification and
measurement provisions of the Statement has been deferred indefinitely pursuant to FASB Staff Position 150-3.
The Company has determined that the adoption of this Statement did not have a material effect on the
Company's consolidated financial position and results of operations to date.

**Reclassifications**

Certain reclassifications have been made to the 2002 and 2001 consolidated financial statements to
conform to the 2003 presentation.

**2.	DEVELOPMENT, ACQUISITION AND DISPOSITION ACTIVITY**

**Development Activity**

Construction in progress was $5.5 million and $5.9 million at December 31, 2003 and 2002, respectively.
The Company capitalizes interest costs on funds used in construction, real estate taxes and insurance from
the commencement of development activity through the time the property is ready for leasing.  Capitalized
interest, real estate taxes and insurance aggregated approximately $29,000, $1.0 million and $1.4 million during
the years ended December 31, 2003, 2002 and 2001, respectively.

**Acquisition Activity**

On April 19, 2002, the Company and its joint venture partners completed the exchange of five Market
Rate properties located in Northeast Ohio.  Under the terms of the agreement, the Company became the 100%
fee owner of three of the properties, the Americana Apartments (738 units) which was subsequently sold (see
Dispositions below), College Towers (458 units) and the Watergate Apartments (949 units).  The Company
relinquished its 66.67% ownership interest in Gates Mills III (320 units) and its 33.34% ownership interest in
Gates Mills Towers (757 units).  There was no gain or loss recorded in connection with this transaction as the
exchange was not the culmination of the earning process.  See Note 7 for further information concerning this
transaction.  Prior to the exchange, Gates Mills III was consolidated and therefore, the operating results of this
property are included in "Income from discontinued operations."

**Disposition Activity**

On October 17, 2003, the Company completed the sale of its partnership interest in a 252 unit residential
joint venture property located in Cranberry Township, Pennsylvania.  The Company received cash proceeds of
$2.1 million and a $491,000 note.  The Company recorded a gain on the sale of its partnership interest of $1.3
million.

On April 17, 2003, the Company and its joint venture partner completed the sale of a 36 unit Market Rate
property located in Northeast Ohio in which the Company was a 50.0% partner.  The sales 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.

On January 18, 2002, the Company completed the sale of Muirwood Village at London, a property
located in Central Ohio.  The property was sold for $4.0 million and the Company recorded a gain of $255,000.

In addition, during 2002, the Company sold the following four properties: Americana Apartments, Bolton
Estates, Boynton Beach and Jennings Commons.  The income from operations and the gain or loss from the
sales of these properties are included in "Income from discontinued operations."  Additionally, the income from
operations for Gates Mills III, one of the properties relinquished in the joint venture exchange, is also included
in "Income from discontinued operations," as stated above.  Included in the gain on disposition of properties,
net, was a loss of $632,000 on the sale of the Boynton Beach property.  This property was purchased in
November 2000 as a 6.9 acre parcel of land for $5.2 million.  The Company was developing this property as a
multi-use property to include apartments, a commercial building and a marina.  The Company had recorded
$3.4 million of costs in developing the property and had completed and was operating the marina.  The
Company's internal analysis indicated that the land and marina were not impaired based upon the Company's
plan to continue the development of the property on its own or with a partner and retain it as an asset held for
investment.  In November 2002, the Company received an unsolicited offer to purchase the property for $8.0
million.  The Company accepted the offer and completed the sale on December 31, 2002, resulting in the above
reported loss.

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."  The Company adopted this Statement January 1, 2002.  All real estate assets sold in 2002 and
2003 have been included in discontinued operations except for the sale on January 18, 2002, which was
classified as held for sale as of December 31, 2001, and therefore was not within the scope of SFAS 144.
Interest expense included in "Income from discontinued operations" is limited to interest on debt that is to be
assumed by the buyer or that is required to be repaid as a result of the sale of an asset included in
discontinued operations.  No allocation of interest expense to discontinued operations has been made for
corporate debt that is not directly attributable to, or related to, other operations of the Company.  The following
chart summarizes the "Income from discontinued operations" for the years ended December 31, 2002 and 2001,
respectively.

|                                                | 2002     | 2001    
|----------------------------------------------- | -------- | --------
|(In thousands)                                  |          |         
|Total property revenues                         | $	 1,908 | $	 3,592
|Total revenues                                  | 1,908    | 3,592   
|                                                |          |         
|Property operating and maintenance expense      | (1,253)  | (1,964) 
|Real estate asset depreciation and amortization | (351)    | (524)   
|Interest expense                                | (471)    | (1,044) 
|Total expenses                                  | (2,075)  | (3,532) 
|                                                |          |         
|Operating (loss) income                         | (167)    | 60      
|Gain on disposition of properties, net          | 9,660    | -       
|**Income from discontinued operations**         | $	9,493  | $	60    

During 2001, the Company sold seven operating properties for net cash proceeds of $11.8 million and
$25.3 million of mortgage indebtedness was assumed by the buyers.  An aggregate gain of $7.0 million was
recorded.

**3.	RESTRICTED CASH**

Restricted cash, some of which is required by HUD for certain government subsidized properties and
others, which are required by the lenders, includes residents' security deposits, reserve funds for replacements
and other escrows held for the future payment of real estate taxes and insurance.  The reserve funds for
replacements are intended to provide cash to defray future costs that may be incurred to maintain the
associated property.  In addition, certain escrows are maintained in connection with mortgage servicing
operations.

Restricted cash is comprised of the following:

|                                          | December 31,
|----------------------------------------- | ------------
|                                          | 2003        
|(In thousands)                            |             
|Resident security deposits                | $	1,367     
|Investor's escrow                         | 249         
|Escrow and reserve funds for replacements |             
|required by mortgages                     | 9,273       
|                                          | $	10,889    

Restricted resident security deposits are held in separate bank accounts in the name of the properties
for which the funds are being held.  Investor's escrow represent funds held by the Company primarily for the
payment of operating expenses associated with properties managed by the Company on behalf of its pension
fund clients.  These funds are held in short term investments.  Certain reserve funds for replacements are
invested in a combination of money market funds and U.S. treasury bills with maturities less than 18 months.

**4.	INTANGIBLE AND OTHER ASSETS**

Intangible assets, deferred charges and prepaid expenses consist of the following:



|                                     | December 31,
|------------------------------------ | ------------
|(In thousands)                       | 2003        
|                                     |             
|Intangible Asset                     | $	5,405     
|Deferred financing and leasing costs | 12,534      
|Less: Accumulated amortization       | (12,600)    
|                                     | 5,339       
|Prepaid expenses                     | 4,804       
|Other assets                         | 1,220       
|                                     | $	11,363    

Amortization expense for deferred financing and leasing costs was $1.2 million, $1.2 million and $1.3
million for the years ended December 31, 2003, 2002 and 2001, respectively.

In March 2003, MIG was directed by one of its advisory clients to initiate the sale of all of the client's
real estate investments.  Upon the successful sale of these investments, the Company will no longer receive
the property and asset management fee revenue associated with them.  Revenue received from these
investments for the years ended December 31, 2003, 2002 and 2001 was $1.7 million in each year,
respectively, which represented 1.0% of total Company revenues for the periods presented.  At December 31,
2003, two of the six properties had been sold.

In November 2003, the Company was informed by one of its advisory clients that it intended to sell the
four commercial properties that MIG manages and/or advises.  MIG manages or advises both commercial and
residential properties for this client.  At December 31, 2003, two of the four properties had been sold.  Revenue
received from these commercial investments for the years ended December 31, 2003, 2002 and 2001 was
$271,000, $313,000 and $343,000, respectively.

Effective October 1, 2002, the advisory and management responsibilities for 11 properties owned by
one of the Company's clients were transferred by the client to another advisor.  In connection with this transfer,
the Company wrote off the related asset and management portion of the intangible asset in the amount of
$312,000 which represented the remaining unamortized value of the asset and management portion associated
with this client.  This write off is included in "Depreciation and amortization" expense for the year ended
December 31, 2002 on the Company's Consolidated Statements of Operations.

In June 1998, the Company merged with MIG Realty Advisors, Inc. ("MIGRA") and as a result, recorded
goodwill and an intangible asset subject to amortization.  The intangible asset, which is the only intangible
asset currently recorded on the Company's books, represents asset advisory and property management
contracts.  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.

