10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

/X/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008 OR
/  /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _________________

Commission file number 1-14369

AMERICAN COMMUNITY PROPERTIES TRUST

(Exact name of registrant as specified in its charter)

MARYLAND (State or other jurisdiction of incorporation or organization) 52-2058165 (I.R.S. Employer Identification No.)    

222 Smallwood Village Center

St. Charles, Maryland  20602

(Address of principal executive offices)(Zip Code)

(301) 843-8600

(Registrant's telephone number, including area code)

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

TITLE OF EACH CLASS Common Shares, $.01 par value NAME OF EACH EXCHANGE ON WHICH REGISTERED NYSE Amex

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such 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 (229.405) 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.

Yes /x/                      No / /

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

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  / /    No  /x/

As of June 30, 2008 the aggregate market value of the common shares held by non-affiliates of the registrant, based on the closing price reported on the American Stock Exchange (currently the NYSE Amex) on that day of $13.75, was $30,330,121.  As of March 1, 2009, there were 5,229,954 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of American Community Properties Trust to be filed with the Securities and Exchange Commission with respect to the 2009 Annual Meeting of Shareholders, to be held on June 3, 2009, are incorporated by reference into Part III of this report.

-1-

AMERICAN COMMUNITY PROPERTIES TRUST

2008 Form 10-K Annual Report

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 4A.	Executive Officers of the Registrant	25
	PART II
Item 5.	Market for the Company's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	29
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78
Item 9A(T).	Controls and Procedures	78
Item 9B.	Other Information	78
	PART III
Item 10.	Trustees, Executive Officers and Corporate Governance	79
Item 11.	Executive Compensation	79
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	79
Item 13.	Certain Relationships and Related Transactions and Trustee Independence	79
Item 14.	Principal Accounting Fees and Services	80
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	80
Signatures	Signatures	84

-2-

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains various “forward-looking statements.”  Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “intends,” “plans,” “projects,” “estimates” or anticipates” or the negative of these words and phrases or similar words or phrases.  Statements regarding the following subjects may be impacted by a number of risks and uncertainties:

·   our business and investment strategy;

·   our projected results of operations;

·   our ability to manage our anticipated growth;

·   our ability to obtain future financing arrangements;

·   our estimates relating to, and our ability to pay, future distributions;

·   our understanding of our competition and our ability to compete effectively;

·   real estate market and industry trends in the United States, and particularly in the St. Charles, Maryland marketplace and its surrounding areas, and Puerto Rico;

·   projected capital and operating expenditures;

·   availability and creditworthiness of current and prospective tenants;

·   interest rates; and

·   lease rates and terms.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us.  These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us.  If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.  You should carefully consider these risks before you make an investment decision with respect to our common stock, along with the following factors that could cause actual results to vary from our forward-looking statements:

·   the factors referenced in this Annual Report on Form 10-K, including those set forth under the sections captioned “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

·   changes in our business and investment strategy;

·   default by our tenants;

·   availability, terms and deployment of capital;

·   general volatility of the capital markets;

·   availability of qualified personnel;

·   perception of the real estate industry;

·   changes in supply and demand dynamics within the real estate industry;

·   environmental effects;

·   changes in interest rates;

·   the degree and nature of our competition;

·   changes in applicable laws and regulations; and

·   state of the general economy and the local economy in which our properties are located.

We cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report.  We do not intend, and disclaim any duty or obligation, to update or revise any industry information or forward-looking statements set forth in this report to reflect new information, future events or otherwise.

-3-

PART I

ITEM 1. BUSINESS

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

GENERAL

ACPT is a self-managed holding company that is primarily engaged in the business of investing in and managing multifamily rental properties as well as community development and homebuilding.  ACPT’s operations are primarily concentrated in the Washington, D.C. metropolitan area and Puerto Rico and are carried out through its U.S. subsidiaries, American Rental Properties Trust (“ARPT”), American Rental Management Company (“ARMC”), American Land Development, Inc. (“ALD”) and their subsidiaries and its Puerto Rican subsidiary, IGP Group Corp. (“IGP Group”).

