****









**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 9.75% Class A Cumulative                                                                    |                              
|Redeemable Preferred Shares, without par value                                                                 |                              
|                                                                                                               |                              
|Depositary Shares, each representing                                                                           |                              
|1/10 of a Share of 8.70% Class B Series II Cumulative                                                          |                              
|Redeemable Preferred Shares, without par value                                                                 | New York Stock Exchange, Inc.
|                                                                                                              
|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 non-affiliates                                         
|of the Registrant, was $129.6 million as of June 30, 2004.                                                    
|                                                                                                              
|The number of Common Shares outstanding as of February 23, 2005 was 19,708,782.                               
|                                                                                                              
|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 4, 2005 (in Part III).                                                      

****



**TABLE OF CONTENTS**

**FORM 10-K ANNUAL REPORT**

**FOR THE YEAR ENDED DECEMBER 31, 2004**

|                                                                         | **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       
|Disposition/Acquisition                                                  | 2       
|Market-Rate Properties                                                   | 2       
|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       
|Indebtedness Encumbering the Properties                                  | 8       
|3.	Legal Proceedings                                                     | 8       
|4.	Submission of Matters to a Vote of Security Holders                   | 8       
|Executive Officers of the Registrant and Other Key Employees             | 9       
|                                                                         |         
|**PART II**                                                              |         
|                                                                         |         
|5.	Market for Registrant's Common Equity and Related Stockholder Matters | 11      
|and Issuer Purchases of Equity Securities                                |         
|6.	Selected Financial Data                                               | 12      
|7.	Management's Discussion and Analysis of Financial                     | 14      
|Condition and Results of Operations                                      |         
|7A.	Quantitative and Qualitative Disclosures About Market Risk           | 30 & 31 
|8.	Consolidated Financial Statements and Supplementary Data              | 31      
|9.	Changes in and Disagreements with Accountants                         |         
|on Accounting and Financial Disclosure                                   | 31      
|9A.	Controls and Procedures                                              | 31      
|9B.	Other Information                                                    | 32      
|**PART III**                                                             |         
|                                                                         |         
|10.	Directors and Executive Officers of the Registrant                   | 33      
|11.	Executive Compensation                                               | 33      
|12.	Security Ownership of Certain Beneficial Owners and Management       | 33      
|and Related Shareholder Matters                                          |         
|13.	Certain Relationships and Related Transactions                       | 34      
|14.	Principal Accountant Fees and Services                               | 34      
|**PART IV**                                                              |         
|                                                                         |         
|15.	Exhibits and Financial Statement Schedules                           | 35      



**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 that provide management and other services for the Company and third
parties (collectively the "Service Companies").  As of December 31, 2004, the Company owns or property
manages 107 apartment communities in twelve states consisting of 23,457 units.  See Item 2 for a state by
state listing of the Company's Portfolio.  The Company owns, either directly or through subsidiaries, or holds
ownership interests in 76 of the 107 apartment communities containing 17,854 units in ten states.  Thirteen
of those owned or partially owned apartment communities, consisting of 1,354 units, are Affordable Housing
communities.  The Company, or one of its subsidiaries, also property manages 31 communities in which it
does not have an ownership interest, consisting of 5,603 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, and affiliated or non-affiliated third party owners.  Effective February 1, 2005, the Company assumed property management
responsibilities for two additional Affordable Housing properties with a total of 200 units located in
Gainesville, Florida, which are owned by a non-affiliated third party and ceased management of the 270,000
square foot commercial property as a result of the sale of this property.  See Item 2 of this report on Form
10-K for further information concerning these transactions.  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 report on 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.  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 report on Form 10-K for a reconciliation of NOI to the Company's net income (loss).

See Note 18 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.  As of December 31, 2004, one owned property was
classified in this segment.  During 2004, approximately 1.2% 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 December 31, 2004, the Company had 60 owned properties, two of which are
congregate care facilities, classified in this segment.  Additionally, two of the joint venture properties, in
which the Company has an investment, are classified in this segment.  During 2004, approximately 89.3%
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 December
31, 2004, the Company had 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 2004,
approximately 6.9% 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.
Additionally, this segment includes the results from the Company's painting subsidiary, Merit Painting
Services.  During 2004, approximately 2.6% of the total NOI of the Company was generated by this
segment.

**STRATEGY**

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

***Disposition/Acquisition.***The Company sold five wholly owned properties located in Ohio during
the last three years, and also two joint venture properties, one property located in Ohio and one property
located in Pennsylvania.  The Company recognized an aggregate gain on these dispositions of $21.3 million.
In 2004, the Company acquired its joint venture partner's interest in Courtney Chase Apartments, a
multifamily community located in Orlando, Florida, which was developed by the Company and its former joint
venture partner.  The Company previously had a 24.0% ownership interest in this partnership.

***Market-Rate Properties.*****  The Company plans to enhance the value of its wholly owned portfolio
through realization of additional revenue opportunities, containing operating expenses and efficient
management.  The Company has targeted portions of Florida, Atlanta or the Baltimore/Washington,
DC/Northern Virginia corridor as desirable areas for future acquisitions.

***Affordable Housing.***The Company wholly owns 12 Affordable Housing properties (comprised of
1,246 units), which have been part of the portfolio since the IPO.  While these properties rent growth is
limited due to regulatory restrictions, they have provided a stabilizing influence on the portfolio.  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 28 Affordable Housing properties (4,840 units) owned by third
parties and one property (108 units) in which the Company is a joint venture partner.

***Fee Management/Advisory Business*****.  The Company applies 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 at the same time generating fee income.

***Financing and Leverage****.* As of December 31, 2004, conventional mortgages payable, which
totaled $545.9 million, were comprised of 55 non-recourse loans, each of which is collateralized by separate
mortgages encumbering 55 separate properties.  Federally insured mortgage debt of $1.4 million, which was
funded through Industrial Development Bonds, encumbered one property at December 31, 2004.  The
Company has two lines of credit.  The Company's $14.0 million line of credit is secured by one property.
An outstanding letter of credit in the amount of $184,000 and a $1.6 million credit risk sublimit relative to
derivative transactions currently limit the amount available under this line of credit to $12.2 million.  There
were no borrowings outstanding under this line at December 31, 2004 or at December 31, 2003.  The
Company's $15.0 million line of credit is secured by one property.  Borrowings under this line of credit are
currently limited to $13.6 million.  At December 31, 2004 and 2003, there were $10.0 and $5.0 million of
borrowings outstanding under this line of credit, respectively.

**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 February 23, 2005, the Company employed approximately 750 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 December 31,
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.  In addition to the properties in the table, on February 1, 2005, the Company
assumed property management responsibilities for two Affordable Housing properties with a total of 200
units located in Gainesville, Florida, which are owned by a non-affiliated third party and ceased management
of a commercial property, located in Ohio, containing 270,000 square feet as a result of the sale of this
property.

|                                        | **Total Number**  | **Total Number**     
|--------------------------------------- | ----------------- | ---------------------
|**December 31, 2004 Portfolio**         | **of Properties** | **of Units**         
|**Wholly Owned Properties**             |                   |                      
|Market-Rate Properties:                 |                   |                      
|Arizona                                 | 1                 | 204                  
|Florida                                 | 4                 | 1,416                
|Georgia                                 | 2                 | 706                  
|Indiana                                 | 3                 | 836                  
|Maryland                                | 3                 | 667                  
|Michigan                                | 11                | 2,888                
|North Carolina                          | 1                 | 276                  
|Ohio                                    | 34                | 8,092                
|Pennsylvania                            | 1                 | 468                  
|Texas                                   | 1                 | 104                  
|                                        | 61                | 15,657               
|Affordable Housing Properties:          |                   |                      
|Ohio                                    | 12                | 1,246                
|Total wholly owned properties           | 73                | 16,903               
|                                        |                   |                      
|**Joint Ventures:**                     |                   |                      
|Market-Rate Properties:                 |                   |                      
|49.0% owned - Georgia                   | 2                 | 843                  
|Affordable Housing Property:            |                   |                      
|50.0% owned - Ohio                      | 1                 | 108                  
|Total joint ventures                    | 3                 | 951                  
|                                        |                   |                      
|**Managed for Pension Fund Clients:**   |                   |                      
|Market-Rate Properties:                 |                   |                      
|Colorado                                | 1                 | 258                  
|Illinois                                | 1                 | 340                  
|Michigan                                | 1                 | 301                  
|                                        | 3                 | 899                  
|**Managed for Other Third Parties:**    |                   |                      
|Affordable Housing Properties:          |                   |                      
|Ohio                                    | 22                | 4,146                
|Pennsylvania                            | 4                 | 494                  
|                                        | 26                | 4,640                
|Market-Rate Properties:                 |                   |                      
|Ohio                                    | 2                 | 64                   
|                                        | 28                | 4,704                
|Total managed properties                | 31                | 5,603                
|**Total Portfolio**                     | **107**           | **23,457**           
|                                        |                   |                      
|**********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                 |                      

|                                              | **Total Number**
|--------------------------------------------- | ----------------
|**Wholly Owned and Joint Venture Properties** | **of Units**    
|                                              |                 
|**Wholly Owned Properties**                   |                 
|Market-Rate Properties:                       |                 
|**Arizona**                                   |                 
|20th and Campbell                             | 204             
|                                              |                 
|**Florida**                                   |                 
|Courtney Chase                                | 288             
|Cypress Shores                                | 300             
|Metro West                                    | 460             
|Windsor Pines                                 | 368             
|                                              | 1,416           
|**Georgia**                                   |                 
|The Falls                                     | 520             
|Morgan Place                                  | 186             
|                                              | 706             
|**Indiana**                                   |                 
|Residence at White River                      | 228             
|Steeplechase                                  | 264             
|Waterstone Apartments                         | 344             
|                                              | 836             
|**Maryland**                                  |                 
|Annen Woods                                   | 131             
|Hampton Point                                 | 352             
|Reflections                                   | 184             
|                                              | 667             
|**Michigan**                                  |                 
|Arbor Landings                                | 328             
|Aspen Lakes Apartments                        | 144             
|Central Park Place                            | 216             
|Country Place Apartments                      | 144             
|Clinton Place Apartments                      | 202             
|Georgetown Park Apartments                    | 480             
|Oaks and Woods at Hampton                     | 544             
|The Landings at the Preserve                  | 190             
|Spring Brook Apartments                       | 168             
|Spring Valley Apartments                      | 224             
|Summer Ridge                                  | 248             
|                                              | 2,888           
|**North Carolina**                            |                 
|Windsor Falls                                 | 276             
|                                              |                 
|**Ohio**                                      |                 
|Arrowhead Station                             | 102             
|Barrington                                    | 288             
|Bay Club                                      | 96              
|Bedford Commons                               | 112             
|Bradford at Easton                            | 324             
|Colony Bay East                               | 156             
|Country Club Apartments                       | 316             
|Gates Mills Club                              | 120             
|Hawthorne Hills Apartments                    | 88              
|Heathermoor                                   | 280             
|                                              | **Total Number**
|**Wholly Owned and Joint Venture Properties** | **of Units**    
|                                              |                 
|**Wholly Owned Properties**                   |                 
|                                              |                 
|**Ohio (Continued)**                          |                 
|Kensington Grove                              | 76              
|KTC Properties                                | 506             
|Lake Forest                                   | 192             
|Mallard's Crossing                            | 192             
|Muirwood Village at Bennell                   | 164             
|Oak Bend Commons Apartments                   | 102             
|Pendleton Lakes East                          | 256             
|Perimeter Lakes                               | 189             
|Portage Towers                                | 376             
|Remington Place                               | 234             
|Residence at Christopher Wren                 | 264             
|Residence at Turnberry                        | 216             
|Saw Mill Village                              | 340             
|Sterling Park                                 | 128             
|The Oaks                                      | 50              
|The Triangle                                  | 279             
|Vantage Villa                                 | 150             
|Village at Avon                               | 312             
|Watergate                                     | 949             
|Westchester Townhouses                        | 136             
|Western Reserve                               | 108             
|Westlake Investment                           | 7               
|Williamsburg at Greenwood Village             | 260             
|Winchester                                    | 724             
|                                              | 8,092           
|**Pennsylvania**                              |                 
|Chestnut Ridge                                | 468             
|                                              |                 
|**Texas**                                     |                 
|Fleetwood Apartments                          | 104             
|                                              |                 
|Affordable Housing Properties:                |                 
|**Ohio**                                      |                 
|Ellet                                         | 100             
|Hillwood I                                    | 100             
|Puritas Place                                 | 100             
|Riverview Towers                              | 98              
|Shaker Park Gardens II                        | 151             
|State Road Apartments                         | 72              
|Statesman II                                  | 47              
|Sutliff Apartments                            | 185             
|Tallmadge Acres                               | 125             
|Twinsburg Apartments                          | 100             
|Village Towers                                | 100             
|West High Apartments                          | 68              
|                                              | 1,246           
|**Total wholly owned properties**             | 16,903          
|                                              | **Total Number**
|                                              | **of Units**    
|**Joint Venture Properties**                  |                 
|Market-Rate Properties:                       |                 
|**49% Owned - Georgia**                       |                 
|Idlewylde - Phase I                           | 308             
|Idlewylde - Phase II                          | 535             
|                                              | 843             
|Affordable Housing Property:                  |                 
|**50% Owned - Ohio**                          |                 
|Lakeshore Village                             | 108             
|**Total joint venture properties**            | 951             



|                               |                  |           | **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**  |                

***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.  Of the seventy-three wholly owned properties, fifteen properties are unencumbered
(three Market-Rate properties and twelve Affordable Housing properties), fifty-five properties are
encumbered by conventional mortgages, (fifty-four Market-Rate properties and one Acquisition/Disposition
property), two properties secure the lines of credit and one property is encumbered by a mortgage 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).

**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 | 53  | Chairman of the Board, President and Chief Executive Officer
|Martin A. Fishman   | 63  | Vice President, General Counsel and Secretary               
|Lou Fatica          | 38  | Vice President, Treasurer and Chief Financial Officer       
|John T. Shannon     | 43  | Senior Vice President, Operations                           

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), a 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.

John T. Shannon joined the Company in 2004 as Senior Vice President, Operations.  Mr. Shannon
had previously held the position of Vice President of Operations for The Shelter Group.  Mr. Shannon has
15 years of property management experience.

In addition to the 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 became Vice President of Investor Relations in
1998.  Ms. Hasenstab has 26 years of experience in investor relations, is a member of the National Investor
Relations Institute and is 51 years old.

Nan R. Zieleniec joined AEG in 1990 and became 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 46 years old.

Jenee McClain-Bankhead joined the Company in 1994.  She is currently a Regional Vice President
and is responsible for the Company's Affordable Housing portfolio and related Affordable Housing fee
management business for third parties.  Ms. McClain-Bankhead holds the designations of Certified Financial
Manager, Certified Occupancy Specialist and Certified Credit Compliance Professional and is 34 years old.

Daniel L. Powers joined the Company in 1998.  He is currently a Regional Vice President and is
responsible for the Market-Rate properties owned and managed by the Company in Arizona, Northwest and
Northeast Ohio, Michigan, Pennsylvania and Texas.  Mr. Powers has been involved in multifamily property
management for 24 years.  Mr. Powers is a Certified Property Manager and is 51 years old.

Beth L. Stoll joined the Company in 2004 as a Regional  Vice President.  She is responsible for the
Market-Rate properties owned and managed by the Company in Georgia, Maryland, Indiana, Florida and
Central Ohio.  Ms. Stoll previously held the position of Regional Vice President for The Shelter Group. Ms.
Stoll has 20 years of property management experience and is 49 years old.

**PART II**

**Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases	of Equity Securities**

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         
|               | 2004        | 2003              
|               | High        | Low               
|               |             |                   
|First Quarter  | $ 9.23      | $7.44             
|Second Quarter | 9.11        | 7.20              
|Third Quarter  | 10.12       | 7.83              
|Fourth Quarter | 10.49       | 9.51              
|               |             |                   

On February 23, 2005, there were approximately 940 holders of record and approximately 11,000
beneficial owners 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 administrator
of the plan will purchase shares directly from the Company (either treasury shares or newly-issued common
shares), in the open market, or in privately negotiated transactions with third parties on behalf of participating
shareholders.

|Issuer Purchases of Equity Securities For the Three Months Ended December 31, 2004
|----------------------------------------------------------------------------------
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Period                                                                            
|                                                                                  
|October  1 through                                                                
|October 31                                                                        
|November 1 through                                                                
|November 30                                                                       
|December 1 through                                                                
|December 31                                                                       
|Total                                                                             

The Company does not currently have an authorization in effect from the Board of Directors to
purchase its common shares on the open market.  The Company does, however, have a policy which allows
employees to pay their portion of the payroll taxes related to restricted share vesting by surrendering shares
to the Company equal in value on the day of vesting to the amount of taxes due.  Such shares are the only
shares purchased by the Company during the year ended December 31, 2004.  Forfeitures of restricted
shares, if any, are not included in this table, although they increase the total number of treasury shares.