Information on the intangible asset is as follows:

|                                          | Intangible   |              | Net Intangible 
|----------------------------------------- | ------------ | ------------ | ---------------
|                                          | Subject to   | Deferred Tax | Asset Subject  
|(In thousands)                            | Amortization | Liability    | to Amortization
|                                          |              |              |                
|Intangible Asset Subject to Amortization: |              |              |                
|Gross carrying amount                     | $	5,405      | $	(625)      | $	4,780        
|Less: Accumulated amortization            | (4,899)      | 587          | (4,312)        
|Less: Impairment write-down               | (312)        | -            | (312)          
|Balance as of December 31, 2003           | $	194        | $	(38)       | $	156          
|                                          |              |              |                
|Estimated Amortization Expense:           |              |              |                
|                                          |              |              |                
|For year ended December 31, 2004          | $	194        | $	(38)       | $	156          

**Goodwill**

The carrying amount of goodwill at December 31, 2003 was $1.7 million.  The Company completed its
annual review of goodwill during the quarter ended March 31, 2003.  The review included the effect of the above
mentioned advisory client directive to liquidate the client's real estate holdings.  The Company also reviewed
goodwill during the fourth quarter of 2003 as a result of the above mentioned directive from a second client
relating to the commercial property dispositions.  The Company used the discounted value of expected future
cash flows to determine the fair value of the goodwill.  Based on its analysis, the Company determined that the
goodwill was not currently impaired.  Therefore, there were no changes to the carrying amount of goodwill during
the year ended December 31, 2003.

In 2002, the Company reviewed its recorded amount of goodwill for impairment in connection with the
loss of advisory and management responsibilities for 11 properties as described above.  Based on its analysis,
the Company determined that the goodwill was not impaired.  Therefore, there were no changes to the carrying
amount of goodwill during the year ended December 31, 2002.

**Adoption of SFAS 142**

The following table presents what reported net (loss) income and earnings per share amounts would
have been in all periods presented exclusive of amortization expense recognized in those periods related to
goodwill that is no longer being amortized.

|                                                       | For the year ended December 31,
|------------------------------------------------------ | -------------------------------
|(In thousands except per share data)                   | 2003                           
|                                                       |                                
|Net (loss) income applicable to common shares          | $	(16,397)                     
|Add back goodwill amortization                         | -                              
|Adjusted net (loss) income applicable to common shares | $	(16,397)                     
|                                                       |                                
|**Basic Earnings Per Share:**                          |                                
|Net (loss) income applicable to common shares          | $	(.85)                        
|Goodwill amortization                                  | -                              
|Adjusted net (loss) income applicable to common shares | $	(.85)                        
|                                                       |                                
|**Diluted Earnings Per Share:**                        |                                
|Net (loss) income applicable to common shares          | $	(.85)                        
|Goodwill amortization                                  | -                              
|Adjusted net (loss) income applicable to common shares | $	(.85)                        
|Basic weighted average shares outstanding              | 19,401                         
|Diluted weighted average shares outstanding            | 19,401                         

**5.	GENERAL AND ADMINISTRATIVE EXPENSES**

During the year ended December 31, 2002, the Company recorded as general and administrative
expense $686,000 in connection with the restructuring of the advisory business, including personnel severance
costs and the consolidation of the accounting and reporting functions of 18 management personnel and other
support personnel.

**6.	DEBT**

The Company's borrowings are represented by both secured and unsecured debt.  Secured debt
consists of the following:

|                                          | December 31
|----------------------------------------- | -----------
|(In thousands)                            | 2003       
|                                          |            
|Conventional mortgage debt, maturing      |            
|at various dates to 2012                  | $	533,817  
|Lines of credit, maturing 2006            | 5,000      
|Federally insured mortgage debt, maturing |            
|at various dates to 2013                  | 4,574      
|                                          | $	543,391  

Real estate assets pledged as collateral for all debt had a net book value of $646.2 million   and $621.8
million at December 31, 2003 and 2002, respectively.

**Conventional Mortgage Debt**

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 currently has elected to pay interest at LIBOR plus 2.0%, which was 3.14% at December 31, 2003.
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.  The loan
that was repaid was federally insured.  The new loan is a conventional loan.

On April 22, 2003, the Company repaid 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 elected to pay interest at LIBOR plus 2.0% through May 2004.  The rate at December 31, 2003 was 3.19%.
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.

On February 1, 2002, the Company completed the refinancing of $10.9 million of maturing debt.  The
new loan requires monthly principal and interest payments through the maturity date of January 1, 2005.  The
interest rate is equal to the prime rate or under certain conditions at a rate of LIBOR plus 2.0%.  The Company
is currently paying interest at a rate of LIBOR plus 2.0% (3.18% at December 31, 2003).

Conventional mortgages payable are comprised of 54 loans at December 31, 2003 and 53 loans at
December 31, 2002,  each of which is a nonrecourse, project specific loan collateralized by the respective real
estate and resident leases.   Mortgages payable are generally due in monthly installments of principal and/or
interest and mature at various dates through June 2012.  The weighted average interest rate of the conventional
fixed rate mortgages was 7.67% and 7.67% at December 31, 2003 and 2002, respectively.

**Federally Insured Mortgage Debt**

As more fully described in "Conventional Mortgage debt" above, the Company repaid a $2.7 million
federally insured mortgage and replaced it with a $3.9 million conventional mortgage on May 1, 2003.

On June 27, 2002, the Company prepaid a $2.7 million HUD insured mortgage.  The Company incurred
a prepayment penalty and wrote off unamortized costs totaling $76,000 in connection with this prepayment.
The $76,000 is included in "Interest expense" in the Company's Consolidated Statements of Operations.

Federally insured mortgage debt, which encumbered two of the properties at December 31, 2003 and
three of the properties at December 31, 2002, is insured by HUD pursuant to one of the mortgage insurance
programs administered under the National Housing Act of 1934.  These government-insured loans are
nonrecourse to the Company.  Payments of principal, interest and HUD mortgage insurance premiums are
made in equal monthly installments.  On December 31, 2003, one of the federally insured mortgages had a
balance of $3.1 million with a maturity date of November 1, 2012  and interest accruing at a fixed rate of 7.0%.
The remaining federally insured mortgage had a balance of $1.5 million with a maturity date of December 1,
2013 and interest accruing at a variable rate of 3.36% at December 31, 2003.  The weighted average interest
rate at December 31, 2002 was 6.5%.

Under certain of the mortgage agreements, the Company is required to make escrow deposits for
taxes, insurance and replacement of project assets.  The variable rate mortgage is also secured by a letter of
credit which is renewed annually.

**Medium-Term Notes Program**

The Company has one Medium-Term Note (the "MTN") outstanding having an aggregate balance of
$105,000 at December 31, 2003 and December 31, 2002, bears interest at 6.88% and matures in December
2004.

The Company's current MTN Program provides for the issuance, from time to time, of MTN's due nine
months or more from the date of issue and may be subject to redemption at the option of the Company or
repayment at the option of the holder prior to the stated maturity date.  These MTN's may bear interest at fixed
rates or at floating rates and can be issued in minimum denominations of $1,000.  At December 31, 2003, there
was $62.5 million of additional MTN borrowings available under the program.

**Lines of Credit**

On July 23, 2003, the Company replaced its $20.0 million line of credit with a new $15.0 million line
of credit, secured by one of the Company's properties, with a maturity date of July 31, 2006.  Borrowings under
this new line of credit bear interest at the rate of LIBOR plus 1.5%, or approximately 2.62% at December 31,
2003, and are currently limited to $8.9 million.  At December 31, 2003, there were $5.0 million of borrowings
outstanding.  There were no borrowings outstanding at December 31, 2002 on the line of credit that was
replaced.

The Company also has a $14.0 million line of credit.  This line of credit is secured by two of the
Company's properties and $1.6 million of this line of credit is reserved exclusively for derivative transactions.
There were no regular borrowings outstanding under this line at December 31, 2003 and 2002.  The remaining
$12.4 million is available for regular borrowings and letter of credit transactions.  At December 31, 2003, letters
of credit totaling $4.1 million have been issued against this line.  The maturity date of this line was extended
for one year to December 31, 2004.  Borrowings under this line of credit bear interest at either the prime rate
or LIBOR plus 2.0% or approximately 3.12% at December 31, 2003 at the Borrower's option.