ACPT was formed on March 17, 1997 as a Maryland real estate investment trust.  ACPT is taxed as a U.S. partnership and its taxable income flows through to its shareholders.  ACPT’s U.S. subsidiaries, ARPT, ARMC, and ALD are taxed as U.S. corporations.  ACPT is subject to Puerto Rico income taxes on IGP Group’s taxable income, which generates foreign tax credits that have been passed through to ACPT’s shareholders.  A federal tax regulation has been proposed that could eliminate ACPT’s ability to pass through these foreign tax credits to its shareholders.  Comments on the proposed regulation are currently being evaluated, and the final regulation will be effective for tax years beginning after the final regulation is ultimately published in the Federal Register.  ACPT’s income consists of (i) certain passive income from IGP Group, (ii) additional distributions from IGP Group including Puerto Rico taxes paid on behalf of ACPT and (iii) dividends from ACPT’s U.S. subsidiaries.  Other than Interstate Commercial Properties (“ICP”), which is a subsidiary of IGP Group and is taxed as a Puerto Rico corporation, the income from the remaining Puerto Rico operating entities passes through to IGP Group or ALD.  Of this income, only the portion attributable to the profits, losses or gains on the residential land sold in our Parque Escorial property passes through to ALD. 

ARPT

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

ARMC

ARMC performs property management services in the United States for the U.S. Apartment Properties and until March 1, 2009 performed property management services for one third-party owned apartment community, Capital Park Apartments.

ALD

ALD owns interests in and operates developments, including the following:

                1.   a 100% ownership interest in St. Charles Community LLC ("SCC LLC"), which holds approximately 3,790 acres of land in St. Charles, Maryland;

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

                3.   through November 19, 2008, a 50% interest, through SCC LLC, in a land development joint venture, St. Charles Active Adult Community, LLC (“Active Adult Community”).  ACPT sold its interest in Active Adult Community to Lennar Corporation (“Lennar”) in the fourth quarter of 2008; and

                4.   effective on October 28, 2008, a 50% interest in Surrey Homes, LLC (“Surrey Homes”), which is a homebuilding company that was created to meet the needs of developing communities in central Florida with a lot option, low overhead model.

IGP Group

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

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

                2.   general partner interests in nine partnerships, which collectively own and operate a total of 12 multifamily rental facilities in Puerto Rico (the “Puerto Rico Apartment Properties”), and a limited partner interest in two of these partnerships;

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

                4.   a 100% ownership interest in ICP, an entity that holds the partnership interest in El Monte Properties S.E. (“EMP”) which was sold and is wrapping up operations in 2009;

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

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

-4-

ACPT operated in two principal lines of business in 2008: Operating Real Estate and Land Development.  The Operating Real Estate segment is comprised of ACPT’s investments in rental properties and property management services; whereas, the Land Development segment is comprised of ACPT’s community development and homebuilding services. This represents a change from ACPT’s historical financial reporting practice of evaluating the Company solely based on geographical location.  During the fourth quarter of 2008, the Company had a change in senior management.  With this change came a new perspective on evaluating the Company’s performance, developing goals, and the use of various generally accepted industry financial measures to assess the performance and financial condition of the business, includingnet operating income ("NOI") (a supplemental measure to operating income) and Funds From Operations (“FFO”) (a supplemental measure to net income).

NOI, defined as real estate rental revenue less real estate operating expenses, is the primary performance measure we use to assess the results of our operations.  When considered with the financial statements prepared in accordance with principles of accounting generally accepted in the United States (“GAAP”), it is helpful to investors in understanding our performance because it captures the performance of our real estate operations in a measure that is comparable with other entities that have a different capitalization.  We provide NOI as a supplement to operating income calculated in accordance with GAAP.  NOI is a non-GAAP financial measure and does not represent operating income or net income calculated in accordance with GAAP. As such, it should not be considered an alternative to operating income or net income as an indication of our operating performance.