**Item 6.  Selected Financial 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)*              |           |            |                |              |          
|                                                            | **2004    | 2003       | 2002           | 2001         | 2000     
|**Operating Data:**                                         |           |            |                |              |          
|*Revenues*                                                  |           |            |                |              |          
|Rental                                                      | $	136,105 | $ 134,617  | $	135,567      | $ 139,087    | $	140,457
|Property and asset management, acquisition and              |           |            |                |              |          
|disposition fees and reimbursements                         | 13,102    | 14,254     | 20,410         | 23,471       | 21,675   
|Painting services                                           | 6,147     | 2,827      | 1,642          | 2,196        | 1,530    
|Other                                                       | 5,045     | 3,752      | 3,356          | 4,223        | 2,639    
|Total revenues                                              | 160,399   | 155,450    | 160,975        | 168,977      | 166,301  
|                                                            |           |            |                |              |          
|*Total expenses*                                            | (125,996) | (126,748)  | (127,453)      | (128,545)    | (126,144)
|                                                            |           |            |                |              |          
|Interest income                                             | 314       | 160        | 329            | 418          | 1,156    
|Interest expense                                            | (40,334)  | (40,759)   | (40,841)       | (42,244)     | (43,853) 
|                                                            |           |            |                |              |          
|(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                                | (5,617)   | (11,897)   | (6,990)        | (1,394)      | (2,540)  
|Gain on disposition of properties and land, net             | -         | -          | 227            | 7,047        | 7,512    
|Equity in net loss of joint ventures                        | (923)     | (1,157)    | (1,627)        | (328)        | (164)    
|Gain on sale of partnership interest                        | -         | 1,314      | -              | -            | -        
|Minority interest in operating partnership                  | (63)      | (75)       | (324)          | (478)        | (400)    
|**(Loss) income from continuing operations**                | (6,603)   | (11,815)   | (8,714)        | 4,847        | 4,408    
|Income from discontinued operations:                        |           |            |                |              |          
|Operating income                                            | 245       | 902        | 533            | 60           | 534      
|Gain on disposition of properties, net                      | 9,682     | -          | 9,660          | -            | -        
|Income from discontinued operations                         | 9,927     | 902        | 10,193         | 60           | 534      
|**Net income (loss)**                                       | 3,324     | (10,913)   | 1,479          | 4,907        | 4,942    
|Preferred share dividends                                   | (5,805)   | (5,484)    | (5,485)        | (5,484)      | (5,484)  
|**Net (loss) income applicable to common shares**           | $	(2,481) | $ (16,397) | $	(4,006)      | $      (577) | $	(542)  
|****                                                        |           |            |                |              |          
|**Earnings per common share  - Basic:**                     |           |            |                |              |          
|(Loss) income from continuing operations applicable to      |           |            |                |              |          
|common shares                                               | $	(.64)   | $	(.89)    | $	(.73)        | $	(.03)      | $	(.05)  
|Income from discontinued operations                         | 51        | .04        | .52            | -            | .02      
|Net (loss) income applicable to common shares               | $	(.13)   | $	 (.85)   | $	(.21)        | $	(.03)      | $	(.03)  
|Weighted average number of common shares outstanding        | 19,519    | 19,401     | 19,343         | 19,415       | 19,733   
|**Earnings per common share - Diluted:**                    |           |            |                |              |          
|(Loss) income from continuing operations applicable to      |           |            |                |              |          
|common shares                                               | $	(.64)   | $	(.89)    | $	(.73)        | $	(.03)      | $	(.05)  
|Income from discontinued operations                         | 51        | .04        | .52            | -            | .02      
|Net (loss) income applicable to common shares               | $	(.13)   | $	 (.85)   | $	(.21)        | $	(.03)      | $	(.03)  
|Weighted average number of common shares outstanding        | 19,519    | 19,401     | 19,343         | 19,415       | 19,733   
|                                                            |           |            |                |              |          
|**Dividends declared per common share**                     | $	.68     | $	.68      | $          .92 | $       1.25 | $	1.25   
|                                                            |           |            |                |              |          
|**Cash flow data:**                                         |           |            |                |              |          
|Cash flow provided by operations                            | $	32,935  | $	28,758   | $	32,897       | $	26,845     | $	31,618 
|Cash flow (used for) provided by investing activity         | (12,745)  | (11,509)   | 13,260         | (7,983)      | (16,892) 
|Cash flow provided by (used for) financing activity         | 37,332    | (15,937)   | (48,421)       | (16,264)     | (50,545) 

|                                       | 2004      | 2003      | 2002      | 2001      | 2000     
|-------------------------------------- | --------- | --------- | --------- | --------- | ---------
|**Balance Sheet Data at December 31:** |           |           |           |           |          
|Real estate assets, net                | $	665,268 | $ 661,585 | $ 683,058 | $ 716,079 | $ 742,183
|Total assets                           | 763,432   | 704,793   | 735,303   | 775,624   | 819,559  
|Total debt (c)                         | 557,279   | 543,496   | 540,498   | 552,069   | 568,177  
|Total shareholders' equity             | 163,590   | 121,428   | 150,865   | 171,996   | 196,456  

|**Other Data:**                                                      |          |             |              |              |         
|-------------------------------------------------------------------- | -------- | ----------- | ------------ | ------------ | --------
|Net operating income (a) (d)                                         | $	76,232 | $ 69,748    | $   75,289   | $   81,692   | $	83,063
|Total properties (at end of period) - includes joint ventures        | 76       | 78          | 79           | 84           | 90      
|                                                                     |          |             |              |              |         
|Total multifamily units (at end of period) - includes joint ventures | 17,854   | 18,313      | 18,313       | 19,807       | 20,738  
|Average monthly rental revenues per multifamily unit                 | $	671    | $       670 | $        659 | $        653 | $	646   
|Physical occupancy (b)                                               | 91.7%    | 92.7%       | 87.4%        | 90.5%        | 91.5%   

(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
$22,469, $26,406, $32,659, $42,245 and $24,986 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.

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

|                                                | 2004     | 2003        | 2002     | 2001     | 2000    
|----------------------------------------------- | -------- | ----------- | -------- | -------- | --------
|Net operating income                            | $	76,232 | $	69,748    | $	75,289 | $	81,692 | $	83,063
|Depreciation and amortization                   | (33,744) | (34,802)    | (34,422) | (33,878) | (33,901)
|General and administrative expense              |          |             |          |          |         
|excluding service companies expense             | (7,771)  | (6,084)     | (7,016)  | (6,964)  | (7,849) 
|Interest expense                                | (40,334) | (40,759)    | (40,841) | (42,244) | (43,853)
|Gain on disposition of properties and land, net | -        | -           | 227      | 7,047    | 7,512   
|Equity in net loss of joint ventures            | (923)    | (1,157)     | (1,627)  | (328)    | (164)   
|Gain on sale of partnership interest            | -        | 1,314       | -        | -        | -       
|Minority interest in operating partnership      | (63)     | (75)        | (324)    | (478)    | (400)   
|Income from discontinued operations:            |          |             |          |          |         
|Operating income                                | 245      | 902         | 533      | 60       | 534     
|Gain on disposition of properties, net          | 9,682    | -           | 9,660    | -        | -       
|Income from discontinued operations             | 9,927    | 902         | 10,193   | 60       | 534     
|Net income (loss)                               | $	3,324  | $	 (10,913) | $	1,479  | $	4,907  | $	4,942 

**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.  This discussion may 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,
including, but not limited to, preliminary expectations regarding the Company's 2005 performance which is
based on certain assumptions.  Accordingly, readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the dates of the document.  These forward-looking statements
are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of
1995.  The words "expects", "projects", "believes", "plans", "anticipates," and similar expressions are
intended to identify forward-looking statements.  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 or millage rate increases;

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;

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

changes in market conditions that may limit or prevent the Company from acquiring or selling
properties; and

risks related to the perception of residents and prospective residents as to the attractiveness,
convenience and safety of the Company's properties or the neighborhoods in which they are
located.

***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
85.0% of the Company's consolidated revenues are generated from the leasing of the owned residential
units.  Approximately 92.0% of the rental 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 in many of the
Company's markets and related unemployment rates.

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

The Company expects its 2005 performance to continue to be driven by improvements in the
Market-Rate  portfolio.  The Company expects to increase net collected rents by 2.0% in its Midwest portfolio
and 4.0% in all its other portfolios located outside the Midwest.  The Company also expects property
operating expense increases of approximately 2.0% across its entire portfolio.  Property operating margins
are expected to increase 1.0% for the year 2005 as compared to 2004.  Offsetting these increases will be
expected declines in asset and property management fees, disposition fees and the net contribution from
the Company's painting subsidiary.  The Company also expects interest expense on its floating rate debt
to increase.  Asset and property management fee and disposition fee reductions are attributable to the loss
of certain advisory properties previously under management and associated disposition fees earned during
2004.  The net contribution from the Company's painting subsidiary is expected to be approximately $1.3
million less than 2004.  Painting operations for 2005 are expected to return to a more normalized
contribution as a result of certain contracts that the Company's subsidiary had entered into that were
completed in 2004.  The Company anticipates a 150 basis point increase in interest rates associated with
its floating rate debt.  The Company does not anticipate changes in acquisition, disposition or development
activity in 2005 that would materially change these expected results.

***Overall Portfolio Strategy.***The Company's primary business objectives are to maximize property
level NOI, balance the portfolio, and improve the balance sheet.  In order to increase property NOI, the
Company plans to continue to focus its efforts on improving revenues, containing costs and realizing
operational efficiencies at the asset level, both regionally and portfolio-wide.  In order to balance the
portfolio, the Company intends to operate in fewer geographic markets and diversify away from the Midwest.
The Company believes that concentrating its portfolio in fewer markets will improve operational efficiencies
from economies of scale and more effectively leverage management and operational resources.  The
Company may exit markets in which it currently operates whenever it believes these goals are not
achievable.  The Company may also consider selling assets in any market, including Florida, Atlanta and
the Metro DC area, where market conditions are such that the reinvestment of cash proceeds derived from
a sale are expected to provide a significantly greater return on equity and an increase in cash flow.

***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***

***Cash Flows and Liquidity****.*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)                                | 2004                           
|                                              |                                
|Net cash provided by operating activities     | $	32,935                       
|Real estate and fixed asset additions         | (22,338)                       
|Net proceeds from property dispositions       | 9,593                          
|Joint venture distribution from sale proceeds | -                              
|Purchase of operating partnership units       | -                              
|Investments in joint ventures - net           | -                              
|(Decreases) increases in debt - net           | (1,399)                        
|Issuance of 8.70% Class B Cumulative          |                                
|Redeemable Preferred Shares                   | 56,793                         
|Cash dividends and operating partnership      |                                
|distributions paid                            | (18,863)                       
|Net cash from other financing activities      | 801                            
|Cash increase (decrease)                      | $	57,522                       

The Company's primary sources of liquidity are cash flow provided by operations and short term
borrowings on its lines of credit.  Cash provided by operations during 2004 increased $4.2 million compared
to 2003 primarily as a result of improved performance at the properties due to increased rental revenues
and other revenues and decreased property operating and maintenance expenses, which were partially
offset by an increase in general and administrative expenses.  The Company received cash proceeds of
$9.6 million from the sale of one operating property, of which $7.9 was used to purchase the 100% interest
in a joint venture partnership in which the Company was a 24.0% partner.  (See Note 2 of the Notes to
Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K).  The Company
issued $58.0 million of 8.70% Class B Cumulative Redeemable Preferred Shares and received net cash
proceeds of $56.8 million after incurring costs of $1.2 million.  The net funds received from this issuance
were used in January 2005 to redeem all of the outstanding 9.75% Class A Cumulative Redeemable
Preferred Shares.  Additionally,  the Company received $928,000 from the exercise of stock options.



Significant uses of cash during 2004 include dividends and distributions of $18.9 million and fixed
asset additions of $14.5 million and $7.9 million, representing the above referenced purchase of a property.
The Company also had a net reduction in debt of $1.4 million, which was net of cash proceeds of $2.8
million from the refinancing of a property specific conventional mortgage.

Cash provided by operations during 2003 decreased $4.1 million compared to 2002 primarily as a
result of a reduction in rental revenues and an increase in property operating and maintenance expenses
in 2003 compared to 2002.  During 2003, the Company received $2.6 million related to joint venture sales
and $3.0 million from a net increase in debt.  During 2002, the Company received $33.9 million related to
property dispositions and $438,000 from the exercise of stock options.

Significant uses of cash during 2003 and 2002 include dividends and distributions of $18.8 million
and $25.4 million, respectively, and fixed asset additions of $13.9 million and $16.2 million, respectively.
Additionally, during 2002, the Company used $3.1 million to purchase operating partnership units, made
contributions of $1.3 million to joint ventures, and had a net reduction in debt of $23.4 million, primarily
related to the property dispositions.

***Lines of Credit.*****   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 matures on July 31, 2006.  The Company
intends to seek an extension upon maturity.  Borrowings under this line of credit were limited to $13.6 million
at December 31, 2004, which represents an increase of $4.7 million when compared to the availability at
December 31, 2003, and bear interest at a rate of LIBOR plus 1.5% or approximately 3.9% at December
31, 2004.  There were $10.0 million and $5.0 million in borrowings outstanding under this line of credit at
December 31, 2004 and 2003, respectively.  The amount available for borrowing is in part based upon the
operating performance for the previous twelve months of the property that secures this line of credit.

The second line of credit is a $14.0 million line secured by one 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, 2004, a letter of credit in the amount
of $184,000 had been issued against this line.  The maturity of this line of credit was extended from
December 31, 2004 to December 31, 2005.  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.  There were no borrowings outstanding at either December 31, 2004 or December
31, 2003.

***Shelf Availability.***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 debt securities, preferred shares,
depositary shares, common shares and common share warrants.  In December 2004, the Company issued
$58.0 million of 8.70% Class B Series II Cumulative Redeemable Preferred Shares under this registration,
reducing the remaining availability under the shelf registration to $214.7 million at December 31, 2004.
Currently, the Company does not have access to issue any debt securities under this shelf registration.

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

While the Company currently estimates that its net cash provided by operations for 2005 should
exceed 2004, certain factors could adversely impact the Company's results of operations in 2005 including,
but not limited to, the risk factors previously discussed.

***Long Term Contractual Obligations.***The following table summarizes the Company's long term
contractual obligations at December 31, 2004 as defined by Item 303(a)5 of Regulation S-K of the Securities
and Exchange Act of 1934.

|                            | Payments Due In
|--------------------------- | ---------------
|(In thousands)              |                
|Contractual Obligations     | Total          
|Mortgages payable-principal | $	557,279      
|Mortgages payable-interest  | 178,984        
|Capital lease obligations   | 56             
|Operating leases            | 4,491          
|Purchase obligations        | 10,518         
|Total                       | $	751,328      

***Mortgages Payable-Principal.***Mortgages payable-principal includes  principal  payments on all
property specific mortgages and lines of credit.  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.

***Mortgages Payable-Interest.***Mortgages payable-interest includes accrued interest at December
31, 2004 and interest payments as required based upon the terms of the mortgages in existence at
December 31, 2004.  Interest related to floating rate debt is calculated based on applicable rates as of
December 31, 2004.

***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, 2004 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.

***Preferred Share Redemption.*****  On January 6, 2005, the Company redeemed all of its 9.75% Class
A Cumulative Redeemable Preferred Shares.  The redemption was funded entirely from proceeds related
to the issuance of $58.0 million of 8.70% Class B Series II Cumulative Redeemable Preferred Shares in
December 2004.  For additional information related to the issuance, see Note 13 of the Notes to the
Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.

***Dividends.***On December 8, 2004, the Company declared a dividend of $0.17 per common share
which was paid on February 1, 2005 to shareholders of record on January 12, 2005.  Also, on February 15,
2005, the Company declared a quarterly dividend of $0.54375 per Depositary Share on its Class B
Cumulative Redeemable Preferred Shares, which will be paid on March 15, 2005 to shareholders of record
on March 1, 2005.  As this is the first quarterly dividend payable on this issue, it will include, in addition to
the regular dividend, a prorated amount of $0.03625 per Depository Share for the six-day period December
10, 2004 through and including December 15, 2004.