As of December 31, 2003, the scheduled principal payments of secured and unsecured indebtedness
for each of the next five years and thereafter, are as follows (in thousands):

|2004       | $	28,205 
|---------- | ---------
|2005       | 30,940   
|2006       | 16,757   
|2007       | 83,324   
|2008       | 48,644   
|Thereafter | 335,626  
|           | $	543,496

Cash paid for interest was $39.3 million, $40.1 million and $41.8 million for the years ended December
31, 2003, 2002 and 2001, respectively.

**7.	INVESTMENTS IN AND ADVANCES TO JOINT VENTURES**

At December 31, 2003, the Company's interests in joint venture partnerships were as follows:

|                   | Ownership
|------------------ | ---------
|                   |          
|Lakeshore Village  | 50.0%    
|Idlewylde-Phase I  | 49.0%    
|Idlewylde-Phase II | 49.0%    
|Courtney Chase     | 24.0%    

The following tables represent summarized financial information at 100% for all joint ventures in which
the Company has been an investor during the years presented.

|**Balance sheet data**             | December 31,
|---------------------------------- | ------------
|(In thousands)                     | 2003        
|                                   |             
|Real estate, net                   | $	77,898    
|Other assets                       | 3,266       
|                                   | $	81,164    
|                                   |             
|Amounts payable to the Company     | $	152       
|Mortgages payable                  | 61,769      
|Other liabilities                  | 949         
|Equity                             | 18,294      
|                                   | $	81,164    
|                                   |             
|Investments in joint ventures, net | $	8,727     

|**Operating data**                          | For the year ended December 31,
|------------------------------------------- | -------------------------------
|(In thousands)                              | 2003                           
|                                            |                                
|Rental revenues                             | $	7,520                        
|Other revenues                              | 240                            
|Operating and maintenance expenses          | (4,845)                        
|Depreciation and amortization               | (2,737)                        
|Interest expense                            | (2,921)                        
|(Loss) income from continuing operations    | (2,743)                        
|Income (loss) from discontinued operations: |                                
|Operating loss                              | (606)                          
|Gain on disposition of property             | 926                            
|Income (loss) from discontinued operations  | 320                            
|Net (loss) income                           | $	(2,423)                      
|                                            |                                
|Equity in net loss of joint ventures        | $	(1,157)                      

On April 17, 2003, the Company and its joint venture partner completed the sale of a 36-unit Market
Rate property located in Northeast Ohio in which the Company was a 50.0% partner.  The sales 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 Company received cash proceeds
of $475,000.

In July 2003, the Company and its pension fund joint venture partner completed the construction of
Courtney Chase Apartments, a 288 unit development located in Orlando, Florida.  As of December 31, 2003,
243 units had been leased.  The Company is a 24.0% partner in this project.

On October 17, 2003, the Company completed the sale of its partnership interest in a 252 unit
residential joint venture property located in Cranberry Township, Pennsylvania.  The Company received cash
proceeds of $2.1 million and a $491,000 note.  The Company recorded a gain of $1.3 million which is shown
as "Gain on sale of partnership interest" in the Company's Consolidated Statements of Operations.  As a result
of this sale, the Company's guarantee obligation under a $220,000 letter of credit with regards to certain
construction work at this property was canceled in October 2003.

The Company received distributions of $2.6 million for the year ended December 31, 2003, which
includes cash received from the sale of one joint venture operating property and the sale of the Company's
interest in a partnership as more fully described above.  The Company's net contributions were $1.2 million and
$4.9 million for the years ended December 31, 2002 and 2001, respectively.  Revenues from property and asset
management fees charged to joint ventures aggregated $393,000, $461,000 and $896,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.  The corresponding expenses are included in the operating
and maintenance expenses of the joint ventures, as set forth above.

The Company capitalizes interest costs in accordance with SFAS No. 58 "Capitalization of Interest
Cost in Financial Statements That Include Investments Accounted for by the Equity Method" related to its
investment in certain joint venture properties during their construction period.  The amount of capitalized interest
was approximately $1.1 million and $1.3 million at December 31, 2003 and December 31, 2002, respectively.
This excess of the Company's investment over its equity in the underlying net assets of the joint ventures is
included in "Investment in joint ventures, net" in the Company's Consolidated Balance Sheets, and is amortized
as a reduction to earnings on a straight-line basis over the lives of the related assets.

Lakeshore Village is governed by regulations pursuant to the property's HUD rent subsidy and mortgage
insurance programs, which contain provisions governing certain aspects of the operations of the property (See
Note 10).  Rent subsidies of $789,000, $732,000 and $744,000 for the years ended December 31, 2003, 2002
and 2001, respectively, were received by the property.

**Joint Venture Swap**

On April 19, 2002, the Company and its joint venture partners completed the exchange of five Market
Rate properties located in Northeast Ohio.  Under the terms of the agreement, the Company became the 100%
fee owner of three of the properties, the Americana Apartments (738 units) which was subsequently sold,
College Towers (458 units) and the Watergate Apartments (949 units).  The Company relinquished its 66.67%
ownership interest in Gates Mills III (320 units) and its 33.33% ownership interest in Gates Mills Towers (757
units).  This exchange was recorded on the Company's books as a non-monetary transaction in accordance
with APB 29 "Accounting for Non-monetary Transactions."  The assets exchanged were considered similar
productive assets and there was no gain or loss recorded in connection with this transaction as the exchange
was not the culmination of the earning process.  The historical costs were allocated to the properties based
on relative fair value.

The following table reconciles the net asset value of the five properties involved in the exchange to the
net asset value of the three properties of which the Company became the 100% owner after the exchange:



|                        | Americana  | College | Watergate   |                 |                   |           
|----------------------- | ---------- | ------- | ----------- | --------------- | ----------------- | ----------
|(In thousands)          | Apartments | Towers  | Apartments  | Gates Mills III | Gates Mills Tower | Totals    
|                        |            |         |             |                 |                   |           
|Before the Exchange     |            |         |             |                 |                   |           
|                        |            |         |             |                 |                   |           
|Investments in joint    |            |         |             |                 |                   |           
|ventures, net           | $	1,229    | $	513   | $	(5,690)   | $	254           | $	(3,867)         | $	(7,561) 
|Real estate assets, net | -          | -       | -           | 2,027           | -                 | 2,027     
|Other assets            | -          | -       | -           | 7,791           | -                 | 7,791     
|Mortgage payable        | -          | -       | -           | (13,878)        | -                 | (13,878)  
|Other liabilities       | -          | -       | -           | (300)           | -                 | (300)     
|Total net assets        |            |         |             |                 |                   |           
|before exchange         | $	1,229    | $	513   | $	(5,690)   | $   	(4,106)    | $	(3,867)         | $	(11,921)
|                        |            |         |             |                 |                   |           
|After the Exchange      |            |         |             |                 |                   |           
|                        |            |         |             |                 |                   |           
|Real estate assets, net | $	10,357   | $	-     | $	7,516     | $	       -      | $            -    | $	17,873  
|Other assets            | 633        | 52      | 238         | -               | -                 | 923       
|Mortgage payable        | (11,570)   | -       | (17,200)    | -               | -                 | (28,770)  
|Other liabilities       | (637)      | (385)   | (925)       | -               | -                 | (1,947)   
|Total net assets        |            |         |             |                 |                   |           
|after exchange          | $	(1,217)  | $	(333) | $ 	(10,371) | $	-             | $	-               | $	(11,921)

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

***Management and Other Services***

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 also provides similar services to joint venture
properties.

Summarized affiliate and joint venture transaction activity was as follows:

|                                   | For the year ended December 31,
|---------------------------------- | -------------------------------
|(In thousands)                     | 2003                           
|Property management fee and other  |                                
|miscellaneous service revenues     |                                
|- affiliates                       | $	1,406                        
|- joint ventures                   | 289                            
|Painting service revenues          |                                
|- affiliates                       | 352                            
|- joint ventures                   | 63                             
|Expenses incurred on behalf of and |                                
|reimbursed by (a)	- affiliates     | 3,362                          
|- joint ventures                   | 344                            
|Interest income 	- affiliates      | 100                            
|Interest expense	- affiliates      | (36)                           
|- joint ventures                   | (2)                            

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

Property management fees and notes and other miscellaneous receivables due from affiliates and joint
venture properties aggregated $1.3 million and $2.2 million at December 31, 2003 and 2002,  respectively.