FFO is a non-GAAP financial measure that we believe, when considered with the financial statements prepared in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance.  Real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property.  We compute FFO in accordance with the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss), computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

While ACPT continues to report operating results on a consolidated basis, it also now reports separately the operating results of its two lines of business within the segment disclosures and in the notes to the Company's consolidated financial statements.  The Company has reclassified its segment disclosures for 2007 to include the results of these segments.  Please see Note 13 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for certain financial information related to these segments.  Set forth below is a brief description of these businesses within each of our segments.

U.S. OPERATING REAL ESTATE OPERATIONS – Ownership in Multifamily and Commercial Properties and Property Management

Multifamily Rental Properties

ACPT, indirectly through ARPT and AHP, holds interests in the U.S. Apartment Properties.  The U.S. Apartment Properties include a total of 3,366 rental units and are financed by a non-recourse mortgage whereby the owners are not jointly and severally liable for the debt.  The U.S. Department of Housing and Urban Development ("HUD") provides rent subsidies to the U.S. Apartment Properties for residents of 973 apartment units.  In addition, 110 units are leased pursuant to HUD's Low Income Housing Tax Credit (“LIHTC”) program, and 139 other units are leased under income guidelines set by the Maryland Community Development Administration.  The remaining 2,144 units are leased at market rates. During the first quarter of 2009, the Company executed purchase agreements for the sale of three of five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties.  These properties contain an aggregate of 642 apartment units.  The primary factor driving the decision to sell these properties was the strategic disposition of underperforming assets.  These contracts are subject to certain customary closing conditions, including lender consent to allow the purchaser to assume the loans.  We anticipate closing on the sale of these properties in the second quarter of 2009.  There can be no assurance that these transactions will occur.

-5-

The following table sets forth the name of each U.S. Apartment Property, the number of rental units in each property, the total portfolio percentage of each property, the project cost, the percentage of units under lease, and the expiration date and maximum benefit for any subsidy contract:

U.S. APARTMENT PROPERTIES	Number of Apartment Units		Percentage of Portfolio			12/31/2008 Project Cost (A) (in thousands)		Occupancy at 12/31/2008			Expiration Of Subsidy Contract		Maximum Subsidy (in thousands)
Consolidated Partnerships
Bannister – Non-subsidized Apartments		167		5	%	$	8,981		88	%		N/A		$	-
Bannister – Subsidized Apartments		41		1	%						2009				536
Coachman's		104		3	%		8,005		92	%		N/A			-
Crossland		96		3	%		3,483		95	%		N/A			-
Essex		496		15	%		21,220		97	%	2009				4,672
Fox Chase		176		5	%		8,990		95	%		N/A			-
Headen House		136		4	%		8,610		97	%	2009				1,689
Huntington		204		6	%		10,134		97	%	2009				2,496
Lancaster		104		3	%		6,042		87	%		N/A		(B)
Milford Station I (D)		200		6	%		13,271		90	%		N/A			-
Milford Station II (D)		50		1	%		1,879		94	%		N/A			-
New Forest		256		8	%		15,513		93	%		N/A			-
Nottingham South (D)		85		3	%		3,070		94	%		N/A			-
Owings Chase (D)		234		7	%		15,922		91	%		N/A			-
Palmer – Non-subsidized Apartments		96		3	%		9,185		94	%		N/A			-
Palmer – Subsidized Apartments		56		2	%						2009				732
Prescott Square (D)		73		2	%		4,788		88	%		N/A			-
Sheffield Greens		252		7	%		25,999		93	%		N/A			-
Village Lake		122		3	%		7,994		96	%		N/A			-
Wakefield Terrace – Non-subsidized   Apartments		164		5	%		11,301		90	%		N/A			-
Wakefield Terrace – Subsidized Apartments		40		1	%						2011				541
Wakefield Third Age (Brookmont)		104		3	%		5,572		96	%		N/A			-
Total Consolidated		3,256		96	%		189,959								10,666
Unconsolidated Partnerships
Brookside Gardens		56		2	%		2,696		96	%		N/A		(C)
Lakeside Apartments		54		2	%		4,131		100	%		N/A		(C)
Total Unconsolidated		110		4	%		6,827
Total		3,366		100	%	$	196,786							$	10,666

(A)   Project costs represent inception-to-date capitalized costs for each respective property as per Schedule III “Real Estate and Accumulated Depreciation” in Item 8 of this Annual Report on Form 10-K.