***Capital Expenditures.***The Company anticipates the following commitments for capital
expenditures for 2005:

**.**	$9.6 million for recurring capital expenditures.  This includes replacement of worn carpet
and appliances, parking lots, roofs and similar items in accordance with the Company's
current property expenditure plan.  This commitment is expected to be funded largely with
cash flow provided by operating activities; and

**.**	$4.7 million for investment/revenue enhancing and non-recurring expenditures.  This
commitment is expected to be funded largely with cash flow provided by operating activities
and borrowings on the Company's lines of credit.

***Financing and Other Commitments*****.  At December 31, 2004, the Company had 55 conventional
mortgages payable aggregating $545.9 million, each collateralized by separate mortgages encumbering real
estate having a net book value of $645.3 million.  Forty-nine of these nonrecourse project specific loans
accrue interest at fixed rates ranging from 7.38% to 7.94% and have maturity dates ranging from 2007 to
2012 and six of these loans accrue interest at variable rates ranging from 3.14% to 4.51% and have maturity
dates during 2005 or 2006.  Additionally, the Company had one HUD insured mortgage in the amount of
$1.4 million which is collateralized by a separate mortgage encumbering real estate that has a net book
value of $1.0 million. This loan accrues interest at a variable rate, which was 3.59% at December 31, 2004,
and matures in 2013.  On July 21, 2004, the Company repaid a $2.9 million 7.0% fixed rate HUD insured
mortgage.  This property now secures one of the Company's lines of credit.  On July 16, 2004, the Company
recorded as a liability a $15.6 million loan in connection with the acquisition of its joint venture partner's
interest in Courtney Chase Apartments.  This loan had previously not been reflected in the Company's
balance sheet as the investment in the joint venture was accounted for under the equity method of
accounting.  This loan accrues interest at the rate of LIBOR plus 1.8% and matures on June 1, 2005 with
an option to extend the maturity for two additional years.  On June 30, 2004, the Company prepaid a $17.2
million nonrecourse conventional loan encumbering a Market-Rate property located in Northeast Ohio with
a fixed interest rate of 6.55% and obtained a new nonrecourse conventional loan secured by this property
in the amount of $20.0 million.  The Company has the right to elect LIBOR plus 2.0% or the Prime Loan Rate
as the interest rate from time to time on the new loan.  The Company currently has elected to pay interest
at LIBOR plus 2.0% or 4.38% for a twelve-month period.  This loan matures on June 30, 2006 and requires
payments of interest only until maturity.  The Company has two one-year options to extend this loan, each
of which is conditioned upon achieving a satisfactory debt service coverage ratio at the property.  During the
extension periods, the Company must make principal payments based upon a 20-year amortization
schedule in addition to payments of interest as provided above.  Additionally, the Company executed a
termination agreement on a reverse interest rate swap that had originally been executed to hedge the fair
market value of the prepaid loan.  The Company has $43.2 million in mortgages maturing in 2005, all of
which are variable rate loans.  The Company's current intention is to either refinance or extend these loans
as they become due.

On February 1, 2005, the Company repaid $10.7 million in variable rate debt and prepaid $5.3
million in zero percent UDAG financing which had been secured by a Market-Rate property.  Of the $16.0
million that was repaid, $10.7 million matured on February 1, 2005, $3.1 million would have matured on April
1, 2005 and $2.2 million would have matured on June 1, 2006.  The $2.2 million that would have matured
on June 1, 2006, was paid off at a discount of $330,000 that will be recorded as a reduction to interest
expense in the quarter ended March 31, 2005.  The Company funded the repayment by obtaining a new
loan on the same property in the amount of $16.1 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.  This loan matures on
February 1, 2007.  The Company has two one-year options to extend this loan, each of which is conditioned
upon achieving a satisfactory debt service coverage ratio at the property.

At December 31, 2004, the Company had 15 properties which are unencumbered, 12 of which are
Affordable Housing properties.  These 15 properties had net income of $3.5 million for the year ended
December 31, 2004, and a net book value of $10.1 million at December 31, 2004.  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 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 previous 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 $10.3 million, $10.2 million and $10.1 million for the years ended December 31,
2004, 2003 and 2002, respectively.  Furthermore, at the end of the term of each 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 $692,000 and $681,000 at December 31, 2004 and 2003, respectively.  With respect
to such leases, the Company incurred ground rent expense of $101,000 for each of the years ended
December 31, 2004, 2003 and 2002.

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 $999,000 at December 31, 2004.  The property
generated revenues and net income of $988,000 and $377,000 for 2004, $943,000 and $352,000 for 2003,
and $943,000 and $378,000 for 2002.

***Guarantees.***The Company had previously guaranteed the completion of certain improvements
at the Watergate Apartments totaling approximately $7.0 million in connection with the mortgage on this
property.  This guaranty had been secured by a $3.5 million letter of credit.  This mortgage was refinanced
on June 20, 2004, and as a result, the letter of credit was subsequently canceled and the Company no
longer has an obligation related to this guaranty.  The Company has guaranteed the payment of 50.0% of
the balance, or approximately $12.3 million at December 31, 2004, of the loan in connection with Idlewylde
Apartments Phase II, a 535-unit multifamily community located in Atlanta, Georgia, which was developed
by the Company and its pension fund joint venture partner.  This loan matures December 10, 2005.  The
Company has recorded no liability in relation to this guarantee at December 31, 2004.  The Company has
also guaranteed the payment of 50.0% of the balance or approximately $7.8 million at December 31, 2004,
of the loan in connection with the development of Courtney Chase Apartments.  This loan matures June 1,
2005, with an option to extend the maturity for two additional years. On July 16, 2004, in connection with the
Company's acquisition of its joint venture partner's interest in this partnership, the Company recorded this
loan as a liability on its balance sheet.  For additional information regarding this acquisition, see Note 2 of
the Notes to the Consolidated Financial Statements presented in Part II, Item 8 of this report on Form 10-K.
In addition, the Company routinely guarantees mortgage debt of its wholly owned subsidiaries.  See Note
10 of the Notes to the Consolidated Financial Statements presented in Part II, Item 8 of this report on Form
10-K.

***Off-Balance Sheet Investments and Financing Commitments.***The Company has investments
in two joint ventures that own three multifamily apartment communities.  The operations of these properties
are similar to the operations of the Company's wholly owned portfolio.  These investments enable the
Company to exercise influence over the operations of the properties and share in their profits, while earning
additional fee income.  The Company accounts for its investments in unconsolidated joint ventures under
the equity method of accounting as the Company exercises influence, but does not control these entities.
These investments are initially recorded at cost, as investments in joint ventures and subsequently adjusted
for equity in earnings and cash contributions and distributions.

The Company has one guarantee obligation related to its joint ventures which was previously
discussed under Guarantees.  Additionally, all of the joint ventures were encumbered by debt at December
31, 2004.  The Company's proportionate share of this debt was $22.5 million.

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

***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.  There are 93,023 OP units remaining having a carrying value of $2.2 million.  Through December
31, 2004, 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%.  During the years
2000 through 2003, a total of 429,009 of the OP units were purchased for cash in the amount of $3.8 million.
These units had a recorded amount of $9.8 million when issued.  The difference of the cash paid and the
recorded amount was $5.9 million which reduced the recorded amount of the underlying real estate.  There
were no OP units redeemed during 2004.

***Acquisitions and Development*****.  On July 16, 2004, the Company acquired its joint venture
partner's interest in Courtney Chase Apartments, a multifamily community located in Orlando, Florida, which
was developed by the Company and its former joint venture partner.  This acquisition was financed
principally with proceeds from the sale of an Ohio Market-Rate property.  The Company previously had a
24.0% ownership interest in this partnership and had accounted for its investment under the equity method
of accounting.  Consequently, as of July 16, 2004, the results of operations, financial condition and cash
flows of this property are included in the Company's consolidated financial statements.

In December 2004, the Company entered into a contract for the acquisition of a 316-unit Market-Rate property located in West Palm Beach, Florida.  The closing of this transaction is anticipated to occur
during the first quarter of 2005.  The acquisition costs will be financed by a first mortgage on the property,
a first mortgage loan on a currently unencumbered Ohio property and working capital.

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 or unsecured
debt financings, or the issuance of shares or units exchangeable into common shares.

***Dispositions.***In December 2004, the Company entered into a contract for the  sale of a Market-Rate property located in Northeast Ohio.  The closing of this transaction is anticipated to occur later in 2005.

The Company has also entered in a contract for sale of an Affordable Housing property located in
Northeast Ohio.  Additionally, the Company is marketing a Market-Rate property located in Phoenix, Arizona.

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

***Management and Service Operations.***** In March 2003, MIG was directed by one of its clients to
initiate the sale of all six of the client's real estate investments asset managed by MIG.  Two of these six
properties were sold during 2003 and three were sold during 2004.  Because of the sale of these
investments, the Company will no longer receive the property and asset management fee revenue
associated with them.  Revenue received for the three properties sold in 2004 was $304,000 for the year
ended December 31, 2004.  Revenue received for the remaining property was $305,000 for the year ended
December 31, 2004.  For each property sold for this client, the Company receives a disposition fee.  The
Company recorded disposition fees of $435,000 during 2004 related to the three properties sold  during
2004.

In November 2003, the Company was informed by another of its advisory clients that it intended to
sell the four commercial properties for which MIG provided asset management services.  MIG property
manages or advises both commercial and multifamily properties for this client.  Two of these properties were
sold during 2003 and one was sold during 2004.  Because of the sale of these investments, the Company
will no longer receive the asset management fee revenue associated with them.  Revenue received from
the property sold during 2004 was $13,000 for the year ended December 31, 2004.  Revenue received for
the year ended December 31, 2004 from the remaining property to be sold was $70,000.

In November 2003, the Company entered into three new property management contracts for
properties located in Pennsylvania owned by an unrelated third party.  The Company received fee revenue
of approximately $121,000 during the year ended December 31, 2004 from these contracts.

In February 2004, the Company entered into a property management contract for a property located
in Pennsylvania owned by an unrelated third party.  The Company received fee revenue of approximately
$48,000 during the year ended December 31, 2004 from this contract.

On April 19, 2004, the Company received notice from one of MIG's pension fund clients of its
intention to transfer its business to another advisor.  Revenue recognized from this client for the year ended
December 31, 2004 was $371,000.  Effective October 17, 2004, the Company no longer provides asset or
property management services to this client other than those earned in connection with a joint venture
partnership.



On July 1, 2004, the Company entered into six property management contracts for properties
located in Ohio owned by an unrelated third party.  Revenues related to these contracts were $112,000 for
the year ended December 31, 2004.

Effective February 1, 2005, the Company entered into management contracts for two additional
Affordable Housing properties with a total of 200 units located in Gainesville, Florida.  The Company
anticipates a total of approximately $56,000 in annual fee revenue related to these properties.

***Management Contract Cancellation*****.  During 2004, 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 2004 | Fees Lost in 2004
|                         |            |                        | (In thousands)    
|11/12/04                 | AEMC       | Branch Road Apartments | $    5             | $      -         
|                         |            |                        |                   
|**Advisory Properties:** |            |                        |                   
|01/30/04                 | AERC       | Advised Asset          | 20                 | 221              
|01/30/04                 | MIG        | Advised Asset          | 13                 | 59               
|02/13/04                 | AERC       | Advised Asset          | 19                 | 141              
|10/17/04                 | AERC       | Advised Asset          | 291                | 49               
|10/22/04                 | AERC       | Advised Asset          | 265                | 65               

During 2005, the Company's property management and/or asset management contracts associated
with the following properties will be/may be terminated or transferred:

|            |            |                     |                      
|----------- | ---------- | ------------------- | ---------------------
|Effective   |            |                     | Approximate          
|Date of     | Management |                     | 2004 Property and/or 
|Termination | Company    | Management Contract | Asset Management Fees
|            |            |                     | (In thousands)       
|            |            |                     |                      
|2/1/05      | AEMC       | Garfield Mall       | $   42               
|Unknown     | AEMC       | University Circle   | 87                   
|Unknown     | MIG        | Advised Asset       | 70                   
|Unknown     | AERC       | Advised Asset       | 305                  
|Unknown     | AEMC       | Hillwood II         | 127                  

***RESULTS OF OPERATIONS FOR 2004 COMPARED WITH 2003 AND 2003 COMPARED WITH 2002***

In the following discussion of the comparison of the year ended December 31, 2004 to the year
ended December 31, 2003 and the year ended December 31, 2003 to the year ended December 31, 2002,
Market-Rate properties refers to the Same Store Market-Rate property portfolio.  Market-Rate properties
represent 60 wholly owned properties.  Acquired/Disposed properties represent one property acquired in
July 2004 and properties which have been sold.  Affordable Housing represents 12 properties subject to
HUD regulations.

Overall, the loss from continuing operations decreased $5.2 million when comparing 2004 to 2003
and increased $3.1 million when comparing 2003 to 2002.  During the 2004 to 2003 comparison period, total
revenues increased $4.9 million primarily due to increases in painting service revenues and rental revenues.
Additionally, total expenses decreased $752,000 primarily due to reductions in property operating and
maintenance expenses.  These reductions were partially offset by an increase in general and administrative
expenses and painting service expenses.  The increase in loss from continuing operations during the 2003
to 2002 comparison period was primarily a result of a decrease in total revenues resulting from a decrease
in property and asset management fees and reimbursements which was partially offset by an increase in
painting service revenues.  Additionally, property operating and maintenance expenses and painting service
expenses increased in 2003 compared to 2002.  These increases were offset by a decrease in direct
property management expenses which includes the same amount of managed property reimbursements
that is included in property and asset management fees and reimbursements.

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 years ended December 31, 2004 to 2003
and 2003 to 2002:

|                                                | Increase (decrease) when comparing the years ended December 31,
|----------------------------------------------- | ---------------------------------------------------------------
|                                                | 2004 to 2003                                                   
|(Amounts in thousands)                          |                                                                
|Rental revenue                                  | $	1,488                                                        
|Property management fees and reimbursements     | (49)                                                           
|Asset management fees                           | (1,115)                                                        
|Asset disposition fees                          | 12                                                             
|Painting services revenue                       | 3,320                                                          
|Other revenues                                  | 1,293                                                          
|Property operating and maintenance expenses:    |                                                                
|Repairs and maintenance                         | (1,434)                                                        
|Personnel                                       | (764)                                                          
|Real estate taxes and insurance                 | (596)                                                          
|Advertising                                     | (634)                                                          
|Property operating and maintenance expenses     | (3,897)                                                        
|Direct property management expenses             | 561                                                            
|Painting services expenses                      | 1,955                                                          
|General and administrative                      | 1687                                                           
|Gain on disposition of properties and land, net | -                                                              
|Equity in net loss of joint ventures            | (234)                                                          
|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 concessions 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 concessions divided by total number of units).  This information is
presented in the following table for the years ended December 31, 2004, 2003 and 2002 (information for the
years ended December 31, 2003 and 2002 reflect results based upon the operating properties and their
respective segments as of December 31, 2004):

|                          | For the year ended December 31, 2004
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | 86.0%                               
|Market-Rate               | 84.6%                               
|Affordable Housing        | 99.1%                               

|                          | For the year ended December 31, 2003
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | N/A                                 
|Market-Rate               | 83.8%                               
|Affordable Housing        | 99.3%                               

|                          | For the year ended December 31, 2002
|------------------------- | ------------------------------------
|                          | Average                             
|                          | Economic                            
|                          | Occupancy                           
|                          |                                     
|Acquisitions/Dispositions | N/A                                 
|Market-Rate               | 84.9%                               
|Affordable Housing        | 98.8%                               

Rental revenues for the Acquisition/Disposition segment includes $1.4 million in revenue contributed
by the property acquired in July 2004.  There are no revenues in this segment for the years ended December
31, 2003 and 2002.

Rental revenues for the Market Rate properties remained flat in 2004 compared to 2003 and
decreased $955,000 in 2003 compared to 2002.  The Company focused on increasing physical occupancy
rates in 2003 and accomplished this by reducing rents in certain markets to remain competitive and reflect
market rents.  This resulted in lower rental revenue in 2003 compared to 2002.  The increased occupancy
in 2003 and most of 2004 resulted in increases to average economic occupancy and net collected rent per
unit in 2004 compared to 2003.  Physical occupancy decreased slightly during the third and fourth quarter
of 2004 resulting in an increase in concessions during these quarters in an effort to maintain physical
occupancy, particularly in the Midwest markets.