***Advances to Affiliates and Joint Ventures***

In the normal course of business, the Company has advanced funds on behalf of, or holds funds for the
benefit of, affiliates and joint ventures.  Funds advanced to affiliates and joint ventures aggregated $83,000 and
$170,000 at December 31, 2003, respectively, and $63,000 and $420,000 at December 31, 2002, respectively,
and represents funds not yet repaid to the Company.  The Company held funds for the  benefit of affiliates and
joint ventures in the aggregate amount of $2.0 million and $139,000 at December 31, 2003, respectively, and
$3.3 million and $362,000 at December 31, 2002.

***Notes Receivable*****

At December 31, 2003 and December 31, 2002, two notes of equal amounts were receivable from the
Company's Chief Executive Officer aggregating $3.4 million (included in "Accounts and notes receivables-affiliates and joint ventures").  One of the notes is partially secured by 150,000 of the Company's common
shares; the other note is unsecured.  For the years ended December 31, 2003 and 2002, the interest rates
charged on these notes were approximately 3.0% and 3.5%, respectively.  The Company recognized interest
income of $100,000, $119,000 and $199,000 for the years ended December 31, 2003, 2002 and 2001,
respectively, relating to these notes.  On February 27, 2002, the Company's Board of Directors extended the
maturity date for these two notes from May 1, 2002 to May 1, 2005.

***Professional Services Agreement*****

In 2003, Merit Painting Services, Inc. ("Merit"), a subsidiary of the Company, was retained by JAS
Construction, Inc. ("JAS") under three subcontracts for the performance of certain rehabilitation work at three
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 to be performed is currently unknown.  During the year
ended December 31, 2003, $1.1 million of revenue was reported in painting revenues in the Company's
Consolidated Statements of Operations.  As of December 31, 2003, $196,000 was still owed Merit and is
included in "Accounts and notes receivable affiliates and joint ventures" in the Company's Consolidated Balance
Sheets.  Moreover, Merit anticipates it will enter into additional contracts with JAS as the general contractor
for the performance of similar work at other properties owned by unrelated parties.

Effective July 1, 2002, the Company entered into a professional services agreement with Gelber &
Associates Corporation ("Gelber") in which a brother-in-law of the Company's Chief Executive Officer is a
principal.  Under the agreement, Gelber will consult with the Company on the purchase of natural gas.  Gelber
received a service fee of $3,000 plus 30.0% of any savings, as defined in the agreement, realized by the
Company.  In December  2003, the Company entered into an extension of this agreement until July 1, 2004.
The Company has paid Gelber $36,000 during the year ended December 31, 2003 and $28,000 during the year
ended December 31, 2002.

**9.	NOTEHOLDER INTEREST**

The Company acquired a Noteholder Interest in connection with its IPO in 1993 in which one of the
principals of the Company has a general partnership interest.  The Note was placed on the Company's books
at a value of zero.  Therefore, the Company has not recorded any interest income as the noteholder.
Additionally, should the Company foreclose on the Note, there would be no effect on the Company's books as
the Note has a zero value.  The Company is effectively entitled to all cash flow from the property by virtue of its
Noteholder Interest.  The Company placed the property on its books as a result of having full economic benefit
and control of the property operations.   Summarized financial information for this property is as follows:

|                       | December 31,
|---------------------- | ------------
|(In thousands)         | 2003        
|Real estate, net       | $	1,757     
|Other assets           | 229         
|                       | $	1,986     
|                       |             
|Mortgage notes payable | $	2,819     
|Other liabilities      | 1,343       
|Accumulated deficit    | (2,176)     
|                       | $	1,986     

|                              | For the year ended December 31,
|----------------------------- | -------------------------------
|(In thousands)                | 2003                           
|Rental and other revenue      | $	2,122                        
|Property operating and        |                                
|maintenance expenses          | (1,738)                        
|Depreciation and amortization | (240)                          
|Interest expense              | (239)                          
|Net (loss) income             | $	(95)                         

**10.	COMMITMENTS AND CONTINGENCIES**

***Leases***

The Company owns one property which derives part of its rental revenues from commercial tenants with
noncancellable operating leases.  Future minimum lease payments to be received, assuming no new or
renegotiated leases, or option extensions, for each of the next five years and thereafter, are as follows (in
thousands):

|2004       | $ 1,032
|---------- | -------
|2005       | 579    
|2006       | 292    
|2007       | 160    
|2008       | 92     
|Thereafter | -      
|           | $ 2,155

The Company leases certain equipment under capital leases.  Such equipment is included in property,
plant and equipment with a cost of $219,000 and accumulated depreciation of $47,000 at December 31, 2003.
The Company also leases certain equipment and facilities under operating leases.  Future minimum lease
payments under all capital and noncancellable operating leases in which the Company is the lessee, principally
for ground leases for each of the next five years and thereafter, are as follows (in thousands):

|              | Capital | Operating
|------------- | ------- | ---------
|              |         |          
|2004          | $   85  | $    284 
|2005          | 53      | 237      
|2006          | 9       | 163      
|2007          | -       | 159      
|2008          | -       | 145      
|Thereafter    | -       | 3,791    
|              | 147     | $ 4,779  
|Less interest | (10)    |          
|              | $ 137   |          

The ground lease agreements contain provisions which, upon expiration of the lease, require reversion
of the land and building to the lessor.  Such provisions exist for nine properties included in the consolidated
financial statements and expire at various dates from 2021 to 2086.  Total revenues derived from such properties
were $10.2 million, $10.1 million and $10.3 million for the years ended December 31, 2003, 2002 and 2001,
respectively.  Furthermore, at the end of the term of the lease, any remaining replacement reserves revert to
the lessor.  Management believes that the replacement reserves will be utilized for their intended purpose prior
to the end of the lease term.  Such cash reserves included in restricted cash were $681,000 and $615,000 at
December 31, 2003 and 2002, respectively.  With respect to such leases, the Company incurred ground rent
expense of $101,000 for each of the years ended December 31, 2003, 2002 and 2001.

The Company owns one property which is subject to a warranty deed reversion provision.  This provision
requires that the land and real estate assets revert to the deed holder at expiration, which is September 2037.
At December 31, 2003 and 2002, the net book value of this property was $1.1 million and $1.2 million,
respectively.  The property generated revenues and net income of $943,000 and $352,000 for 2003, $943,000
and $378,000 for 2002 and $958,000 and $449,000 for 2001.

***Gas Supply Contract*****

In 2002, the Company entered into a contract to purchase gas at properties, which are either owned
or managed, in Northeast Ohio.  The contract term was for twelve months commencing July 1, 2002, and
provided for the delivery of specified quantities of gas by month.  Commencing July 1, 2003, a new 12-month
contract was executed under the same terms.  The quantities were based upon historical usage.  The Company
can fix the price of the gas at any time for any period in advance of delivery.  Regardless of whether the price
was fixed in advance or whether it was determined in the month of delivery, the price was determined based
on the market rates (NYMEX) of gas, plus a margin.  Should the Company not be able to use the amounts of
gas specified in the contract, the counterparty to the contract could attempt to sell the unused gas.  If such
efforts were unsuccessful, the Company would be required to pay for the unused gas.  The commitment for the
specified minimum quantities to be purchased is considered to be a derivative under FASB Statement No. 133,
*Accounting for Derivative Instruments and Hedging Activities.*  However, this derivative qualifies as a normal
purchase and sale under SFAS No. 133 as it was probable at inception and it is expected throughout the term
of the contract that the contract will result in physical delivery.  Therefore, these contracts have not been
recognized at fair value in the accompanying consolidated financial statements.