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

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

        (D)  During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties. 

-6-

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

U.S. APARTMENT PROPERTIES	Number of Apartment Units		Operating Revenues		Operating Expenses (a)		Net Operating Income		Non-Recourse Mortgage Outstanding		Economic Interest Upon Liquidation (b)
Consolidated Partnerships
Charles County, Maryland
Bannister		208	$	2,587	$	1,201	$	1,386	$	12,301		100.0	%
Coachman's		104		1,718		665		1,053		10,740		95.0	%
Crossland		96		1,205		598		607		4,034		60.0	%
Fox Chase		176		2,286		876		1,410		12,685		99.9	%
Headen House		136		1,641		659		982		6,828		75.5	%
Huntington		204		2,397		1,368		1,029		9,104		50.0	%
Lancaster		104		1,541		671		870		8,355		100.0	%
New Forest		256		4,082		1,506		2,576		22,445		99.9	%
Palmer		152		1,912		802		1,110		6,649		75.5	%
Sheffield Greens		252		4,346		1,882		2,464		26,749		100.0	%
Village Lake		122		1,589		671		918		9,088		95.0	%
Wakefield Terrace		204		2,292		1,110		1,182		9,897		75.5	%
Wakefield Third Age (Brookmont)		104		1,332		528		804		7,180		75.5	%
Baltimore County, Maryland
Milford Station I (f)		200		1,911		1,005		906		10,491		100.0	%
Milford Station II (f)		50		410		271		139		1,345		100.0	%
Nottingham South (f)		85		638		468		170		2,543		100.0	%
Owings Chase (f)		234		2,408		1,238		1,170		12,208		100.0	%
Prescott Square (f)		73		738		431		307		3,541		100.0	%
Henrico County, Virginia
Essex		496		4,482		2,239		2,243		13,766		50.0	%	(c)
Total Consolidated		3,256		39,515		18,189		21,326		189,949
Unconsolidated Partnerships
Charles County, Maryland
Brookside Gardens		56		325		282		43		1,202				(d)
Lakeside		54		502		284		218		1,921				(e)
Total Unconsolidated		110		827		566		261		3,123
Grand Total		3,366	$	40,342	$	18,755	$	21,587	$	193,072

(a)   Amounts exclude management fees eliminated in consolidation.

(b)   Unless stated otherwise, surplus cash from operations and proceeds from sale or liquidation are allocated based on the economic interest.

(c)   Upon liquidation, the limited partners have a priority distribution equal to their unrecovered capital.  As of December 31, 2008, the unrecovered limited partner capital for Essex was $1,890,000.  The Company’s receivable of $2,958,000 is the second priority of proceeds from the sale or liquidation on the property.  Until the limited partners have recovered their capital contributions, any surplus cash is distributed first to the limited partners up to $100,000, then a matching $100,000 to the general partner, with any remaining split between the general partner and the limited partners.

(d)   The Company’s share of the economic ownership is immaterial.

(e)   The Company is currently eligible to receive $363,000 in distributions related to the payment of a development fee.  This amount receives priority over return of equity to the partners but is subordinate to a $3,000 per year preferred return to the minority partners.  Upon settlement of all priority items, balance is split 70% to the Company and 30% to the minority partners.

(f)   During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties. 

-7-

New Multifamily Rental Property Construction

In 2008, ACPT commenced the construction of a 184 unit luxury apartment complex within St. Charles, Maryland called Gleneagles Apartments.  Gleneagles Apartments is expected to consist of one, two and three bedroom units ranging in size from 905 to 1,840 square feet.  ACPT currently anticipates average monthly rents of approximately $1,625 per unit.  Pre-leasing efforts are currently scheduled to commence during the third quarter of 2009, and delivery of the initial units is expected to occur during the fourth quarter of 2009.  ACPT has received all county permits, and the HUD insured loan, totaling $25,045,200, closed on January 22, 2009.