Rental revenues for the Affordable Housing properties increased $95,000 in 2004 compared to 2003
and $49,000 in 2003 compared to 2002 primarily as a result of HUD approved rent increases during 2004
and 2003.  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 Payments
revenue recognized for the Company's Affordable Housing properties as of December 31, 2004:

|(In thousands)                             | Final           | Revenue Recognized During
|------------------------------------------ | --------------- | -------------------------
|Property                                   | Expiration Date | 2004                     
|                                           |                 |                          
|Ellet                                      | December 2017   | $	425                    
|Hillwood I                                 | July 2016       | 475                      
|Lakeshore Village (50.0% joint venture)(a) | July 2024       | 597                      
|Puritas Place                              | September 2011  | 703                      
|St. James (Riverview)                      | November 2009   | 471                      
|Shaker Park Gardens II                     | June 2005       | 670                      
|State Road Apartments                      | December 2016   | 426                      
|Statesman II                               | November 2005   | 318                      
|Sutliff Apartments                         | November 2019   | 779                      
|Tallmadge Acres                            | March 2005      | 762                      
|Twinsburg Apartments                       | June 2009       | 431                      
|Village Towers                             | November 2009   | 434                      
|West High Apartments                       | November 2005   | 567                      

(a) Amounts shown represents 100% payment.

All thirteen properties shown in the above table had positive cash flow during 2004 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."

"Contract Renewal Request Forms" must be submitted by the Company to HUD (or its
corresponding contract agent) not less than 120 days prior to the applicable HAP anniversary date in order
to renew an existing HAP contract.  The Company understands that the following options are available
to the Company for expiring HAP contracts: (i) for properties without mortgages, the Company may renew
at current  rents plus an operating cost adjustment factor ("OCAF") that is set by HUD on an annual basis;
(ii) for properties encumbered by a mortgage, the Company may renew at the lesser of (x) current rents plus
an operating cost adjustment factor or (y) comparable market rents; 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 2005.

*Shaker Park Gardens II.*  In May 2004, the Company requested a renewal of the current contract
for a one-year term with an increase in rents of 3.0%, 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, 2005.  Prior to expiration of the current contract, the Company intends to
request a renewal for an additional one year period.

*Statesman II.*  In July 2004, the Company requested a renewal of the current contract for a one-year
term with an increase in rents of 3.0%, 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, 2005.  Prior to expiration of the current contract, the Company intends to request a
renewal for an additional one year period.

*Tallmadge Acres.*  In October 2004, the Company requested a renewal of the current contract for
a one-year term with an increase in rents of 3.0%, as calculated using the OCAF published on August 13,
2004.  The Company's request for an OCAF increase was granted and the contract will be renewed for a
one-year term through March 16, 2006.

*West High Apartments.*  In July 2004, the Company requested a renewal of the current contract for
a one-year term with an increase in rents of 3.0%, 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, 2005.  Prior to 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 $424,000 when comparing 2004 to 2003, and
$1.3 million when comparing 2003 to 2002.  Asset management fees decreased during both comparison
periods.  These decreases were primarily due to the loss in 2004 of four advised properties and the loss of
fee income related to the acquisition of the Company's joint venture partner's share of a joint venture
property, the loss in 2003 of four advised properties and two joint venture management contracts, as
previously discussed in "Acquisitions", "Dispositions" and "Management and Service Operations," and the
2002 transfer of eleven advisory contracts to another advisor and the loss of five additional advised
properties.  These decreases were partially offset by the addition of three property management contracts
in November 2003 and one property management contract in February 2004, as previously discussed in
"Management and Service Operations."  The Management and Service Operations segment recognized
asset disposition fees in 2004 and 2003 of $435,000 and $423,000, respectively, as a result of the
successful disposition of three advised assets in 2004 and two advised assets in 2003.  Management and
advisory fees attributed to properties owned by advisory 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 years
ended December 31, 2004, 2003 and 2002, the amount included in revenues and expenses was $9.2
million, $8.8 million, and $13.2 million, respectively.  The changes from year to year are the result of
changes in the number of employees at the managed properties due to the loss or addition of management
contracts and changes in compensation amounts per employee at the managed properties.

***Painting Service Revenues and Expenses.***Painting service revenues and expenses both
increased in each comparison period primarily as a result of contracts that were entered into by the
Company's subsidiary, Merit Painting Services.  Work related to these contracts was completed during 2004.
The results for 2005 are anticipated to return to a more normalized contribution level as previously discussed
in the overview.

***Other Revenues.***Other revenues increased in 2004 compared to 2003 primarily as a result of fees
received from HUD in 2004 for service coordinator assistance made available to tenants at the Company's
Affordable Housing properties in the amount of $350,000, and increases in other ancillary revenues, such
as refuse removal, in the amount of $310,000 and leasing commissions received related to a managed
commercial property in the amount of $180,000.  Other revenues increased in 2003 compared to 2002
primarily as a result of increased water and sewer revenues in 2003.

***Property Operating and Maintenance Expenses.***Property operating and maintenance expenses
decreased $3.9 million when comparing 2004 to 2003 and increased $5.2 million when comparing 2003 to
2002.  The decrease in 2004 compared to 2003 was primarily due to the reduction of repair and
maintenance  expenses.  During 2004, the Company created the position of Regional Service Manager to
assist property personnel in obtaining contractual services and supplies in a more efficient manner, resulting
in savings in landscaping, major repairs, security, and snow removal costs of $730,000.  Repair and
maintenance expenses were also reduced as a result of a $500,000 decrease in painting costs resulting
from lower occupancies at the beginning of 2003, which resulted in more unit turns in 2003 than were
required during 2004.  Personnel expense decreased in 2004 compared to 2003 primarily as a result of
changes to property personnel incentive bonuses which became effective in January 2004. As a result of
the Company's focus on increasing operating efficiencies, the production of brochures and other advertising
materials during 2004 was primarily done "in house", reducing advertising costs in 2004 compared to 2003.
The decrease in real estate taxes and insurance when comparing 2004 to 2003 was primarily the result of
successful property valuation appeals which resulted in the receipt of net refunds of prior year taxes of
$870,000.  The increase in property operating and maintenance expenses when comparing 2003 to 2002
was primarily a result of an increase of $1.8 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 $1.0 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 $1.4 million in 2003 as a result of increased unit turnover
expenses and landscaping costs.  Personnel costs increased $760,000 primarily as a result of increased
salaries and leasing commission bonuses relating to on-site staff.

***General and Administrative Expenses.***General and administrative expenses increased when
comparing 2004 to 2003 primarily as a result of an increase in bonus expense of $850,000 as a result,
bonuses tied to the operating performance of the Company's properties, an increase in corporate payroll
of $495,000 due to changes in staffing and merit increases, an increase of $155,000 related to the recording
of the 2004 contribution to the Supplemental Executive Retirement Plan (there was no contribution in 2003),
and an increase in deferred Directors' compensation, which is valued using the closing price of the
Company's common stock at the end of each period of $270,000 as a result of the increased share price
at December 31, 2004 compared to December 31, 2003.  General and administrative expenses decreased
when comparing 2003 to 2002 primarily as a result of the reduction in payroll expense related to the 2002
restructuring of the advisory business.

***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.

***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
$234,000 and $470,000 when comparing 2004 to 2003 and 2003 to 2002, respectively.  The decrease when
comparing 2004 to 2003 was primarily due to improved operating performances at Idlewylde Apartments
Phase II and at Courtney Chase Apartments prior to the Company acquiring the 100% interest in this
property in July 2004.  Additionally, the Company recognized a loss related to the operating results of
Berkley Manor Apartments in 2003.  The Company sold its partnership interest in this joint venture in 2003,
and therefore recognized no losses related to this property in 2004.  The decrease when comparing 2003
to 2002 was primarily due to the recognition in 2003 of the gain on the sale of Highland House, a 50.0% joint
venture, of which the Company's proportionate share was $450,000.

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, 2004, 2003 and 2002.

|                                                 | For the year ended December 31,
|------------------------------------------------ | -------------------------------
|(In thousands)                                   | 2004                           
|Beneficial interests in joint venture operations |                                
|Rental revenues                                  | $    4,071                     
|Cost of operations                               | 2,405                          
|                                                 | 1,666                          
|Interest income                                  | -                              
|Interest expense                                 | (1,345)                        
|Depreciation                                     | (1,259)                        
|Amortization of joint venture deferred costs     | (8)                            
|Loss from continuing operations                  | (946)                          
|(Loss) income from discontinued operations:      |                                
|Operating income (loss)                          | 23                             
|Gain on disposition of property                  | -                              
|Income (loss) from discontinued operations       | 23                             
|Equity in net loss of joint ventures             | $	(923)                        

***Income From Discontinued Operations.*****  Effective January 1, 2002, in accordance with SFAS 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, 2004, the Company had no properties
classified as held for sale.  One property was sold during 2004.  The operating results of this property, which
is included in "Income from discontinued operations", was $245,000, $902,000 and $699,000 for 2004, 2003
and 2002, respectively.  The gain on disposition of this property of $9.7 million is also included in
discontinued operations in 2004.  Prior to April 2002, this property was a joint venture and as such was
accounted for under the equity method.  In 2002, five properties were disposed of whose operating results
and gains/(losses) were classified as discontinued operations.  The operating loss for these five properties
was $166,000 for 2002.  The gain on disposition of properties, net, for 2002 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.  Currently, the Company also faces
limited exposure to interest rate fluctuations due to its high proportion of fixed rate financing.

**Critical Accounting Policies and Estimate**

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, 2004, 2003 or 2002.

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 uses
a multiple of revenues to the range of potential alternatives and assigns a probability of the various
alternatives under consideration by management.  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, 2004, 2003 or 2002.

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 October 1995, the FASB issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" (SFAS 123").  In December 2004, the FASB issued a revision
of SFAS 123 which superceded the October 1995 issuance.  This Statement also supercedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and its related implementation guidance.  This
Statement established standards for the accounting for transactions in which an entity exchanges its equity
instruments for goods or services.  It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entity's equity instruments or that may
be settled by the issuance of those equity instruments.  This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions.  It does not
change the accounting guidance for share-based payment transactions with parties other than employees
provided in Statement 123 as originally issued.  This Statement is effective July 1, 2005 for the Company.
The Company is required to apply the provisions of this Statement using a modified version of prospective
application.  Under that transition method, compensation cost is recognized on or after the effective date for
the portion of outstanding awards for which the requisite service has not been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 as originally issued.  These grant-date fair values
had been included in the pro forma disclosures in the notes to the financial statements for periods prior to
the effective date.  Additionally, compensation cost will be recognized on all awards granted on or after the
effective date over the related service period.  For periods prior to July 1, 2005, the Company may elect to
apply a modified version of retrospective application under which financial statements for periods prior to
the effective date are adjusted on a basis consistent with the pro forma disclosures previously required for
those periods.  Modified retrospective application may be applied either (a) to all prior years for which SFAS
123 was effective or (b) only to prior interim periods in the year of initial adoption.  The Company expects
that, upon adoption, it will not elect to adjust its financial statements for periods prior to the effective date.
As a result of the adoption of this Statement, the Company expects to recognize compensation expense of
approximately $100,000 for the year ended December 31, 2005 related to awards that have been granted
on or before July 1, 2005.  Awards granted after January 1, 2005, if any, would result in additional
compensation cost during the year ended December 31, 2005.

**Quantitative and Qualitative Disclosures About Market Risk**

At December 31, 2004, the Company had $76.2 million of variable rate mortgage 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 were approximately $31.2 million.  These swaps were executed to hedge the fair market value
of certain fixed rate loans.  On June 30, 2004, in conjunction with the maturing of the loan, the Company terminated one of these swaps that had a notional amount
of $17.2 million.  The remaining swap terminates at the maturity of the related loan in October 2005.  For the year ended December 31, 2004, the Company recognized
a reduction to interest expense of $688,000 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, 2004** | **December 31, 2003**
|------------------------------ | ----------------------------- | ---------------------
|**(In thousands)**             | ****                          |                      
|**Long term debt**             | **2005**                      | **2006**             
|**Fixed:**                     |                               |                      
|Fixed rate mortgage debt       | $	5,871                       | $	6,343              
|Weighted average interest rate | 7.66%                         | 7.66%                
|                               |                               |                      
|Variable:                      |                               |                      
|Variable rate mortgage debt    | 27,734                        | 47,318               
|Weighted average interest rate | 4.07%                         | 4.20%                
|LIBOR based credit facilities* | -                             | 10,000               
|Total variable rate debt       | 27,734                        | 57,318               
|Total long term debt           | $	33,605                      | $	63,661             
|                               |                               |                      

*One LIBOR based credit facility matures July 31, 2006 and the second LIBOR based credit facility matures December 31, 2005.  At December 31, 2004, there were $10.0 million in  borrowings outstanding
on one of the facilities.

**Sensitivity Analysis**.  At December 31, 2004 and 2003, 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 $530.1 million and $620.4 million, respectively.  Since 85.0% of the Company's mortgage debt is at fixed rates, a change
in rates would have a minimal effect on the Company's interest expense.  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**

Not applicable.

**Item 9A.  Controls and Procedures**

*Disclosure Controls and Procedures.*  The Company has evaluated the design and operation of its
disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure
of required information is timely made in accordance with the Securities Exchange Act of 1934 ("Exchange
Act") and the rules and forms of the Securities and Exchange Commission.  This evaluation was made under
the supervision and with the participation of management, including the Company's Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO") as of the end of the period covered by this annual report on
Form 10-K.  The CEO and CFO have concluded, based on their review, that the Company's disclosure
controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), are effective to ensure
that information required to be disclosed by the Company in reports that it files under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms.

*Management's Report on Internal Control over Financial Reporting.*The Company's management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rule 13a-15(f) under the Exchange Act.  Management assessed the effectiveness of the Company's
internal control over financial reporting using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in "Internal Control - Integrated Framework".  Based
on that assessment and those criteria, management concluded that the Company's internal control over
financial reporting is effective as of December 31, 2004.  The Company's independent registered public
accounting firm, PricewaterhouseCoopers LLP, has issued an audit report on management's assessment
of the Company's internal control over financial reporting, which is included in the "Report of Independent
Registered Public Accounting Firm" in Part II, Item 8 of this report on Form 10-K.

*Changes in Internal Control over Financial Reporting.*There were no changes in our internal control
over financial reporting during the fourth quarter of 2004 that materially affected or are reasonably likely to
materially affect our internal control over financial reporting.**

The Company believes that because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

**Item 9B.  Other Information**

Not applicable.



**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 4, 2005, is incorporated by reference in this 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 4, 2005 is incorporated by reference
in this 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, 2004.  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 16 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  | 1,092,249              | $14.46              | 209,674                       
|Equity compensation plans not |                        |                     |                               
|approved by security holders  | 893,750                | $9.36               | 557,909                       
|Total                         | 1,985,999              |                     | 767,583                       

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 4, 2005 is incorporated by reference in this 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 4, 2005 is
incorporated by reference in this 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 4, 2005 is
incorporated by reference in this 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 and Financial Statement Schedules**

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 Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2004 and 2003.

Consolidated Statements of Operations for the three years ended
December 31, 2004, 2003 and 2002.

Consolidated Statements of Shareholders' Equity for the three years
ended December 31, 2004, 2003 and 2002.

Consolidated Statements of Cash Flows for the three years ended
December 31, 2004, 2003 and 2002.

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-39

III	Real Estate and Accumulated Depreciation					F-40

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 are filed as part of, or
incorporated by reference into, this Report.



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 25th
day of February, 2005.