***Guarantees***

FASB Interpretations No. 45 "Guarantor's Accounting for Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", requires certain disclosures regarding guarantees
that the Company has issued.  This Interpretation also requires recognition and measurement on a prospective
basis of guarantees issued or modified after December 31, 2002.  The Company adopted this Interpretation
effective January 1, 2003.  There were no guarantees issued or modified by the Company after December 31,
2002, therefore the Company has recorded no liability related to guarantees that it has issued.  In connection
with the refinancing of the Watergate Apartments, a 949 unit multifamily community located in Euclid, Ohio,
the Company guaranteed completion of certain improvements totaling approximately $7.0 million.  This
obligation is secured by a $3.5 million letter of credit.  Furthermore, the Company has guaranteed the payment
of a $26.0 million loan in connection with the Idlewylde Apartments Phase II, a 535 unit multifamily community
located in Atlanta, Georgia in which the Company is a 49.0% owner.  This loan matures December 10, 2005.
The Company has recorded no liability in relation to this guarantee at December 31, 2003.  Subsequent to
December 31, 2003, this guarantee has been reduced to 50.0% of the loan balance, or approximately $13.0
million per the guarantee provision.  The Company has also guaranteed the payment of the $15.8 million
construction loan in connection with the development of Courtney Chase Apartments, a 288-unit multifamily
community located in Orlando, Florida, which is being 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
conditional upon the satisfaction of various conditions and requirements.  The Company has recorded no liability
in relation to this guarantee at December 31, 2003.

***Affordable Housing***

Certain of the Company's Affordable Housing Properties are governed by rent subsidies and/or
mortgage insurance program regulations, which contain provisions governing certain aspects of the operations
of these properties.  Among other matters, such provisions may include a requirement to maintain a reserve
fund for replacements, the renting of properties to qualifying residents, and the requirement to make
distributions in accordance with certain regulations.  Certain approvals may be required to encumber properties
having rental subsidies.

The rent subsidy program provides that HUD will make monthly housing assistance payments to a
Company subsidiary on behalf of persons who reside in approved properties and who meet the eligibility criteria.
The amount of the total monthly rental and the subsidy is determined at least annually by HUD.  This
arrangement is evidenced by a contract between HUD and the applicable Company subsidiary.  Such contracts
have scheduled expiration dates between March 2004 and November 2019.  HUD may abate subsidy payments
if the applicable Company subsidiary defaults on any obligations under such contracts and fails to cure each
default after receiving notice thereof.  Federal rent subsidies recognized in income were $6.4 million, $6.6 million
and $6.8 million for the years ended December 31, 2003, 2002 and 2001, respectively.  As discussed in Note
6, certain obligations are insured by federal mortgage insurance programs.

***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 December 31, 2003,
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 MIGRA 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 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.  The Company intends to vigorously
defend itself against these claims.

***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
believes that it has complied with the subpoena.  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 Commission.

***Other Matters***

On August 28, 2001, Helene Fien filed a complaint in the Court of Common Pleas, Cuyahoga County,
Ohio against the Company, its CEO, Jeffrey I. Friedman, AEC Management Company (a corporation that
merged with the Company at the time of the IPO in 1993) and Associated Estates Corporation (a non-affiliated
company).  The complaint alleges fraud, breach of fiduciary duty and conversion against each of the defendants
and a RICO claim against the individual defendant in connection with various minority interests (5.0% or less)
in pre IPO entities allegedly held by Mrs. Fien's deceased husband at the time of his death in 1985.  The
Complaint demands compensatory damages in the amount of $10.0 million plus punitive damages, attorneys'
fees, interests and costs.  In December 2002, pursuant to a motion to dismiss filed by the Company and the
other defendants, the court dismissed all of the plaintiff's claims except the claim filed for conversion.
Subsequently, the Company and the plaintiff entered into settlement negotiations which resulted in what the
Company believed to be a final settlement and resolution of this litigation.  However, the plaintiff disclaimed that
it agreed to a settlement.  The Company then filed a motion with the court to enforce the settlement agreement.
This case has now been settled and dismissed with prejudice.  The settlement has no material adverse effect
to the Company.

**11.	DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS**

The following disclosures of estimated fair value were determined by management using available
market information and appropriate valuation methodologies.  Considerable judgment is necessary to interpret
market data and develop estimated fair values.  Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize on disposition of the financial instruments.  The use of
different market assumptions and/or estimation methodologies may have a material effect on the estimated fair
value amounts.

Rents, accounts and notes receivable, accounts payable, accrued expenses and other liabilities are
carried at amounts which reasonably approximate corresponding fair values.

Mortgages and notes payable with an aggregate carrying value of $543.5 million and $540.5 million at
December 31, 2003 and 2002, respectively, have an estimated aggregate fair value of approximately $593.9
million and $641.3 million, respectively.  Estimated fair value is based on interest rates currently available to
the Company for issuance of debt with similar terms and remaining maturities.

The Company may, from time to time, enter into interest rate agreements to manage interest costs
and risks associated with changing rates.  The Company does not utilize these agreements for trading or
speculative purposes.  See Note 1 for further information concerning derivative instruments and hedging
activities.

Disclosure about the fair value of financial instruments is based on pertinent information available to
management as of December 31, 2003 and 2002.  Although management is not aware of any factors that would
significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since these dates and current estimates of fair value may differ
significantly from the amounts presented herein.

******12.	SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**

The following summarizes the non-cash investing and financing activities of the Company which are
not reflected in the Consolidated Statements of Cash Flows:

|                                                                        | For the year ended December 31,
|----------------------------------------------------------------------- | -------------------------------
|(In thousands)                                                          | 2003                           
|Dividends declared but not paid                                         | $	3,311                        
|Contributions of land to joint venture, net of loss on conveyance       | -                              
|Adjustment for purchase of minority interest                            | 589                            
|Assumption of debt by purchaser of property                             | -                              
|Assumption of debt in connection with the joint venture transaction     | -                              
|Relinquishment of debt in connection with the joint venture
transaction | -                              
|Capital lease obligation                                                | 130                            
|Costs related to prepayment of debt                                     | -                              
|Fixed asset replacement write-off                                       | 3,827                          

******13.	COMMON, TREASURY AND PREFERRED SHARES**

***Treasury Shares***

The Company's Board of Directors ("Board") had authorized the repurchase of up to five million of the
Company's common shares to be repurchased by the Company at market prices.  At December 31, 2003,
3,719,700 shares had been repurchased, of which 202,618 had been subsequently reissued under various share
programs of the Company (See Note 15).  At December 31, 2003, there were 3,517,082 Treasury Shares at
an aggregate cost of $31.8 million.  At December 31, 2002, there were 3,522,187 Treasury Shares at an
aggregate cost of $31.9 million.  The repurchases were funded primarily from operating cash flows, refinancing
proceeds and proceeds received from the sale of operating properties.  The Board's previous authorization to
repurchase common shares on the open market expired during 2002 and no authorization is currently in effect.

***Preferred Shares*****

At December 31, 2003, 225,000 Depositary Shares were outstanding, each representing 1/10 of a
share of the Company's 9.75% Class A Cumulative Redeemable Preferred Shares.  Dividends on the preferred
shares are cumulative from the date of issue and are payable quarterly.  Except in certain circumstances
relating to the preservation of the Company's status as a REIT, the preferred shares were not redeemable prior
to July 25, 2000.  On and after July 25, 2000, the preferred shares are redeemable for cash at the option of the
Company.

The Company is authorized to issue 3,000,000 Class B Cumulative Preferred Shares, without par value,
and 3,000,000 Noncumulative Preferred Shares, without par value.  There are no Class B Cumulative or
Noncumulative Preferred Shares issued or outstanding at December 31, 2003 or 2002.

**Shareholder Rights Plan**

In January 1999, the Company adopted a Shareholder Rights Plan.  To implement the Plan, the Board
of Directors declared a distribution of one Right for each of the Company's outstanding common shares.  Each
Right entitles the holder to purchase from the Company 1/1,000th of a Class B Series I Cumulative Preferred
Share (a "Preferred Share") at a purchase price of $40 per Right, subject to adjustment.  One one-thousandth
of a Preferred Share is intended to be approximately the economic equivalent of one common share.  The
Rights will expire on January 6, 2009, unless redeemed by the Company as described below.

The Rights are not currently exercisable and trade with the Company's common shares.  The Rights
will become exercisable if a person or group becomes the beneficial owner of, or announces an offer to acquire
15.0% or more of the Company's then outstanding common shares.

If a person or group acquires 15.0% or more of the Company's outstanding common shares, then each
Right now owned by the acquiring person or its affiliates will entitle its holder to purchase, at the Right's then-current exercise price, fractional preferred shares that are approximately the economic equivalent of common
shares (or, in certain circumstances, common shares, cash, property or other securities of the Company)
having a market value equal to twice the then-current exercise price.  In addition, if, after the Rights become
exercisable, the Company is acquired in a merger or other business combination transaction with an acquiring
person or its affiliates or sells 50.0% or more of its assets or earnings power to an acquiring person or its
affiliates, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of
the acquiring Company's common shares having a market value of twice the Right's exercise price.  The Board
of Directors may redeem the Rights, in whole, but not in part, at a price of $.01 per Right.