Property Management

ACPT, indirectly through ARMC, operates a property management business that manages 3,654 rental apartment units located in the Washington, D.C. metropolitan area, Baltimore, Maryland and Richmond, Virginia, 3,366 of which ACPT holds an ownership interest.  Management fees for the 3,366 units are based on a percentage of rents ranging from 4% to 6.5%.  The management contracts for these properties have terms of one or two years and are automatically renewed upon expiration but, may be terminated on 30 days notice by either party.  ARMC is entitled to receive an aggregate incentive management fee of $40,000 annually from two of the properties that it manages, as well as the potential to receive an incentive management fee of $100,000 from another property that it manages.  However, the payment of these fees is subject to the availability of surplus cash.  Management and other fees earned from properties included within the consolidated financial statements are eliminated in consolidation.  As of December 31, 2008, management fees from third-party owned apartment properties equaled 3% of rents.  Effective March 1, 2008, the Company’s management agreement with one of the third-party owned apartment properties, G.L. Limited Partnership, was terminated.  Effective March 1, 2009, the Company’s management agreement with the final third-party owned rental property, Capital Park Towers Apartments, was terminated.

Competition

ACPT's investment properties that receive rent subsidies are not subject to the same market conditions as properties charging market rents.  The U.S. Apartment Properties located in St. Charles, Maryland have market rents that are impacted by the supply and demand for competing rental apartments in the area, as well as the local housing market.  When housing becomes more affordable due to lower mortgage interest rates or softening home prices, the performance of our rental apartments can be adversely impacted. Conversely, the performance of the rental apartment market typically improves when mortgage interest rates rise, home prices increase, or economic conditions and the credit markets become depressed.

ACPT has historically been the only source for multifamily apartment living in St. Charles, Maryland and its surrounding areas.  In the winter of 2008, Archstone-Smith opened “Westchester at the Pavilions,” a luxury apartment community in St. Charles, Maryland.  Currently, the rents within this new facility are higher than those charged for ACPT’s apartments.  It is currently unclear to what extent occupancy levels at our higher end fair market properties will be impacted by the addition of these units into the St. Charles market.

PUERTO RICAN OPERATING REAL ESTATE OPERATIONS – Ownership in Multifamily and Commercial Properties and Property Management

Multifamily Rental Properties

           ACPT, indirectly through IGP, holds interests in the Puerto Rico Apartment Properties.  The Puerto Rico Apartment Properties comprise a total of 2,653 rental units, all of which receive rent subsidies from HUD and are financed by non-recourse mortgages.  During the first quarter of 2009, the Company executed a non-binding letter of intent to sell the Puerto Rico Apartment Properties.  The letter of intent is subject to customary closing conditions, including the ability of the purchaser to obtain financing, and we anticipate closing on the sale of these properties in the second quarter of 2009.

-8-

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

			12/31/2008
	Number of	Percentage	Project Cost	Occupancy	Expiration	Maximum
	Apartment	of	(B) (in	at	of Subsidy	Subsidy
	Units	Portfolio	thousands)	12/31/2008	Contract	(in thousands)
Consolidated Partnerships
San Anton	184	7%	$          5,643	100%	2010	$         1,342
Monserrate Associates	304	11%	12,944	99%	2009	2,700
Alturas del Senorial	124	5%	5,191	99%	2009	1,096
Jardines de Caparra	198	7%	8,157	99%	2010	1,662
Colinas de San Juan	300	11%	12,702	100%	2011	2,144
Bayamon Garden	280	11%	14,311	100%	2011	2,085
Vistas del Turabo	96	4%	3,589	100%	2021	726
Monserrate Tower II (A)	304	11%	13,666	100%	2020	2,554
Santa Juana (A)	198	7%	8,230	99%	2020	1,685
Torre De Las Cumbres (A)	155	6%	7,155	100%	2020	1,350
De Diego (A)	198	8%	8,222	100%	2020	1,670
Valle del Sol	312	12%	15,885	100%	2013	2,491
Total	2,653	100%	$      115,695			$       21,505

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

        (B)   Project costs represent total capitalized costs for each respective property as per Schedule III "Real Estate and Accumulated

                Depreciation" in Item 8 of this Annual Report on Form 10-K.