**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 25th day of February,
2005.

|Signature               | Title                                        | Date             
|----------------------- | -------------------------------------------- | -----------------
|                        |                                              |                  
|/s/ Jeffrey I. Friedman | Chairman of the Board and Chief Executive    | February 25, 2005
|Jeffrey I. Friedman     | Officer (Principal Executive Officer)        |                  
|                        |                                              |                  
|/s/ Lou Fatica          | Chief Financial Officer (Principal Financial | February 25, 2005
|Lou Fatica              | Officer and Principal Accounting Officer)    |                  
|                        |                                              |                  
|/s/ Albert T. Adams     | Director                                     | February 25, 2005
|Albert T. Adams         |                                              |                  
|                        |                                              |                  
|/s/ James M. Delaney    | Director                                     | February 25, 2005
|James M. Delaney        |                                              |                  
|                        |                                              |                  
|/s/ Michael E. Gibbons  | Director                                     | February 25, 2005
|Michael E. Gibbons      |                                              |                  
|                        |                                              |                  
|/s/ Mark L. Milstein    | Director                                     | February 25, 2005
|Mark L. Milstein        |                                              |                  
|                        |                                              |                  
|/s/ Frank E. Mosier     | Director                                     | February 25, 2005
|Frank E. Mosier         |                                              |                  
|                        |                                              |                  
|/s/ Richard T. Schwarz  | Director                                     | February 25, 2005
|Richard T. Schwarz      |                                              |                  
|                        |                                              |                  



|           |                                                                                                                                                                         |  | **Filed herewith or**                                                            
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|           |                                                                                                                                                                         |  | **incorporated**                                                                 
|           |                                                                                                                                                                         |  | **herein by**                                                                    
|**Number** | **Title**                                                                                                                                                               |  | **reference**                                                                    
|           |                                                                                                                                                                         |  |                                                                                  
|3.1        | Amendment to Second Amended and Restated Articles of Incorporation                                                                                                      |  | Exhibit 3.1 to Form 8-K
filed December 8, 2004.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|3.2        | Second Amended and Restated Articles of Incorporation, as amended of the
Company.                                                                                       |  | Exhibit 3.2 to Form 8-K
filed December 8, 2004.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|3.3        | 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 Common Share Certificate.                                                                                                                                      |  | Exhibit 3.1 to Form S-11 filed September 2,
1993 (File No. 33-68276
as amended). 
|           |                                                                                                                                                                         |  |                                                                                  
|4.2        | Specimen 8.70% Class B Series II Cumulative Redeemable Preferred Shares                                                                                                 |  | Exhibit 4.3 to Form 8-A
filed December 8, 2004.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|4.3        | Deposit Agreement by and among Associated Estates Realty Corporation and
National City Bank and Depositary Receipts                                                     |  | Exhibit 4.5 to Form 8-A
filed December 8, 2004                                   
|           |                                                                                                                                                                         |  |                                                                                  
|4.4        | 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.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|4.6        | 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.  
|           |                                                                                                                                                                         |  |                                                                                  
|4.7        | Specimen Class A Preferred Share Certificate.                                                                                                                           |  | Exhibit 4.1 to Form 8-K
filed July 12, 1995.                                     
|           |                                                                                                                                                                         |  |                                                                                  
|4.8        | Class A Preferred Share Deposit Agreement and Depositary Receipt.                                                                                                       |  | Exhibit 4.2 to Form 8-K
filed July 12, 1995.                                     
|           |                                                                                                                                                                         |  |                                                                                  
|4.9        | 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.                                
|           |                                                                                                                                                                         |  |                                                                                  
|4.9a       | 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.                                
|           |                                                                                                                                                                         |  |                                                                                  
|4.9b       | 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.                                 
|           |                                                                                                                                                                         |  |                                                                                  
|4.9c       | 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.                              
|           |                                                                                                                                                                         |  |                                                                                  
|4.9d       | Fourth Amendment to Second Amended and Restated Loan Agreement dated
September 7, 2004 between Associated Estates Realty Corporation and
National City Bank.            |  | Exhibit 4.13e to Form
10-Q filed November 2,
2004.                               
|           |                                                                                                                                                                         |  |                                                                                  
|4.10       | 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.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|4.11       | 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       | Stock Option Plan.                                                                                                                                                      |  | Exhibit 10.2 to Form S-11 filed September 2,
1993 (File No. 33-68276
as amended).
|           |                                                                                                                                                                         |  |                                                                                  
|10.2       | Amended and Restated Employment Agreement between the Company and
Jeffrey I. Friedman.                                                                                  |  | Exhibit 10.1 to Form 10-Q filed May 13, 1996.                                    
|           |                                                                                                                                                                         |  |                                                                                  
|10.3       | Equity-Based Incentive Compensation Plan.                                                                                                                               |  | Exhibit 10.4 to Form 10-K filed March 29, 1995.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|10.4       | 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.                                  
|           |                                                                                                                                                                         |  |                                                                                  
|10.5       | Pledge Agreement dated May 23, 1997 between Jeffrey I. Friedman and the
Company.                                                                                        |  | Exhibit 10.01 to Form
10-Q filed August 8,
1997.                                 
|           |                                                                                                                                                                         |  |                                                                                  
|10.6       | 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.                                 
|           |                                                                                                                                                                         |  |                                                                                  
|10.7       | 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.                                 
|           |                                                                                                                                                                         |  |                                                                                  
|10.8       | 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.                                 
|           |                                                                                                                                                                         |  |                                                                                  
|10.9       | Partnership Interests Purchase Agreement dated July 17, 2004 by and among
Jeffrey I. Friedman and JIFCO, an Ohio Corporation  and Winchester, Inc., an
Ohio Corporation |  | Exhibit 10.21 to Form
10-K filed herewith.                                       
|           |                                                                                                                                                                         |  |                                                                                  
|10.10      | Year 2000 Equity Incentive Plan.                                                                                                                                        |  | Exhibit 10.22 to Form
10-Q filed May 15,
2001.                                   
|           |                                                                                                                                                                         |  |                                                                                  
|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 Registered Public Accounting Firm             | F-2 
|Consolidated Balance Sheets at December 31, 2004 and 2003           | F-4 
|Consolidated Statements of Operations for the                       |     
|three years ended December 31, 2004, 2003 and 2002                  | F-5 
|Consolidated Statements of Shareholders' Equity for the three       |     
|years ended December 31, 2004, 2003 and 2002                        | F-6 
|Consolidated Statements of Cash Flows for the three                 |     
|years ended December 31, 2004, 2003 and 2002                        | F-7 
|Notes to Consolidated Financial Statements                          | F-8 
|                                                                    |     
|Financial Statement Schedules:                                      |     
|II - Valuation and Qualifying Accounts                              | F-39
|III - Real Estate and Accumulated Depreciation at December 31, 2004 | F-40
|                                                                    |     

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:

We have completed an integrated audit of Associated Estates Realty Corporation's 2004 consolidated
financial statements and of its internal control over financial reporting as of December 31, 2004 and audits
of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  Our opinions, based on our audits, are presented
below.

Consolidated financial statements and financial statement schedules

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, 2004 and 2003, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2004 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
the standards of the Public Company Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit of financial statements 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.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Report on Internal Control over
Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over
financial reporting as of December 31, 2004 based on criteria established in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO),
is fairly stated, in all material respects, based on those criteria.  Furthermore, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO.  The
Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to
express opinions on management's assessment and on the effectiveness of the Company's internal control
over financial reporting based on our audit.  We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects.  An audit
of internal control over financial reporting includes obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we consider necessary in the
circumstances.  We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.  A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

February 25, 2005



**CONSOLIDATED BALANCE SHEETS**

|                                                                          | December 31,
|------------------------------------------------------------------------- | ------------
|(In thousands, except share amounts)                                      | 2004        
|**ASSETS**                                                                |             
|Real estate assets                                                        |             
|Land                                                                      | $	94,378    
|Buildings and improvements                                                | 830,380     
|Furniture and fixtures                                                    | 31,862      
|                                                                          | 956,620     
|Less:  accumulated depreciation                                           | (293,182)   
|                                                                          | 663,438     
|Construction in progress                                                  | 1,830       
|Real estate, net                                                          | 665,268     
|Cash and cash equivalents                                                 | 59,734      
|Restricted cash                                                           | 10,740      
|Accounts and notes receivable, net                                        |             
|Rents                                                                     | 771         
|Affiliates and joint ventures                                             | 5,057       
|Other                                                                     | 2,956       
|Investments in joint ventures, net                                        | 6,240       
|Goodwill                                                                  | 1,725       
|Intangible and other assets, net                                          | 10,941      
|**Total assets**                                                          | $	763,432   
|                                                                          |             
|**LIABILITIES AND SHAREHOLDERS' EQUITY**                                  |             
|Mortgages payable                                                         | $	547,279   
|Lines of credit borrowings                                                | 10,000      
|Total debt                                                                | 557,279     
|Accounts payable and accrued expenses                                     | 25,445      
|Dividends payable                                                         | 3,661       
|Resident security deposits                                                | 4,516       
|Funds held on behalf of managed properties                                |             
|Affiliates and joint ventures                                             | 2,334       
|Other                                                                     | 1,741       
|Accrued interest                                                          | 2,694       
|Commitments and contingencies (Note 10)                                   | -           
|**Total liabilities**                                                     | 597,670     
|                                                                          |             
|Operating partnership minority interest                                   | 2,172       
|                                                                          |             
|Shareholders' equity                                                      |             
|Preferred shares, without par value; 9,000,000 shares authorized:         |             
|9.75% Class A cumulative redeemable, $250 per share liquidation           |             
|preference, 225,000 issued and outstanding                                | 56,250      
|8.70% Class B Series II cumulative redeemable, $250 per share liquidation |             
|preference, 232,000 issued and outstanding                                | 58,000      
|Common shares, without par value, $.10 stated value; 41,000,000           |             
|authorized; 22,995,763 issued and 19,653,187 and 19,478,681               |             
|outstanding at December 31, 2004 and 2003, respectively                   | 2,300       
|Paid-in capital                                                           | 277,117     
|Accumulated distributions in excess of accumulated net income             | (200,277)   
|Less:  Treasury shares, at cost, 3,342,576 and 3,517,082 shares           |             
|at December 31, 2004 and 2003, respectively                               | (29,800)    
|**Total shareholders' equity**                                            | 163,590     
|**Total liabilities and shareholders' equity**                            | $	763,432   





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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

****

|                                                                             | For the year ended December 31,
|---------------------------------------------------------------------------- | -------------------------------
|(In thousands, except per share amounts)                                     | 2004                           
|Revenues                                                                     |                                
|Rental                                                                       | $	136,105                      
|Property management fees and reimbursements                                  | 11,762                         
|Asset management fees                                                        | 905                            
|Asset disposition fees                                                       | 435                            
|Painting services                                                            | 6,147                          
|Other                                                                        | 5,045                          
|Total revenues                                                               | 160,399                        
|Expenses                                                                     |                                
|Property operating and maintenance                                           | 66,698                         
|Depreciation and amortization                                                | 33,744                         
|Direct property management and service companies expenses                    | 13,019                         
|Painting services                                                            | 4,764                          
|General and administrative                                                   | 7,771                          
|Total expenses                                                               | 125,996                        
|Operating income                                                             | 34,403                         
|Interest income                                                              | 314                            
|Interest expense                                                             | (40,334)                       
|(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                    | (5,617)                        
|Gain on disposition of properties and land, net                              | -                              
|Equity in net loss of joint ventures                                         | (923)                          
|Gain on sale of partnership interest                                         | -                              
|Minority interest in operating partnership                                   | (63)                           
|(Loss) income from continuing operations                                     | (6,603)                        
|Income from discontinued operations:                                         |                                
|Operating income                                                             | 245                            
|Gain on disposition of properties, net                                       | 9,682                          
|Income from discontinued operations                                          | 9,927                          
|**Net income (loss)**                                                        | 3,324                          
|Preferred share dividends                                                    | (5,805)                        
|**Net (loss) income applicable to common shares**                            | $	(2,481)                      
|                                                                             |                                
|**Earnings per common share - basic:**                                       |                                
|(Loss) income from continuing operations applicable to common shares         | (.64)                          
|Income from discontinued operations                                          | .51                            
|Net (loss) income applicable to common shares                                | $	(.13)                        
|                                                                             |                                
|**Earnings per common share - diluted:**                                     |                                
|(Loss) income from continuing operations applicable to common shares         | (.64)                          
|Income from discontinued operations                                          | .51                            
|Net (loss) income applicable to common shares                                | $	(.13)                        
|                                                                             |                                
|**Dividends declared per common share**                                      | $	.68                          
|                                                                             |                                
|**Weighted average number of common shares outstanding	-	basic**             | 19,519                         
|**- 	diluted**                                                               | 19,519                         







**ASSOCIATED ESTATES REALTY CORPORATION**

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

|                                                                 |           | Class A    | Class B    |               |                       |              | Accumulated   |               |            
|---------------------------------------------------------------- | --------- | ---------- | ---------- | ------------- | --------------------- | ------------ | ------------- | ------------- | -----------
|                                                                 |           | Cumulative | Cumulative |               |                       |              | Distributions | Accumulated   |            
|                                                                 |           | Redeemable | Redeemable | Common Shares | Total Paid-In Capital | in Excess of | Other         | Treasury     
|                                                                 |           | Preferred  | Preferred  | (at $.10      | Paid-In               | Unearned     | Accumulated   | Comprehensive | Shares     
|                                                                 | Total     | Shares     | Shares     | stated value) | Capital               | Compensation | Net Income    | Loss          | (at cost)  
|(In thousands, except share amounts)                             |           |            |            |               |                       |              |               |               |            
|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 for stock option                |           |            |            |               |                       |              |               |               |            
|exercises 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)      | -             | -          
|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)   
|Comprehensive (loss) income-net (loss) income                    | 3,324     | -          | -          | -             | -                     | -            | 3,324         | -             | -          
|Issuance of Class B Cumulative Preferred Shares                  | 56,793    | -          | 58,000     | -             | (1,207)               | -            | -             | -             | -          
|Amortization of unearned compensation                            | 318       | -          | -          | -             | -                     | 318          | -             | -             | -          
|Forfeiture of 4,083 restricted common shares to treasury         | (7)       | -          | -          | -             | 14                    | 25           | -             | -             | (46)       
|Issuance of 74,451 restricted common shares from treasury shares | 66        | -          | -          | -             | (215)                 | (555)        | -             | -             | 836        
|Purchase of 8,862 treasury shares                                | (74)      | -          | -          | -             | -                     | -            | -             | -             | (74)       
|Issuance of 113,000 common shares for stock option exercises     |           | -          | -          | -             | -                     | -            | -             | -             | -          
|from treasury shares                                             | 928       | -          | -          | -             | (329)                 | -            | -             | -             | 1,257      
|Other                                                            | (21)      | -          | -          | -             | (21)                  | -            | -             | -             | -          
|Common share dividends declared                                  | (13,360)  | -          | -          | -             | -                     | -            | (13,360)      | -             | -          
|Preferred share dividends declared                               | (5,805)   | -          | -          | -             | -                     | -            | (5,805)       | -             | -          
|Balance, December 31, 2004                                       | $	163,590 | $	56,250   | $	58,000   | $	2,300       | $	277,596             | $	(479)      | $	(200,277)   | $          -  | $	(29,800) 





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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

****

|                                                                     | For the year ended December 31,
|-------------------------------------------------------------------- | -------------------------------
|(In thousands)                                                       | 2004                           
|Cash flow from operating activities:                                 |                                
|Net income (loss)                                                    | $	3,324                        
|Adjustments to reconcile net income (loss) to net cash provided by   |                                
|operating activities:                                                |                                
|Depreciation and amortization                                        | 33,754                         
|Loss on fixed asset replacements write-off                           | 278                            
|Minority interest in operating partnership                           | 63                             
|Costs related to prepayment of debt                                  | -                              
|Gain on disposition of properties and land, net                      | (9,682)                        
|Equity in net loss of joint ventures                                 | 923                            
|Gain on sale of partnership interest                                 | -                              
|Earnings distributed from joint ventures                             | 418                            
|Net change in assets and liabilities:                                |                                
|-   Accounts and notes receivable                                    | (804)                          
|-   Accounts and notes receivable from affiliates and joint ventures | 310                            
|-   Accounts payable and accrued expenses                            | 2,720                          
|-   Other operating assets and liabilities                           | 660                            
|-   Restricted cash                                                  | 150                            
|-   Funds held for non-owned managed properties                      | 675                            
|-   Funds held for non-owned managed properties of affiliates        | 146                            
|Total adjustments                                                    | 29,611                         
|Net cash flow provided by operations                                 | 32,935                         
|Cash flow from investing activities:                                 |                                
|Recurring fixed asset additions                                      | (9,011)                        
|Revenue enhancing/non-recurring fixed asset additions                | (5,450)                        
|Acquisition/development fixed asset additions                        | (7,877)                        
|Purchase of operating partnership units                              | -                              
|Net proceeds received from sale of properties and land               | 9,593                          
|Proceeds from sale of partnership interest                           | -                              
|Joint venture distribution from sale proceeds                        | -                              
|Capitalized costs on investment in joint venture                     | -                              
|Contributions to joint ventures                                      | -                              
|Net cash flow (used for) provided by investing activities            | (12,745)                       
|Cash flow from financing activities:                                 |                                
|Principal payments on secured debt                                   | (26,294)                       
|Payment of debt procurement costs                                    | (53)                           
|Proceeds from secured debt                                           | 20,000                         
|Principal payment on Medium Term Notes                               | (105)                          
|Lines of credit borrowings                                           | 59,300                         
|Lines of credit repayments                                           | (54,300)                       
|Issuance of treasury shares related to exercise of stock options     | 928                            
|Common share dividends paid                                          | (13,331)                       
|Preferred share dividends paid                                       | (5,484)                        
|Operating partnership distributions paid                             | (48)                           
|Issuance of Class B Cumulative Redeemable Preferred Shares - net     | 56,793                         
|(Purchase) issue of treasury shares - net                            | (74)                           
|Net cash flow provided by (used for) financing activities            | 37,332                         
|Increase (decrease) in cash and cash equivalents                     | 57,522                         
|Cash and cash equivalents, beginning of year                         | 2,212                          
|Cash and cash equivalents, end of year                               | $	59,734                       





**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, 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, 2004, the Company owns or property manages 107 apartment communities
in twelve states consisting of 23,457 units.  The Company owns, either directly or through subsidiaries, or
holds ownership interests in 76 of the 107 apartment communities containing 17,854 units in ten states.
Thirteen of those owned or partially owned apartment communities, consisting of 1,354 units, are Affordable
Housing communities.  The Company, or one of its subsidiaries, also property manages 31 communities
consisting of 5,603 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.  Effective February 1, 2005, the
Company commenced management of two Affordable Housing properties containing 200 units for a third
party owner and  ceased management of a 270,000 square foot commercial property due to the sale of the
property by its third party owners.