The distribution was made on January 29, 1999 to shareholders of record on that date.  The initial
distribution of Rights was not taxable to shareholders.

**14.	EARNINGS PER SHARE**

Earnings per share ("EPS") has been computed pursuant to the provisions of SFAS No. 128.

There were 1.9 million, 2.4 million and 3.2 million options to purchase common shares outstanding at
December 31, 2003, 2002 and 2001, respectively.  None of the options were included in the calculation of
diluted earnings per share for the years presented as their inclusion would be antidilutive to the net loss from
continuing operations applicable to common shares.

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

**15.	EMPLOYEE BENEFIT PLANS**

The Company offers employees who have completed their 90-day introductory period medical, dental
and life insurance benefits.  Employees who have completed six months of service are eligible for the
Company's educational assistance program and employees who have completed one year of service are
provided with long-term disability coverage.  Additionally, the Company offers a variety of supplemental benefits
to employees at their own cost.

The Company sponsors a defined contribution plan pursuant to Section 401(k) of the Internal Revenue
Code, whereby eligible employees may elect to contribute up to 15.0% of their gross wages.  The Company
matches such contributions at a rate of 25.0% up to a maximum participant contribution of 6.0% (maximum
employer contribution was 50.0% up to a maximum participant's contribution of 6.0% from February 1, 2001
through April 30, 2002 and 25.0% up to a maximum participant's contribution of 6.0% prior to February 1, 2001).
The Company recorded expense in relation to this plan of approximately $120,000, $205,000 and $271,000 for
the years ended December 31, 2003, 2002 and 2001, respectively.

**AERC Share Option Plan**

The AERC Share Option Plan expired September 30, 2003, and therefore no additional options will be
granted under this plan.  At December 31, 2003, there were 179,033 options outstanding and exercisable under
this plan.  These options will remain in effect according to the original terms and conditions of the plan.  This
plan was provided as an incentive and nonqualified stock option plan under which 543,093 of the Company's
common shares had been reserved for awards of share options to eligible key employees.  Options could have
been granted at per share prices not less than fair market value at the date of grant and must be exercisable
within ten years thereof.  Option awards granted are vested in equal annual increments over no fewer than three
years, beginning on the first anniversary of the date of grant.

**Equity-Based Incentive Compensation Plan**

The Equity-Based Incentive Compensation Plan ("the Omnibus Equity Plan"), an equity-based incentive
compensation plan, provides for the grant to participants of options to purchase common shares, awards of
common shares subject to restrictions on transfer, awards of common shares issuable in the future upon
satisfaction of certain conditions, rights to purchase common shares and other awards based on common
shares.  The option price with respect to the grant of options to purchase common shares will be determined
at the time of the grant but will not be less than 100% of the fair market value of the common shares at the date
of the grant or 110% in the case of a participant who, at the date of grant, owns shares with more than 10.0%
of the total combined voting power of all classes of stock of the Company.  The rights to purchase common
shares will enable a participant to purchase common shares (i) at the fair market value of such shares on the
date of such grant or (ii) at 85.0% of such fair market value on such date if the grant is made in lieu of cash
compensation.  Under the terms of the Omnibus Equity Plan, these grants and awards may not aggregate more
than 1,400,000 common shares and no participating employee may receive awards with respect to more than
250,000 common shares during any calendar year.

Restricted share grants made from this Plan vest either in equal increments over three years or at the
end of nine years from the date of grant.  Those shares vesting at the end of a nine year period have a feature
which permits the acceleration of the vesting upon the Company achieving certain financial benchmarks.  Option
grants made from this Plan to date have been vested either in equal increments over three years or five years
beginning on the first anniversary of the date of grant or at the end of nine years.  The accelerator described
above also applied to the nine year grants.  Cash dividends paid during the period of restriction are recorded
as a charge to "Accumulated distributions in excess of accumulated net income."

**Year 2001 Equity Incentive Plan**

The Company's Year 2001 Equity Incentive Plan (the "EIP") was adopted by the Board on December
8, 2000 and operates substantially the same as the Equity-Based Incentive and Share Option Plans.  The EIP,
however, allows for participation by directors as well as employees, does not allow for the grant of incentive
stock options and the restricted shares or options issued under the EIP consist solely of treasury shares.

**Options Granted to Outside Directors**

The Company has granted options to outside directors on a periodic basis since the initial public
offering ("IPO").  The option awards are determined and approved by the board of directors.  Option awards
granted vest either one year from the date of grant or three years from the date of grant.

**SFAS No. 123**

A summary of the status of the Company's stock options granted as of December 31, 2003, 2002 and
2001 and the changes during the year ended on these dates is presented below:

|                                 | 2003             | 2002     | 2001      
|-------------------------------- | ---------------- | -------- | ----------
|                                 | Number of        | Weighted | Number of 
|                                 | Shares of        | Average  | Shares of 
|                                 | Underlying       | Exercise | Underlying
|                                 | Options          | Prices   | Options   
|                                 |                  |          |           
|Outstanding at beginning of year | 2,353,774        | $13.48   | 3,201,042 
|Granted                          | -                | -        | 42,500    
|Exercised                        | -                | -        | 55,669    
|Canceled                         | 456,391          | 19.10    | 834,099   
|Outstanding at end of year       | 1,897,383        | 12.31    | 2,353,774 
|Exercisable at end of year       | 1,025,055        | 15.00    | 1,305,582 
|Weighted average fair value of   |                  |          |           
|options granted during the year  | $              - |          | $	 0.74   

The fair value of each option grant was estimated on the date of grant using the Black-Scholes options
pricing model at December 31 using the following assumptions:

|                                 | 2003       | 2002       | 2001      
|-------------------------------- | ---------- | ---------- | ----------
|                                 |            |            |           
|Risk free interest rate or range | 2.97%      | 3.4%       | 4.9%      
|Dividend yield or range          | 9.30%      | 10.07%     | 10.89%    
|Expected life or range           | 5.86 years | 6.61 years | 7.57 years
|Expected volatility or range     | 27.95%     | 31.72%     | 26.71%    

The following table summarizes information about stock options outstanding at December 31, 2003:

|                 | Options Outstanding | Options Exercisable
|---------------- | ------------------- | -------------------
|                 |                     | Weighted           
|Range of         | Number              | Average            
|Exercise         | Outstanding at      | Exercise           
|Prices           | December 31, 2003   | Prices             
|                 |                     |                    
|$7.00 to $8.70   | 1,209,099           | $   8.49           
|$9.00 to $12.50  | 271,534             | 11.41              
|$20.25 to $24.10 | 416,750             | 23.99              
|$7.00 to $24.10  | 1,897,383           | $ 12.31            

**16.	EXECUTIVE COMPENSATION**

**Executive Deferred Compensation Plan**

The Company's Executive Deferred Compensation Plan (the "EDCP") was adopted by the Board of
Directors on July 1, 1999.  The EDCP was implemented to allow key employees the option of deferring receipt
of compensation otherwise payable to them by the Company for their services and to create an opportunity for
appreciation of the amount deferred upon appreciation of the Company's Common Shares.  Any shares deferred
are subject to the terms of the Equity-Based Incentive Compensation Plan.

Prior to January 1 of the EDCP year, any executive officer of the Company may elect to defer all or a
portion of their eligible compensation (base salary and bonus) and such amount will be credited to a deferral
account maintained on behalf of the executive.  Amounts credited to the deferral account are converted to
"share units" and represent deferred share awards under the Company's Equity-Based Incentive Compensation
Plan.  The deferral account is vested at all times.  At December 31, 2003 and 2002, there were no deferred
amounts.

**Executive Compensation and Employment Agreements**

The Company has a three year employment agreement with the Chairman, President and Chief
Executive Officer.  This agreement, dated January 1, 1996, is automatically extended for an additional year at
the end of each year of the agreement, subject to the right of either party to terminate by giving one year's prior
written notice.  Additionally, the Company has severance arrangements with certain other executive officers.