**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 Taxable REIT Subsidiaries
("TRS") under the REIT Modernization Act ("RMA") implemented in 1999), certain variable interest entities
of which the Company is the primary beneficiary and holder of a majority voting interest, and an Operating
Partnership structured as a DownREIT of which an aggregate 97.0% is owned by the Company as of
December 31, 2004.  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.

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 ("GAAP") 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, 2004
or 2003.

**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**

The Company continually evaluates the recoverability of the carrying value of its real estate assets
using the methodology prescribed in Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."  Factors considered by management in
evaluating impairment of its existing real estate assets held for investment include significant declines in
property operating profits, recurring property operating losses and other significant adverse changes in
general market conditions that are considered permanent in nature.  Under SFAS No. 144, a real estate
asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an
asset (both the annual estimated cash flow from future operations and the estimated cash flow from the
theoretical sale of the asset) over its estimated holding period are in excess of the asset's net book value
at the balance sheet date.  If any real estate asset held for investment is considered impaired, a loss is
provided to reduce the carrying value of the asset to its fair value.  The Company periodically classifies real
estate assets as held for sale.  See Note 2 for a discussion of the Company's policy regarding classification
of a property as held for sale.  Upon the classification of a real estate asset as held for sale, the carrying
value of the asset is reduced to the lower of its net book value or its fair value, less costs to sell the asset.
Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded.

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.  The Company's investment in unconsolidated entities is periodically
reviewed for other than temporary declines in market value.  Any decline that is not expected to recover in
the next 12 months is considered other than temporary and an impairment is recorded as a reduction in the
carrying value of the investment.  Estimated fair values are based on our projections of cash flows and
market capitalization rates.  As of December 31, 2004, no impairment has been recorded in connection with
any of the Company's investments in joint venture.  For additional information concerning the Company's
activity in connection with its joint venture investments, see 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.

**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 and Goodwill**

The Company analyzes its intangible assets and goodwill whenever there is an impairment indicator.
Goodwill is also reviewed for impairment on an annual basis.  See Note 4 for additional information related
to intangible assets 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 "Property management fees and reimbursements" in
the Consolidated Statements of Operations.

Rent concessions, including free rent, 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**

The Company is reimbursed for expenses incurred in connection with the management of properties
for third parties, joint ventures and other affiliates.  The Company is the primary obligor for these expenses,
which are primarily salaries and benefits relating to employees at these properties, and therefore records
these reimbursements as revenue (included in "Property management fees and reimbursements") and as
expenses (included in "Direct property management and service companies expenses").  For the years
ended December 31, 2004, 2003 and 2002, the reimbursements shown as revenues were equivalent to the
expenses, which were $9.2 million, $8.8 million and $13.2 million, respectively.

**Advertising Costs**

The Company recognizes advertising costs as expense when incurred.  The total amount charged
to advertising expense was $1.9 million, $2.5 million and $2.9 million for the years ended December 31,
2004, 2003 and 2002, respectively.   There were no advertising costs reported as assets for the years ended
December 31, 2004 and 2003.

**Stock Based Employee Compensation**

The Company uses the intrinsic value method in accordance with the Accounting Principles Board
Opinion No. 25 ("APB No. 25") to account for stock-based employee compensation arrangements.  Under
this method, the Company does not recognize compensation cost for stock options when the option exercise
price equals or exceeds the market value of the common 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 unearned
compensation recorded as a reduction to shareholders' equity related to restricted stock grants was
$479,000, $267,000 and $442,000 at December 31, 2004, 2003 and 2002, 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 income (loss) and earnings per
share at December 31 would have been as follows:

|(In thousands, except per share data)                   | 2004      | 2003       | 2002     
|------------------------------------------------------- | --------- | ---------- | ---------
|                                                        |           |            |          
|Net income (loss)                                       | $	3,324   | $	(10,913) | $	1,479  
|Total stock compensation cost recognized                | 318       | 256        | 457      
|Total stock compensation cost had SFAS 123 been adopted | (481)     | (374)      | (751)    
|Proforma net income (loss) had SFAS 123 been adopted    | $	3,161   | $	(11,031) | $	1,185  
|                                                        |           |            |          
|Net (loss) income applicable to common shares:          |           |            |          
|Net (loss) income as reported                           | $	(2,481) | $	(16,397) | $	(4,006)
|Total stock compensation cost recognized                | 318       | 256        | 457      
|Total stock compensation cost had SFAS 123 been adopted | (481)     | (374)      | (751)    
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(2,644) | $	(16,515) | $	(4,300)
|                                                        |           |            |          
|(Loss) income per common share - Basic                  |           |            |          
|Net (loss) income as reported                           | $	(.13)   | $	(.85)    | $	(.21)  
|Total stock compensation cost recognized                | .02       | .02        | .03      
|Total stock compensation cost had SFAS 123 been adopted | (.03)     | (.02)      | (.04)    
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(.14)   | $	(.85)    | $	(.22)  
|                                                        |           |            |          
|(Loss) income per common share - Diluted                |           |            |          
|Net (loss) income as reported                           | $	(.13)   | $	(.85)    | $	(.21)  
|Total stock compensation cost recognized                | .02       | .02        | .03      
|Total stock compensation cost had SFAS 123 been adopted | (.03)     | (.02)      | (.04)    
|Pro forma net (loss) income had SFAS 123 been adopted   | $	(.14)   | $	(.85)    | $	(.22)  

**Operating Partnership Minority Interest**

In 1998, in conjunction with the acquisition of an operating partnership that owned two apartment
communities, 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 $63,000, $75,000 and $324,000 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, 2004, 2003 and 2002,
respectively.  There are 93,023 OP units remaining as of December 31, 2004.

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          
|2004 | -        | -         | -        | -            
|     | 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 2004,
2003 and 2002 net operating loss carryforwards for the Service Companies, in the aggregate, are
approximately $5.9 million, $7.3 million,  and $7.1 million, respectively, and expire during the years 2018
to 2024.

The gross deferred tax assets were $4.0 million, $4.5 million and $4.3 million at December 31, 2004,
2003 and 2002, respectively, and relate principally to net operating losses of the Service Companies.  Gross
deferred tax liabilities of $154,000, $156,000 and $163,000 at December 31, 2004, 2003 and 2002,
respectively, relate primarily to tax basis differences in fixed assets and intangibles.  The deferred tax
valuation allowance was $3.8 million, $4.3 million and $4.1 million at December 31, 2004, 2003 and 2002,
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, 2004 and 2003, the Company's net tax basis of properties exceeds the amount
set forth in the Company's Consolidated Balance Sheets by $81.4 million and $100.8 million, respectively.

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

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

|(In thousands)                                           | Year Ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         | 2004                   
|GAAP net income (loss)                                   | $	3,324                
|Add:	GAAP net (income) loss of taxable REIT              |                        
|subsidiaries and minority interest in joint venture, net | (1,024)                
|GAAP net income (loss) from REIT operations (*)          | 2,300                  
|                                                         |                        
|Add:	Book depreciation and amortization                  | 35,688                 
|Less:	Tax depreciation and amortization                  | (28,368)               
|Book/tax differences on (losses) gains from              |                        
|capital transactions                                     | (4,180)                
|Other book/tax differences, net                          | (911)                  
|Taxable income (loss) before adjustments                 | 4,529                  
|Less: Capital gains                                      | (5,502)                
|Taxable (loss) income subject to dividend requirement    | $	(973)                

(*) All adjustments to GAAP net income (loss) 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,
|-------------------------------------------------- | -----------------------
|                                                   | 2004                   
|Cash dividends paid                                | $	19,135               
|Less: Portion designated capital gain distribution | (5,502)                
|Less: Return of capital                            | (13,633)               
|Dividends paid deduction                           | $	-                    

**Dividends Per Share**

Total dividends per common share and the related components for the years ended December 31,
2004, 2003 and 2002, as reported for income tax purposes, were as follows:

|For the year ended December 31, 2004
|------------------------------------
|                                    
|                                    
|                                    
|Date Paid                           
|                                    
|2/1/2004                            
|5/1/2004                            
|8/1/2004                            
|11/1/2004                           
|                                    

|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                           
|                                    

Preferred dividends of $5.8 million, $5.5 million and $5.5 million were paid for the years ended
December 31, 2004, 2003 and 2002, respectively of which $5.4 million, none and $4.0 million were
designated as a capital gain dividend for the years ended December 31, 2004, 2003 and 2002, 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 2004 and 2003, such
derivatives were used to hedge the changes in fair value associated with existing fixed rate loans.

As of December 31, 2004, 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, 2004 and 2003, derivatives with a fair value of $163,000 and $867,000 were included in other
assets and mortgages payable.  No hedge ineffectiveness on hedges was recognized during 2004 and
2003.

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 June 30, 2004, the Company terminated an interest rate swap with a notional amount of $17.2
million (which was entered into in May, 2002) as a result of the refinancing of the related fixed rate loan.  The
Company recorded a credit to interest expense of $270,000, $446,000 and $201,000 for the years ended
December 31, 2004, 2003 and 2002, respectively, with regards to this swap.

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 $418,000, $450,000 and $241,000
for the years ended December 31, 2004, 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, 2004, 2003 and 2002 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.  For additional information regarding treasury shares, see Note 13.

**Recent Accounting Pronouncements**

In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation" (SFAS 123").  In December 2004, the FASB issued a revision of SFAS 123
which superceded the October 1995 issuance.  This Statement also supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation guidance.  This Statement
established standards for the accounting for transactions in which an entity exchanges its equity  instruments
for goods or services.  It also addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity instruments or that may be settled
by the issuance of those equity instruments.  This Statement focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment transactions.  It does not  change the
accounting guidance for share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued.  This Statement is effective July 1, 2005 for the Company.  The
Company is required to apply the provisions of this Statement using a modified version of prospective
application.  Under that transition method, compensation cost is recognized on or after the effective date for
the portion of outstanding awards for which the requisite service has not been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 as originally issued.  These grant-date fair values
had been included in the pro forma disclosures in the notes to the financial statements for periods prior to
the effective date.  Additionally, compensation cost will be recognized on all awards granted on or after the
effective date over the related service period.  For periods prior to July 1, 2005, the Company may elect to
apply a modified version of retrospective application under which financial statements for periods prior to
the effective date are adjusted on a basis consistent with the pro forma disclosures previously required for
those periods.  Modified retrospective application may be applied either (a) to all prior years for which SFAS
123 was effective or (b) only to prior interim periods in the year of initial adoption.  The Company expects
that, upon adoption, it will not elect to adjust its financial statements for periods prior to the effective date.
As a result of the adoption of this Statement, the Company expects to recognize compensation expense of
approximately $100,000 for the year ended December 31, 2005 related to awards that have been granted
on or before July 1, 2005.  Awards granted after January 1, 2005, if any, would result in additional
compensation cost during year ended December 31, 2005.

**Reclassifications**

Certain reclassifications have been made to the 2003 and 2002 consolidated financial statements
to conform to the 2004 presentation.

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

**Development Activity**

The Company capitalizes interest costs on funds used in construction, real estate taxes and insurance
costs from the commencement of development activity through the time the property is ready for leasing.
During 2004, the Company had no properties in the development stage.  As a result, there was no interest,
real estate taxes or insurance costs capitalized during the year ended December 31, 2004.  Capitalized
interest, real estate taxes and insurance costs related to development projects aggregated approximately
$29,000 for the year ended December 31, 2003.  Construction in progress of $1.8 million and $5.5 million
at December 31, 2004 and 2003, respectively, represented unfinished projects at certain of the Company's
operating properties.

**Acquisition Activity**

On July 16, 2004, the Company acquired its joint venture partner's interest in Courtney Chase
Apartments, a 288-unit multifamily community located in Orlando, Florida, which was originally developed
by the Company and it former joint venture partner.  The Company previously had a 24.0% ownership
interest in this  partnership and had accounted for its investment under the equity method of accounting.
The Company paid $7.9 million in cash and assumed the existing debt on the property of $15.6 million.
Funding for this acquisition was derived from net proceeds received from the sale of a Market-Rate property
located in Northeast Ohio.  Consequently, as of July 16, 2004, the results of operations, financial condition
and cash flows of this property  are included in the Company's consolidated financial statements.

**Disposition Activity**

The Company reports the results of operations and gain/loss related to the sale of real estate assets
as discontinued operations in accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."  Real estate assets that are classified as "held for sale" are also reported as
discontinued operations.  The Company generally classifies properties as "held for sale" when all significant
contingencies surrounding the closing have been resolved.  In most transactions, these contingencies are
not satisfied until the actual closing of the transaction.  The Company adopted this Statement January 1,
2002.  All real estate assets sold in 2004, 2003, and 2002 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.

On May 10, 2004, the Company completed the sale of a Market-Rate property located in Northeast
Ohio.  The sale price was $10.0 million and the Company recorded a gain of $9.7 million which is included
in "Income from discontinued operations" in the Consolidated Statements of Operations.  The results of
operations for this property are also included in "Income from discontinued operations" for all periods
presented.  The proceeds from this sale were deposited directly to escrow with a qualified intermediary as
the Company treated this sale as a Deferred Like-Kind Exchange under Section 1031 of the Internal
Revenue Code. The Company used $7.9 million of these proceeds in connection with the acquisition of
Courtney Chase Apartments.

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 a 112-unit Market-Rate 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 a nonmonetary exchange
of joint venture assets, 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 following chart summarizes the "Income from discontinued operations" for the years ended
December 31, 2004, 2003, and 2002, respectively:

|                                                | 2004    | 2003    | 2002    
|----------------------------------------------- | ------- | ------- | --------
|(In thousands)                                  |         |         |         
|Total property revenues                         | $	825   | $	2,193 | $	 3,414
|Total revenues                                  | 825     | 2,193   | 3,414   
|                                                |         |         |         
|Property operating and maintenance expense      | (570)   | (1,265) | (2,051) 
|Real estate asset depreciation and amortization | (10)    | (26)    | (360)   
|Interest expense                                | -       | -       | (471)   
|Total expenses                                  | (580)   | (1,291) | (2,882) 
|                                                |         |         |         
|Operating income                                | 245     | 902     | 533     
|Gain on disposition of properties, net          | 9,682   | -       | 9,660   
|**Income from discontinued operations**         | $	9,927 | $	902   | $	10,193

**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,
|-------------------------------------------- | ------------
|                                             | 2004        
|(In thousands)                               |             
|Resident security deposits                   | $	1,710     
|Investor's escrow                            | 177         
|Escrow of funds under self-insurance program | 2,000       
|Escrows and reserve funds for replacements   |             
|required by mortgages                        | 6,853       
|                                             | $	10,740    

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 advisory  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.	GOODWILL, INTANGIBLE AND OTHER ASSETS**

**Goodwill**



*MIG Realty Advisors, Inc.*    In June 1998, the Company recorded goodwill in connection with the
MIG Realty Advisors, Inc. merger.  The goodwill was allocated fully to the Management and Service
Operations Segment.

On April 19, 2004, MIG was informed by one of its advisory clients that it intended to transfer its
business to another advisor.  The transfer occurred on October 17, 2004, and thus, the Company no longer
receives the fee revenue associated with this business.