**Supplemental Executive Retirement Plan**

The Company's Supplemental Executive Retirement Plan (the "SERP") was adopted by the Board of
Directors on January 1, 1997.  This Plan was implemented to provide competitive retirement benefits for  officers
and to act as a retention incentive.  This non-qualified, unfunded, defined contribution plan extends to certain
named officers of the Company nominated by the Chief Executive Officer and approved by the Executive
Compensation Committee of the Board.  The SERP provides for the Company to make a contribution to the
account of each of the participating officers at the end of each Plan year.  The contribution, which is a
percentage of eligible earnings (including base salary and payments under the Annual Incentive Plan), is set
by the Committee at the beginning of each SERP year.  Contributions will not be taxable to the participant
(other than social security and federal unemployment taxes) until distribution.  The account balances earn
interest each year at a rate that approximates the Company's average cost of capital.  The Executive
Compensation Committee approves the interest rate at the beginning of each year.  On May 3, 2003, the
Executive Compensation Committee of the Company's Board of Directors approved management's
recommendation to suspend contributions to the SERP plan for the 2003 plan year.  The suspension was to
have no impact on existing account balances.  As a result, both the December 31, 2003 SERP contribution
and the January 1, 2004 interest contribution were suspended.  No expense was recorded for the SERP in
2003.  In December 2003, the Board of Directors approved the reinstatement of the SERP contribution for the
year ended December 31, 2004 and the January 1, 2005 interest contribution.

|                                        | Supplemental Executive Retirement Plan Benefit
|--------------------------------------- | ----------------------------------------------
|                                        | for the year ending December 31,              
|(In thousands)                          | 2003                                          
|                                        |                                               
|Balance at beginning of period          | $   778                                       
|Service cost                            | -                                             
|Forfeiture of prior period service cost | -                                             
|Interest cost                           | -                                             
|Balance at end of period                | $   778                                       

**Annual Incentive Plan**

Annual incentives emphasize pay for performance and serve as a key means of driving current
objectives and priorities.  Officers are rewarded for accomplishing the Company's short-term financial objectives.
In 2003, annual incentive opportunities for the officers were linked to Property Net Operating Income.
Participants' awards are paid in a combination of cash and restricted shares.  The Company recognized
expenses related to the amortization of restricted shares issued in prior years which have not yet vested of
$121,000, $201,000 and $477,000 for the years ended December 31, 2003, 2002 and 2001, respectively.  The
Company also recognized expense in the amount of $137,000 related to incentive payments made to officers
for the period ending December 31, 2002.  There were no officer incentives earned for the period ending
December 31, 2003.

**17.	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 occupancy rate reaches 93.0% or one year
following the purchase or delivery of the final units, whichever occurs first), and properties that have been sold.
The Market Rate Multifamily 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 Acquired, 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 Note 1, "Basis
of Presentation and Significant Accounting Policies."  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, Market Rate and Affordable Housing
segments and deducting direct property management and service companies expense, and painting service
expense 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.  Effective
January 1, 2003, the Company revised its method of allocating expenses to its service companies.  Previously,
the Company allocated an amount equal to 85.0% of the Management and Service Companies revenues as
service companies expense. The Company now identifies expenses which are directly associated with the
management and service companies and classifies them as service companies expense for the current and
all prior periods.  NOI should not be considered as an alternative to net income determined in accordance with
Generally Accepted Accounting Principles ("GAAP"), or as an indicator of the Company's financial performance,
cash flow from operating activities (determined in accordance with GAAP) or 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.  Other real
estate companies may define NOI in a different manner.

Information on the Company's segments for the years ended December 31, 2003, 2002 and 2001 is
as follows:

|                                     | For the year ended December 31, 2003
|------------------------------------ | ------------------------------------
|                                     |                                     
|                                     | Acquisition/                        
|(In thousands)                       | Disposition                         
|                                     |                                     
|Total segment revenues               | $	7,790                             
|Elimination of intersegment revenues | -                                   
|Consolidated revenues                | 7,790                               
|                                     |                                     
|Equity in net loss of joint ventures | (527)                               
|                                     |                                     
|*NOI                                 | 2,184                               
|                                     |                                     
|Total assets                         | 17,137                              

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

|                                     | For the year ended December 31, 2002
|------------------------------------ | ------------------------------------
|                                     |                                     
|                                     | Acquisition/                        
|(In thousands)                       | Disposition                         
|                                     |                                     
|Total segment revenues               | $	 5,537                            
|Elimination of intersegment revenues | -                                   
|Consolidated revenues                | 5,537                               
|                                     |                                     
|Equity in net loss of joint ventures | (1,181)                             
|                                     |                                     
|*NOI                                 | 2,027                               
|                                     |                                     
|Total assets                         | 37,446                              

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

|                                     | For the year ended December 31, 2001
|------------------------------------ | ------------------------------------
|                                     |                                     
|                                     | Acquisition/                        
|(In thousands)                       | Disposition                         
|                                     |                                     
|Total segment revenues               | $	7,974                             
|Elimination of intersegment revenues | -                                   
|Consolidated revenues                | 7,974                               
|                                     |                                     
|Equity in net loss of joint ventures | (29)                                
|                                     |                                     
|*NOI                                 | 3,987                               
|                                     |                                     
|Total assets                         | 52,619                              

* 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 for the years ended December
31, 2003, 2002 and 2001 is as follows:

|(In thousands)                                                           | 2003       | 2002     | 2001    
|------------------------------------------------------------------------ | ---------- | -------- | --------
|                                                                         |            |          |         
|Total NOI for reporting segments                                         | $	70,676   | $	75,998 | $	81,692
|Depreciation and amortization                                            | (34,828)   | (34,431) | (33,878)
|General and administrative expense (excluding service companies expense) | (6,084)    | (7,016)  | (6,964) 
|Interest expense                                                         | (40,759)   | (40,841) | (42,244)
|Gain on disposition of properties and land, net                          | -          | 227      | 7,047   
|Equity in net loss of joint ventures                                     | (1,157)    | (1,627)  | (328)   
|Gain on sale of partnership interest                                     | 1,314      | -        | -       
|Minority Interest in operating partnership                               | (75)       | (324)    | (478)   
|(Loss) income from continuing operations                                 | (10,913)   | (8,014)  | 4,847   
|Operating (loss) income                                                  | -          | (167)    | 60      
|Gain on disposition of properties                                        | -          | 9,660    | -       
|Consolidated net (loss) income                                           | $	(10,913) | $	1,479  | $	4,907 

**18.	SUBSEQUENT EVENTS**

**Dividends Declared**

On December 11,  2003, the Company declared a quarterly dividend of $0.17 per common share, which
was paid on February 2, 2004 to shareholders of record on January 15, 2004.

On February 12, 2004, the Company announced that a quarterly dividend of $0.60938 per Depositary
Share on its Class A Cumulative Preferred Shares will be paid on March 15, 2004 to shareholders of record on
March 1, 2004.

**Contract for Property Sale**

Effective January 9, 2004, the Company entered into a contract to sell one of its Market Rate properties
located in Northeast Ohio.

**19.	QUARTERLY FINANCIAL INFORMATION (UNAUDITED)**

|****                                          | 2003    
|--------------------------------------------- | --------
|                                              | First   
|(In thousands, except per share data)         | Quarter 
|                                              |         
|Revenues                                      | $	38,137
|Net (loss) income applicable to common shares | (5,353) 
|Basic earnings per share                      | (.28)   
|Diluted earnings per share                    | (.28)   

|                                              | 2002    
|--------------------------------------------- | --------
|                                              | First   
|(In thousands, except per share data)         | Quarter 
|                                              |         
|Revenues                                      | $	40,138
|Net (loss) income applicable to common shares | (2,537) 
|Basic earnings per share                      | (0.13)  
|Diluted earnings per share                    | (0.13)  



**VALUATION AND QUALIFYING ACCOUNTS**

|Column A                        | Column B   | Column C   | Column D       | Column E    
|------------------------------- | ---------- | ---------- | -------------- | ------------
|                                |            | ADDITIONS  |                |             
|(In thousands)                  | Balance at | Charged to | Charged to     |             
|                                | Beginning  | Costs and  | Other Accounts | Deductions  
|DESCRIPTION                     | of Period  | Expenses   | Describe       | Describe    
|                                |            |            |                |             
|Year ended December 31, 2003:   |            |            |                |             
|Deducted from asset accounts:   |            |            |                |             
|Allowance for doubtful accounts | $    166   | $ 1,869    | $  -           | $ (1,892)(a)
|Valuation allowance - deferred  |            |            |                |             
|tax asset                       | 4,123      | 160(b)     | -              | -           
|                                |            |            |                |             
|Year ended December 31, 2002:   |            |            |                |             
|Deducted from asset accounts:   |            |            |                |             
|Allowance for doubtful accounts | 124        | 1,343      | -              | (1,301)(a)  
|Valuation allowance - deferred  |            |            |                |             
|tax asset                       | 3,615      | 508(b)     | -              | -           
|                                |            |            |                |             
|Year ended December 31, 2001:   |            |            |                |             
|Deducted from asset accounts:   |            |            |                |             
|Allowance for doubtful accounts | 197        | 1,490      | -              | (1,563)(a)  
|Valuation allowance - deferred  |            |            |                |             
|tax asset                       | 3,396      | 219(b)     | -              | -           

(a) Uncollectible amounts written off.