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

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

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

**Intangible and Other Assets, Net**



Intangible and other assets, net, consist of the following:

|                                     | December 31,
|------------------------------------ | ------------
|(In thousands)                       | 2004        
|                                     |             
|Intangible assets                    | $	681       
|Deferred financing and leasing costs | 9,210       
|Less: Accumulated amortization       | (5,416)     
|                                     | 4,475       
|Prepaid expenses                     | 4,862       
|Other assets                         | 1,604       
|                                     | $	10,941    



**Intangible assets**

*Property Acquisitions*.  In accordance with SFAS 141, "Business Combinations", the
Company allocates a portion of the total purchase price of a property acquisition to any intangible
assets identified, such as in-place leases and tenant relationships.  The intangible assets are
amortized over the remaining lease terms or estimated life of the tenant relationship, which is
approximately twelve to sixteen months.  Due to the short term nature of residential leases, the
Company believes that existing lease rates approximate market rates, and therefore, no allocation
is made for above/below market leases.

In connection with the July 2004 property acquisition, as referenced in Note 2, the Company
recorded intangible assets in the amount of $539,000 related to in place leases which will be
amortized over thirteen months and $142,000 related to tenant relationships which will be amortized
over sixteen months. These intangible assets have been fully allocated to the Acquisition/Disposition
segment.

*MIG Realty Advisors, Inc.*  In connection with the June 1998 MIG Realty Advisors, Inc.
merger, the Company also recorded an intangible asset subject to amortization.  The intangible
asset has been fully amortized and therefore has a value of zero at December 31, 2004. This
intangible asset represented asset advisory and property management contracts and a related
deferred tax liability.  The asset advisory and property management contracts are attributed to
properties owned by pension fund clients and are generally terminable upon 30 days notice.  This
intangible asset was allocated fully to the Management and Service Operations Segment.

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.

Information on the intangible assets are as follows (in thousands):

|                                |              |                   | **Asset Advisory** | ****         
|------------------------------- | ------------ | ----------------- | ------------------ | -------------
|                                |              |                   | **and Property**   | **Deferred** 
|                                | **In Place** | **Tenant**        | **Management**     | **Tax**      
|                                | **Leases**   | **Relationships** | **Contracts**      | **Liability**
|Gross carrying amount           | $	539        | $ 142             | $   5,405          | $  (625)     
|Less: Accumulated amortization  | (229)        | (49)              | (5,093)            | 625          
|Less: Impairment write-down     | -            | -                 | (312)              | -            
|Balance as of December 31, 2004 | $	310        | $   93            | $           -      | $        -   

The aggregate amortization expense for the year ended December 31, 2004, 2003 and
2002  was $434,000, $312,000 and $382,000, respectively.  The estimated amortization expense
for the year ended December 31, 2005 is $403,000.

**Deferred financing and leasing costs**

Amortization expense for deferred financing and leasing costs was $1.1 million, $1.2 million,
and $1.2 million for the years ended December 31, 2004, 2003, and 2002, respectively.

**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 mortgages payable and line of credit borrowings at December 31, 2004, consist of
the following:

|                                          | December 31
|----------------------------------------- | -----------
|(In thousands)                            | 2004       
|                                          |            
|Conventional mortgage debt, maturing      |            
|at various dates to 2012                  | $	545,873  
|Federally insured mortgage debt, maturing |            
|at various dates to 2013                  | 1,406      
|Line of credit, maturing 2006             | 10,000     
|                                          | $	557,279  

Real estate assets pledged as collateral for all debt had a net book value of $645.3 million and
$646.2 million at December 31, 2004 and 2003, respectively.

**Conventional Mortgage Debt**

On July 16, 2004, the Company recorded, as a liability, a $15.6 million loan in connection with the
acquisition of its joint venture partner's interest in Courtney Chase Apartments.  This loan had previously
not been reflected in the Company's balance sheet as the investment in the joint venture was accounted
under the equity method of accounting.  This loan accrues interest at the rate of LIBOR plus 1.8% and
matures on June 1, 2005 with an option to extend the maturity for two additional years.  See Note 2 for
further information regarding this acquisition.

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

On May 1, 2003, the Company repaid a $2.7 million nonrecourse loan encumbering a Market-Rate
property located in Michigan.  The interest rate on this loan was 7.50%.  On June 30, 2003, the Company
obtained a new loan secured by this same property in the amount of $3.9 million.  The Company has the
right to elect LIBOR plus 2.0% or the Prime Loan Rate as the interest rate from time to time on the new loan.
The Company currently has elected to pay interest at LIBOR plus 2.0%, which was 3.14% at December 31,
2004.  This loan matures on July 1, 2006 and requires payments of interest only 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, 2004 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.

Conventional mortgages payable are comprised of 55 loans at December 31, 2004 and 54 loans
at December 31, 2003,  each of which is a 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% at December 31, 2004 and 2003.

Under certain of the mortgage agreements, the Company is required to make escrow deposits for
taxes, insurance and replacement of project assets.

**Federally Insured Mortgage Debt**

On July 21, 2004, the Company prepaid a $2.9 million 7.0% fixed rate HUD insured mortgage
encumbering a Market-Rate property located in Northeast Ohio.  This property now secures one of the
Company's lines of credit.

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 one of the properties at December 31, 2004
and two of the properties at December 31, 2003, 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, 2004, the federally insured mortgage had a
balance of $1.4 million with a maturity date of December 1, 2013 and interest accruing at a variable rate of
3.59% at December 31, 2004.  This mortgage is secured by a letter of credit which is renewed annually.

**Medium-Term Notes Program**

The Company repaid the remaining $105,000 Medium-Term Note (the "MTN") on December 9,
2004.

**Lines of Credit**

The Company has a $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 line of credit bear interest at the rate of LIBOR plus
1.5%, or approximately 3.9% at December 31, 2004, and are currently limited to $13.6 million.  At December
31, 2004 and 2003, there were $10.0 million and $5.0 million of borrowings outstanding, respectively.

The Company also has a $14.0 million line of credit.  This line of credit is secured by one 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, 2004 and 2003.  The
remaining $12.4 million is available for regular borrowings and letter of credit transactions.  At December
31, 2004, a letter of credit in the amount of $184,000 had been issued against this line.  The maturity date
of this line was extended for one year to December 31, 2005.  Borrowings under this line of credit bear
interest at either the prime rate or LIBOR plus 2.0% at the Borrower's option.

As of December 31, 2004, the scheduled maturities of mortgages payable and line of credit
borrowings for each of the next five years and thereafter, are as follows (in thousands):

|2005       | $	43,197 
|---------- | ---------
|2006       | 41,641   
|2007       | 82,392   
|2008       | 41,307   
|2009       | 127,882  
|Thereafter | 220,860  
|           | $	557,279

Cash paid for interest was $39.2 million, $39.3 million and $40.1 million for the years ended
December 31, 2004, 2003 and 2002, respectively.

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

At December 31, 2004, the Company's interests in joint venture properties were as follows:

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

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)                     | 2004        
|                                   |             
|Real estate, net                   | $	55,962    
|Other assets                       | 1,476       
|                                   | $	57,438    
|                                   |             
|Amounts payable to the Company     | $	23        
|Mortgages payable                  | 45,770      
|Other liabilities                  | 968         
|Equity                             | 10,677      
|                                   | $	57,438    
|                                   |             
|Investments in joint ventures, net | $	6,240     

|**Operating data**                          | For the year ended December 31,
|------------------------------------------- | -------------------------------
|(In thousands)                              | 2004                           
|                                            |                                
|Rental revenues                             | $	8,712                        
|Other revenues                              | 347                            
|Operating and maintenance expenses          | (5,257)                        
|Depreciation and amortization               | (2,776)                        
|Interest expense                            | (2,866)                        
|(Loss) income from continuing operations    | (1,840)                        
|Income (loss) from discontinued operations: |                                
|Operating income (loss)                     | 46                             
|Gain on disposition of property             | -                              
|Income (loss) from discontinued operations  | 46                             
|Net (loss) income                           | $	(1,794)                      
|                                            |                                
|Equity in net loss of joint ventures        | $	(923)                        

Of the $45.8 million of mortgages payable at December 31, 2004, $41.6 million matures in 2005 and
$4.2 million matures in 2031.

On July 16, 2004, the Company acquired its joint venture partner's interest in Courtney Chase
Apartments, a 288-unit Market-Rate multifamily community located in Orlando, Florida, which was originally
developed by the Company and its former joint venture partner.  The Company previously had a 24.0%
ownership interest in this partnership and had accounted for its investment under the equity method of
accounting.  The Company paid $7.9 million in cash and assumed the existing debt on the property of $15.6
million.  Consequently, as of July 16, 2004, the results of operations, financial condition and cash flows of
this property are included in the Company's consolidated financial statements.

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.

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 $418,000 for the year ended December 31, 2004 and $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.  Revenues from property and asset  management fees charged to joint ventures aggregated
$334,000, $393,000 and $461,000 for the years ended December 31, 2004, 2003 and 2002, 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 $942,000 and $1.1 million at December 31, 2004 and December 31, 2003,
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 $597,000, $789,000 and $732,000 for the years ended December
31, 2004, 2003 and 2002, respectively, were received by the property.

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

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

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

The Company holds two notes of equal amounts which are receivable from the CEO aggregating
$3.4 million, both of which mature May 1, 2005.  One of the notes is partially secured by 150,000 of the
Company's common shares; the other note is unsecured.  For the years ended December 2004 and 2003,
the interest rate charged on these notes was approximately 3.3% and 3.0%, respectively.

Merit Painting Services ("Merit"), a subsidiary of the Company, was retained by JAS Construction,
Inc. ("JAS") under subcontracts for the performance of certain rehabilitation work at seven properties owned
by an unrelated party.  JAS is owned by the son of the Company's CEO.  During the years ended December
31, 2004 and 2003, $5.5 million and $1.1 million, respectively, of revenue in connection with these contracts
were reported in painting services revenues in the Company's Consolidated Statements of Operations.

Summarized affiliate and joint venture transaction activity was as follows:

|                                      | For the year ended December 31,
|------------------------------------- | -------------------------------
|(In thousands)                        | 2004                           
|Property management fee and other     |                                
|miscellaneous service revenues        | $	918                          
|                                      |                                
|Painting service revenues             | 5,600                          
|                                      |                                
|Expenses incurred on behalf of and    |                                
|reimbursed by (a)                     | 1,407                          
|                                      |                                
|Interest income on Notes due from CEO | 111                            

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

|                                                      | December 31,
|----------------------------------------------------- | ------------
|(In thousands)                                        | 2004        
|                                                      |             
|Accounts and notes receivable from affiliates         |             
|and joint ventures:                                   |             
|Notes and interest receivable from CEO                | $	3,365     
|Funds advanced                                        | 573         
|JAS Construction, Inc.                                | 407         
|Property management fees, insurance and               |             
|miscellaneous receivables                             | 712         
|Total due from affiliates and joint ventures          | $	5,057     
|                                                      |             
|Funds held on behalf of affiliates and joint ventures | $	2,334     

**9.	NOTEHOLDER INTEREST**

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

**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):

|2005       | $    595
|---------- | --------
|2006       | 334     
|2007       | 199     
|2008       | 131     
|2009       | 23      
|Thereafter | -       
|           | $ 1,282 

The Company leases certain equipment under capital leases.  Such equipment is included in
property, plant and equipment with a cost of $194,000 and accumulated depreciation of $86,000 at
December 31, 2004.  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
|------------- | ------- | ---------
|              |         |          
|2005          | $  47   | $    234 
|2006          | 9       | 163      
|2007          | -       | 159      
|2008          | -       | 145      
|2009          | -       | 101      
|Thereafter    | -       | 3,689    
|              | 56      | $ 4,491  
|Less interest | (3)     |          
|              | $ 53    |          

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 $10.3 million, $10.2 million and $10.1 million for the years ended December 31,
2004, 2003 and 2002, 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 $692,000 and $681,000 at December 31, 2004 and 2003, respectively.  With respect
to such leases, the Company incurred ground rent expense of $101,000 for each of the years ended
December 31, 2004, 2003 and 2002.

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, 2004 and 2003, the net book value of this property was $1.0 million and
$1.1 million, respectively.  The property generated revenues and net income of $988,000 and $377,000 for
2004 and $943,000 and $352,000 for 2003, and  $943,000 and $378,000 for 2002.

***Gas Supply Contract*****

The Company entered into a contract to purchase gas at properties, which are either owned or
managed, in Northeast Ohio.  The contract term is twelve months commencing July 1, 2004, and provides
for the delivery of specified quantities of gas by month.  The quantities are 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 is fixed in advance or whether it is determined in the month of delivery, the price is
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 must attempt to sell the
unused gas.  If such efforts were unsuccessful or the gas was sold for less than the contract price, the
Company would be required to pay for the unused gas or any price differential loss, as the case may be.
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 Interpretation 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 other than those involving guarantees of subsidiary debt, therefore the Company
had recorded no liability related to guarantees that it has issued.  The Company had previously guaranteed
the completion of certain improvements at the Watergate Apartments totaling approximately $7.0 million in
connection with the mortgage on this property.  This guaranty had been secured by a $3.5 million letter of
credit.  This mortgage was refinanced on June 20, 2004, and as a result, the letter of credit was
subsequently canceled and the Company no longer has an obligation related to this guaranty.  The
Company has guaranteed the payment of 50.0% of the balance, or approximately $12.3 million at December
31, 2004, of the loan in connection with Idlewylde Apartments Phase II, a 535-unit multifamily community
located in Atlanta, Georgia, which was developed by the Company and its pension fund joint venture partner.
This loan matures December 10, 2005.  The Company has recorded no liability in relation to this guarantee
at December 31, 2004.  The Company has also guaranteed the payment of 50.0% of the balance or
approximately $7.8 million at December 31, 2004, of the loan in connection with the development of
Courtney Chase Apartments.  This loan matures June 1, 2005, with an option to extend the maturity for two
additional years. On July 16, 2004, in connection with the Company's acquisition of its joint venture partner's
interest in this partnership, the Company recorded this loan as a liability on its balance sheet (see Note 2
for further information).

***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 July 2005 and July 2024.  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 $6.5
million, $6.4 million and $6.6 million for the years ended December 31, 2004, 2003 and 2002, 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, 2004, and no accruals have been made for these matters.  The Company believes that other
Litigation will not have a material adverse impact on the Company after final disposition.  However, because
of the uncertainties of litigation, one or more lawsuits could ultimately result in a material obligation.

***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 pet deposits and other non-refundable 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.  On June 2, 2004, the
Company reached a tentative settlement with the plaintiff in this litigation, the results of which did not have
a material impact on the results of operations for the year ended December 31, 2004.

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

***Government Investigations***

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

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

**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 that reasonably approximate corresponding fair values.

Mortgages and notes payable with an aggregate carrying value of $557.3 million and $543.5 million
at December 31, 2004 and 2003, respectively, have an estimated aggregate fair value of approximately
$595.3 million and $593.9 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, 2004 and 2003.  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)                                                          | 2004              
|Dividends declared but not paid                                         | $	3,661           
|Contributions of land to joint venture, net of loss on conveyance       | -                 
|Adjustment for purchase of minority interest                            | -                 
|Assumption of debt by purchaser of property                             | -                 
|Assumption of debt in connection with the joint venture transaction     | -                 
|Assumption of debt in connection with operating property acquisition    | 15,619            
|Relinquishment of debt in connection with the joint venture transaction | -                 
|Capital lease obligation                                                | -                 
|Costs related to prepayment of debt                                     | -                 
|Fixed asset replacement write-off                                       | 4,757             

******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 on the open market to be repurchased by the Company at market prices.
This authorization expired during 2003 and no authorization is currently in effect.  At December 31, 2004,
3,731,812 shares had been repurchased, of which 389,236 had been subsequently reissued under various
share programs of the Company (See Note 16).  At December 31, 2004, there were 3,342,576 Treasury
Shares at an aggregate cost of $29.8 million.  At December 31, 2003, there were 3,517,082 Treasury Shares
at an aggregate cost of $31.8 million.  The repurchases were funded primarily from operating cash flows,
refinancing proceeds and proceeds received from the sale of operating properties.

***Preferred Shares*****

The Company is authorized to issue a total of 9,000,000 Preferred Shares, designated as follows:

.	3,000,000 Class A Cumulative Preferred Shares, of which 225,000 have been designated
as 9.75% Class A Cumulative Redeemable Preferred Shares and are discussed below.

.	3,000,000 Class B Cumulative Preferred Shares, of which 400,000 have been designated
as Class B Series I Cumulative Preferred Shares and 232,000 have been designated as
8.70% Class B Series II Cumulative Redeemable Preferred Shares and are discussed
below.