(b) Adjustments to the valuation allowance for deferred taxes are recorded to adjust deferred tax asset to net realizable value.

|**S-2****ASSOCIATED ESTATES REALTY CORPORATION
	SCHEDULE III**
|--------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                  
|**December 31, 2003**                                         
|****                                                          
|                                                              
|                                                              
|******(In thousands)**                                        
|****                                                          
|**Property**                                                  
|                                                              
|RESIDENTIAL MULTIFAMILY PROPERTIES                            
|**NORTHERN OHIO**                                             
|Barrington                                                    
|Bay Club                                                      
|College Towers                                                
|Country Club Apartments                                       
|Ellet                                                         
|Gates Mills Club                                              
|Hawthorne Hills Apartments                                    
|Hillwood I                                                    
|KTC Properties                                                
|Mallard's Crossing                                            
|Portage Towers (3)                                            
|Puritas Place                                                 
|Riverview Towers                                              
|Shaker Park Gardens                                           
|State Road                                                    
|Statesman II                                                  
|Sutliff II                                                    
|Tallmadge Acres                                               
|The Oaks                                                      
|The Triangle                                                  
|Twinsburg                                                     
|Vantage Villa                                                 
|Village at Avon                                               
|Village Towers                                                
|Watergate                                                     
|West High                                                     
|Westchester Townhouses                                        
|Western Reserve Village                                       
|Westlake Investment                                           
|Williamsburg at Greenwood Village                             
|Winchester                                                    
|Winchester II (3)                                             
|                                                              

|S-3ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued
|----------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                          
|**December 31, 2003**                                                 
|****                                                                  
|                                                                      
|                                                                      
|******(In thousands)**                                                
|****                                                                  
|**Property**                                                          
|                                                                      
|                                                                      
|CENTRAL OHIO                                                          
|Arrowhead Station                                                     
|Bedford Commons                                                       
|Bradford at Easton                                                    
|Residence at Christopher Wren                                         
|Colony Bay East                                                       
|Heathermoor                                                           
|Kensington Grove                                                      
|Lake Forest                                                           
|Muirwood Village at Bennell                                           
|Oak Bend Commons Apartments                                           
|Pendleton Lakes East                                                  
|Perimeter Lakes                                                       
|Saw Mill Village                                                      
|Sterling Park                                                         
|Residence at Turnberry                                                
|Wyndemere                                                             
|                                                                      
|SOUTHERN OHIO                                                         
|Remington Place                                                       
|                                                                      
|MICHIGAN                                                              
|Arbor Landings                                                        
|Aspen Lakes Apartments                                                
|Central Park Place                                                    
|Country Place Apartments                                              
|Clinton Place Apartments                                              
|Georgetown Park Apartments                                            
|Oaks and Woods at Hampton                                             
|The Landings at the Preserve                                          
|Spring Brook Apartments                                               
|Spring Valley Apartments                                              
|Summer Ridge                                                          
|                                                                      
|FLORIDA                                                               
|Cypress Shores                                                        
|Windsor Pines                                                         
|MetroWest (4)                                                         

|**S-4ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued**
|--------------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                              
|**December 31, 2003**                                                     
|****                                                                      
|                                                                          
|                                                                          
|******(In thousands)**                                                    
|****                                                                      
|**Property**                                                              
|                                                                          
|GEORGIA                                                                   
|The Falls                                                                 
|Morgan Place                                                              
|                                                                          
|MARYLAND                                                                  
|Reflections                                                               
|Annen Woods                                                               
|Hampton Pointe                                                            
|                                                                          
|NORTH CAROLINA                                                            
|Windsor Falls                                                             
|                                                                          
|TEXAS                                                                     
|Fleetwood                                                                 
|                                                                          
|ARIZONA                                                                   
|20th and Campbell                                                         
|                                                                          
|INDIANA                                                                   
|The Gables at White River                                                 
|Waterstone Apartments                                                     
|Steeplechase                                                              
|                                                                          
|PENNSYLVANIA                                                              
|Chestnut Ridge                                                            
|                                                                          
|                                                                          
|                                                                          
|Management Service Companies                                              
|Land, Building & Improvements                                             
|**FURNITURE, FIXTURE & EQUIPMENT**                                        
|Construction in progress                                                  
|**GRAND TOTALS**                                                          

(1)	Encumbrances include mortgage debt, and other obligations secured by the real estate assets.

(2)	Improvements include the purchase price adjustment for certain properties in which cash was paid to unrelated third parties to acquire their interests.

(3)	These two properties secure a $14.0 million line  of credit.  There were no borrowings outstanding at December 31, 2003.

(4)	This property secures a $15.0 million line  of credit.  At December 31, 2003, there were $5.0 million of borrowings outstanding.

|**S-5ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued**
|--------------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                              
|**December 31, 2003**                                                     
|****                                                                      
|                                                                          
|                                                                          
|******(In thousands)**                                                    
|****                                                                      
|**Property**                                                              
|                                                                          
|JOINT VENTURE PROPERTIES                                                  
|INVESTMENT IN WHICH AERC                                                  
|**HAS A 24% INTEREST**                                                    
|RESIDENTIAL MULTIFAMILY PROPERTY                                          
|**FLORIDA**                                                               
|Courtney Chase                                                            
|                                                                          
|INVESTMENT IN WHICH AERC                                                  
|**HAS A 50% INTEREST**                                                    
|**RESIDENTIAL MULTIFAMILY PROPERTY**                                      
|**NORTHERN OHIO**                                                         
|Lakeshore Village                                                         
|                                                                          
|INVESTMENT IN WHICH AERC                                                  
|**HAS A 49% INTEREST**                                                    
|RESIDENTIAL MULTIFAMILY PROPERTIES                                        
|**GEORGIA**                                                               
|Idlewylde - Phase I                                                       
|Idlewylde - Phase II                                                      
|                                                                          
|                                                                          
|TOTAL: Land, Building and Improvements                                    
|Furniture, Fixtures and Equipment                                         
|Construction in Progress                                                  
|JOINT VENTURE GRAND TOTAL                                                 
|                                                                          

(1)	Encumbrances include mortgage debt and other obligations secured by the real estate assets.

(2)	Improvements include the purchase price adjustment for certain properties in which cash was paid to unrelated third parties to acquire their interests.









The Aggregate Cost for Federal Income Tax purposes was approximately $905.2 million and $904.9
million at December 31, 2003 and 2002, respectively.

The changes in Total Real Estate Assets for the years ended December 31, are as follows:

|(In thousands)               | 2003       | 2002      
|---------------------------- | ---------- | ----------
|                             |            |           
|Balance, beginning of period | $	 916,408 | $	 932,308
|Disposal of fixed assets     | (3,825)    | (45,484)  
|New acquisition properties   | -          | 17,873    
|Improvements (a)             | 13,388     | 11,711    
|Balance, end of period       | $	925,971  | $	 916,408

(a)  Includes a reduction of $589,000 in 2003 and $4.5 million in 2002 related to the redemption of
Operating Partnership Units.  See Note 1 of the Notes to the Consolidated Financial Statements.

The changes in Accumulated Depreciation for the years ended December 31, are as follows:

|(In thousands)               | 2003       | 2002      
|---------------------------- | ---------- | ----------
|                             |            |           
|Balance, beginning of period | $	 233,350 | $	 212,124
|Disposal of fixed assets     | (3,480)    | (12,852)  
|Depreciation for period      | 34,516     | 34,078    
|Balance, end of period       | $	 264,386 | $	 233,350