.	3,000,000 Noncumulative Preferred Shares.

*8.70% Class B Series II Cumulative Redeemable Preferred Shares*.  In December 2004, the
Company issued 2,320,000 depositary shares, each representing 1/10th of a share of the Company's 8.70%
Class B Series II Cumulative Redeemable Preferred Shares, for $58.0 million and incurred costs of
approximately $1.2 million related to the issuance.  The liquidation preference for each Class B Preferred
Share is $250.00 (equivalent to $25.00 per depositary share), plus accrued and unpaid dividends.
Dividends on the Class B 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 Class
B Preferred Shares are not redeemable prior to December 15, 2009.  On and after December 15, 2009, the
Class B Preferred Shares are redeemable for cash at the option of the Company.  The net proceeds from
this offering were used to redeem the outstanding 9.75% Class A Cumulative Redeemable Preferred Shares
as discussed below.

*9.75% Class A Cumulative Redeemable Preferred Shares*.  At December 31, 2004, 2,250,000
depositary shares, each representing 1/10th of the Company's 9.75% Class A Cumulative Redeemable
Preferred Shares, were outstanding.  Dividends on the Class A 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 January
6, 2005, the Company redeemed all of the outstanding Class A Preferred Shares for $250.00 per share plus
accrued and unpaid dividends through the date of redemption.  See Note 19 for additional information
related to the redemption.

**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 2.0 million, 1.9 million and 2.4 million options to purchase common shares outstanding
at December 31, 2004, 2003 and 2002, 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 401(k) plan 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 25.0% of their gross wages.  After
one year of participation, 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).  The Company recorded expense in
relation to this plan of approximately $87,000, $120,000 and $205,000 for the years ended December 31,
2004, 2003 and 2002, respectively.

**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 once vested) until
distribution.  The account balances earn interest each year at a rate that approximates the Company's
weighted 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)                          | 2004                                          
|                                        |                                               
|Balance at beginning of period          | $   778                                       
|Service cost                            | 82                                            
|Forfeiture of prior period service cost | -                                             
|Interest cost                           | 73                                            
|Balance at end of period                | $   933                                       

**16.	EQUITY BASED AWARD PLANS**

**AERC Share Option Plan**

The AERC Share Option Plan expired September 30, 2003, and therefore no additional options will
be granted under this plan.  On December 31, 2004, there were 147,066 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 non-qualified 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"), provided 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.  This plan expired on February 20,
2005, and therefore none of the 209,674 remaining options will be granted under this plan.  On December
31, 2004, there were 598,100 options outstanding and exercisable under this plan.  These options will
remain in effect according to the original terms and conditions of the plan.  Options to purchase common
shares that were granted from this plan had an option price equal to the fair market value of the common
shares at the date of the grant. The rights to purchase common shares enabled 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 of 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.  The total number of shares authorized for equity awards under this plan is 1,500,000.

**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, 2004, 2003
and 2002 and the changes during the year ended on these dates is presented below:

|                                 | 2004           | 2003     | 2002            
|-------------------------------- | -------------- | -------- | ----------------
|                                 | Number of      | Weighted | Number of       
|                                 | Shares of      | Average  | Shares of       
|                                 | Underlying     | Exercise | Underlying      
|                                 | Options        | Prices   | Options         
|                                 |                |          |                 
|Outstanding at beginning of year | 1,897,383      | $12.31   | 2,353,774       
|Granted                          | 240,250        | 9.04     | -               
|Exercised                        | 113,000        | 8.22     | -               
|Canceled                         | 38,634         | 11.54    | 456,391         
|Outstanding at end of year       | 1,985,999      | 12.17    | 1,897,383       
|Exercisable at end of year       | 888,916        | 15.91    | 1,025,055       
|Weighted average fair value of   |                |          |                 
|options granted during the year  | $         1.13 |          | $              -

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 weighted average assumptions:

|                                 | 2004       | 2003 | 2002      
|-------------------------------- | ---------- | ---- | ----------
|                                 |            |      |           
|Risk free interest rate or range | 3.27%      | -    | 3.61%     
|Dividend yield or range          | 7.55%      | -    | 11.68%    
|Expected life or range           | 5.63 years | -    | 6.07 years
|Expected volatility or range     | 29.18%     | -    | 27.71%    

The following table summarizes information about stock options outstanding at December 31, 2004:

|                 | Options Outstanding | Options Exercisable
|---------------- | ------------------- | -------------------
|                 |                     | Weighted           
|Range of         | Number              | Average            
|Exercise         | Outstanding at      | Exercise           
|Prices           | December 31, 2004   | Prices             
|                 |                     |                    
|$7.00 to $8.70   | 1,184,099           | $   8.52           
|$9.00 to $12.50  | 390,150             | 10.72              
|$20.25 to $24.10 | 411,750             | 24.02              
|$7.00 to $24.10  | 1,985,999           | $ 12.17            

The following table summarizes information about restricted shares granted during the years ended
December 31, 2004, 2003 and 2002:

|                            | 2004   | 2003   | 2002  
|--------------------------- | ------ | ------ | ------
|                            |        |        |       
|Number of shares granted    | 74,451 | 23,075 | 36,985
|Weighted average fair value | $ 7.21 | $ 6.15 | $ 9.95

**17.	DIRECTOR/EXECUTIVE COMPENSATION**

**Director's Deferred Compensation Plan**

The Company's Directors' Deferred Compensation Plan was adopted by the Board of Directors on
August 22, 1996.  The Plan was implemented to allow persons serving as Independent Directors the option
of deferring receipt of compensation otherwise payable to them by the Company for their services as
Directors and to create an opportunity for appreciation of the amount deferred upon appreciation of the
Company's Common Shares.

Prior to January 1 of each year, any eligible Director may elect to defer all or a portion of the fees
otherwise payable to that Director for that year and such amount will be credited to a deferral account
maintained on behalf of the Director.  Fees for each period are credited to the deferral account as they are
earned.  Amounts credited to the deferral account are converted to "share units" which are valued based
upon the closing price of the Company's common shares at the end of each reporting period.  Each deferral
account is increased when the Company pays a dividend on its commons shares by the number of share
units that represent the dividend paid per share multiplied by the number of share units in the account on
the date of record for the related dividend payment.  At the end of each reporting period, the total value of
the deferred compensation is adjusted for increases in share units and for changes in the Company's
common share price.  The total amount of deferred compensation relating to this plan is included in
"Accounts payable and accrued expenses" in the Consolidated Balance Sheets.  Adjustments to the total
value of the Plan are reflected in "General and administrative expenses" in the Consolidated Statements
of Operations.  At December 31, 2004 and 2003, deferred amounts related to this plan of $799,000 and
$447,000, respectively, were included in "Accounts payable and accrued expenses".  The deferral account
is vested at all times.

**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.

**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 2004 and 2003, annual incentive opportunities for the officers were linked to Property Net
Operating Income, as defined.  Participants' awards are paid in a combination of cash and restricted shares.
There were no officer incentives earned for the period ending December 31, 2003.  The Company
recognized expense related to annual incentives for officers which include amortization of previously issued
restricted shares granted to officers in the amount of $745,000, $121,000 and $338,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.



**18.	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.  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, 2004, 2003 and 2002
is as follows:

|                                              | For the year ended December 31, 2004
|--------------------------------------------- | ------------------------------------
|                                              |                                     
|                                              | Acquisition/                        
|(In thousands)                                | Disposition                         
|                                              |                                     
|Total segment revenues                        | $	1,429                             
|Elimination of intersegment revenues          | -                                   
|Consolidated revenues                         | 1,429                               
|                                              |                                     
|Equity in net income (loss) of joint ventures | 81                                  
|                                              |                                     
|*NOI                                          | 878                                 
|                                              |                                     
|Total assets                                  | 24,621                              

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

|                                              | For the year ended December 31, 2003
|--------------------------------------------- | ------------------------------------
|                                              |                                     
|                                              | Acquisition/                        
|(In thousands)                                | Disposition                         
|                                              |                                     
|Total segment revenues                        | $	-                                 
|Elimination of intersegment revenues          | -                                   
|Consolidated revenues                         | -                                   
|                                              |                                     
|Equity in net income (loss) of joint ventures | 17                                  
|                                              |                                     
|*NOI                                          | 39                                  
|                                              |                                     
|Total assets                                  | 528                                 

* 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               | $	 31                               
|Elimination of intersegment revenues | -                                   
|Consolidated revenues                | 31                                  
|                                     |                                     
|Equity in net loss of joint ventures | (633)                               
|                                     |                                     
|*NOI                                 | 26                                  
|                                     |                                     
|Total assets                         | 877                                 

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

A reconciliation of total segment NOI to total consolidated net income (loss) for the years ended
December 31, 2004, 2003 and 2002 is as follows:

|(In thousands)                                  | 2004     | 2003       | 2002    
|----------------------------------------------- | -------- | ---------- | --------
|                                                |          |            |         
|Total NOI for reporting segments                | $	76,232 | $	69,748   | $	75,289
|Depreciation and amortization                   | (33,744) | (34,802)   | (34,422)
|General and administrative expense              |          |            |         
|(excluding service companies expense)           | (7,771)  | (6,084)    | (7,016) 
|Interest expense                                | (40,334) | (40,759)   | (40,841)
|Gain on disposition of properties and land, net | -        | -          | 227     
|Equity in net loss of joint ventures            | (923)    | (1,157)    | (1,627) 
|Gain on sale of partnership interest            | -        | 1,314      | -       
|Minority Interest in operating partnership      | (63)     | (75)       | (324)   
|Income from discontinued operations:            |          |            |         
|Operating income                                | 245      | 902        | 533     
|Gain on disposition of properties, net          | 9,682    | -          | 9,660   
|Income from discontinued operations             | 9,927    | 902        | 10,193  
|Consolidated net income (loss)                  | $	3,324  | $	(10,913) | $	1,479 

**19.	SUBSEQUENT EVENTS**

**Preferred Share Redemption**

On January 6, 2005, the Company redeemed all of its 9.75% Class A Cumulative Redeemable
Preferred Shares at a cost of $56.6 million, which includes accrued and unpaid dividends through January
6, 2005.  In connection with the issuance of the 9.75% Class A Cumulative Redeemable Preferred Shares
in July 1995, the Company incurred issuance costs of $2.2 million which were recorded as a reduction in
shareholders' equity.  In accordance with GAAP, the Company will recognize the $2.2 million of issuance
costs as a reduction in net earnings to arrive at net income applicable to common shares for the three
months ended March 31, 2005.

**Debt**

On February 1, 2005, the Company repaid $10.7 million in variable rate debt and prepaid $5.3
million in zero percent UDAG financing which had been secured by a Market-Rate property.  Of the $16.0
million that was repaid, $10.7 million matured on February 1, 2005, $3.1 million would have matured on April
1, 2005 and $2.2 million would have matured on June 1, 2006.  The $2.2 million that would have matured
on June 1, 2006 was paid off at a discount of $330,000 that will be recorded as a reduction to interest
expense in the quarter ended March 31, 2005.  The Company funded the repayment by obtaining a new
loan on the same property in the amount of $16.1 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.  This loan matures on
February 1, 2007.  The Company has two one-year options to extend this loan, each of which is conditioned
upon achieving a satisfactory debt service coverage ratio at the property.

**Dividends Declared**

On December 8, 2004, the Company declared a quarterly dividend of $0.17 per common share,
which was paid on February 1, 2005 to shareholders of record on January 14, 2005.

On February 15, 2005, the Company announced that a quarterly dividend of $0.54375 per
Depositary Share on its 8.70% Class B Cumulative Redeemable Preferred Shares will be paid on March
15, 2005 to shareholders of record on March 1, 2005.  As this is the first quarterly dividend payable on this
issue, it will include in addition to the regular dividend a prorated amount of $0.03625 per Depository Share
for the six-day period December 10, 2004 through and including December 15, 2004.

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

|****                                                  | 2004    
|----------------------------------------------------- | --------
|                                                      | First   
|(In thousands, except per share data)                 | Quarter 
|                                                      |         
|Revenues as reported in Form 10-Q's                   | $	39,936
|Interest income, reclassified as a separate line item |         
|below operating income effective                      | (42)    
|Revenues                                              | 39,894  
|Net (loss) income applicable to common shares         | (2,436) 
|Basic earnings per share                              | (.13)   
|Diluted earnings per share                            | (.13)   

|                                                      | 2003    
|----------------------------------------------------- | --------
|                                                      | First   
|(In thousands, except per share data)                 | Quarter 
|                                                      |         
|Revenues as reported in Form 10-Q's                   | $	37,696
|Interest income, reclassified as a separate line item |         
|below operating income effective                      | (43)    
|Revenues                                              | 37,653  
|Net (loss) income applicable to common shares         | (5,353) 
|Basic earnings per share                              | (.28)   
|Diluted earnings per share                            | (.28)   



**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, 2004:   |            |            |                |             
|Deducted from asset accounts:   |            |            |                |             
|Allowance for doubtful accounts | $    143   | $ 1,891    | $  -           | $	(1,794)(a)
|Valuation allowance - deferred  |            |            |                |             
|tax asset                       | 4,283      | (480)(b)   |                |             
|                                |            |            |                |             
|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)     | -              | -           
|                                |            |            |                |             

(a) Uncollectible amounts reserved for or 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, 2004**                                         
|****                                                          
|                                                              
|                                                              
|******(In thousands)**                                        
|****                                                          
|**Property**                                                  
|                                                              
|RESIDENTIAL MULTIFAMILY PROPERTIES                            
|**NORTHERN OHIO**                                             
|Barrington                                                    
|Bay Club                                                      
|Country Club Apartments                                       
|Ellet                                                         
|Gates Mills Club                                              
|Hawthorne Hills Apartments                                    
|Hillwood I                                                    
|KTC Properties                                                
|Mallard's Crossing                                            
|Portage Towers                                                
|Puritas Place                                                 
|Riverview Towers                                              
|Shaker Park Gardens II                                        
|State Road Apartments                                         
|Statesman II                                                  
|Sutliff Apartments                                            
|Tallmadge Acres                                               
|The Oaks                                                      
|The Triangle                                                  
|Twinsburg Apartments                                          
|Vantage Villa                                                 
|Village at Avon                                               
|Village Towers                                                
|Watergate                                                     
|West High                                                     
|Westchester Townhouses                                        
|Western Reserve Village                                       
|Westlake Investment                                           
|Williamsburg at Greenwood Village                             
|Winchester (3)                                                
|                                                              

|S-3ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued
|----------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                          
|**December 31, 2004**                                                 
|****                                                                  
|                                                                      
|                                                                      
|******(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                                                         
|Metro West (4)                                                        
|Courtney Chase                                                        

|**S-4ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued**
|--------------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                              
|**December 31, 2004**                                                     
|****                                                                      
|                                                                          
|                                                                          
|******(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                                                                   
|Residence 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)	This property secures the Company's $14.0 million line of credit.  There were no borrowings outstanding at December 31, 2004.

(4)	This property secures the Company's $15.0 million line of credit.  There were $10.0 million of borrowings outstanding at December 31, 2004.

|**S-5ASSOCIATED ESTATES REALTY CORPORATION
					SCHEDULE III - Continued**
|--------------------------------------------------------------------------
|**REAL ESTATE AND ACCUMULATED DEPRECIATION**                              
|**December 31, 2004**                                                     
|****                                                                      
|                                                                          
|                                                                          
|******(In thousands)**                                                    
|****                                                                      
|**Property**                                                              
|                                                                          
|JOINT VENTURE PROPERTIES                                                  
|                                                                          
|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                                                      
|                                                                          
|                                                                          
|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.









The Aggregate Cost for Federal Income Tax purposes was approximately $935.6 million and $924.6
million at December 31, 2004 and 2003, respectively.

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

|(In thousands)               | 2004      | 2003      
|---------------------------- | --------- | ----------
|                             |           |           
|Balance, beginning of period | $	925,971 | $	 916,408
|Disposal of fixed assets     | (5,038)   | (3,825)   
|New acquisition properties   | 23,960    | -         
|Improvements (a)             | 13,557    | 13,388    
|Balance, end of period       | $	958,450 | $	925,971 

(a)  Includes a reduction of zero in 2004 and $589,000 in 2003 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)               | 2004      | 2003      
|---------------------------- | --------- | ----------
|                             |           |           
|Balance, beginning of period | $	264,386 | $	 233,350
|Disposal of fixed assets     | (4,524)   | (3,480)   
|Depreciation for period      | 33,320    | 34,516    
|Balance, end of period       | $	293,182 | $	 264,386