-9-

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

P.R. APARTMENT PROPERTIES	Number of Apartment Units		Operating Revenues		Operating Expenses (a)		Net Operating Income		Non-Recourse Mortgage Outstanding		Economic Interest Upon Liquidation (b)
Consolidated Partnerships
Carolina, Puerto Rico
Monserrate Associates		304	$	2,785	$	1,472	$	1,313	$	6,816		52.50	%
Monserrate Tower II (c)		304		2,637		1,420		1,217		9,861		50.00	%	(e)
San Anton		184		1,492		961		531		4,091		49.50	%
San Juan, Puerto Rico
Alturas Del Senorial		124		1,120		643		477		3,449		50.00	%
Colinas San Juan		300		2,164		1,072		1,092		9,380		50.00	%
De Diego (c)		198		1,748		995		753		5,457		50.00	%	(e)
Torre de Las Cumbres (c)		155		1,425		777		648		5,067		50.00	%	(e)
Caguas, Puerto Rico
Santa Juana (c)		198		1,832		1,042		790		7,036		50.00	%	(e)
Vistas Del Turabo (f) (g)		96		715		398		317		798		52.45	%	(d,e)
Bayamon, Puerto Rico
Bayamon Garden (f) (g)		280		2,113		1,064		1,049		9,151		50.00	%	(d,e)
Jardines De Caparra		198		1,756		964		792		6,233		50.00	%	(e)
Valle Del Sol (f) (g)		312		2,522		1,052		1,470		10,430		50.00	%	(d)
Total		2,653	$	22,309	$	11,860	$	10,449	$	77,769

(a)   Amounts exclude management fees eliminated in consolidation.

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

(c)   Owned by Carolina Associates

(d)   Upon liquidation, the limited partners have a priority distribution equal to their unrecovered capital.  As of December 31, 2008, the unrecovered limited partner capital in Bayamon Garden, Valle Del Sol and Vistas Del Turabo were $918,000, $445,000, and $618,000, respectively.

(e)   In addition to normal operating receivables between the Company and the Puerto Rico Apartment Properties, the Company has a receivable for incentive management fees of $59,000 for Bayamon Gardens, $12,000 for Jardines de Caparra, $47,000 for Torre de Las Cumbres, $60,000 for De Diego Apartments, $60,000 for Santa Juana Apartments and $90,000 for Monserrate Towers II.

(f)   In addition to the receivable noted in (e) above, the Company has a notes receivable from Valle del Sol and Vistas del Turabo amounting to $928,000 and $46,000, respectively.  These receivables are the result of unsecured development cost loans made to the Partnership to cover acquisition and construction costs of the rental property in excess of the permanent financing.  Pursuant to the terms of the Partnership agreement, the notes are non-interest bearing and are payable only by proceeds from mortgage refinancing, partial condemnations, sales of easements or similar interests or proceeds from sale of the properties, but only after the payment of the debt and liabilities due to outsiders and expenses of liquidation.

(g)   Distributions from these partnerships are limited to an annual amount of $10,000, $118,000 and $146,000 for Vistas Del Turabo, and Bayamon Gardens and Valle del Sol, respectively.

-10-

Commercial Rental Properties

In September 2005, the Company commenced the operations of its first Puerto Rico commercial rental property in the community of Parque Escorial, known as Escorial Building One, in which it holds a 100% ownership interest.  Escorial Building One is a three-story building with approximately 56,000 square feet of leasable office space.  The Company moved its Puerto Rico corporate office to the new facility in the third quarter of 2005.  As of December 31, 2008, approximately 76% of the building was leased, of which 43% of the office space was occupied.  The University of Phoenix will occupy the other 33% once tenant improvements are completed, which is expected to occur during April 2009.  The Company signed an agreement with the University of Phoenix pursuant to which it has agreed to pay up to $20 per square foot for improvements, or an aggregate of $368,000.  Any additional costs of improvements will be picked up by the lessee. The Company continues to focus on leasing the balance of available space in Escorial Building One.

In December 1998, LDA transferred title of a seven-acre site in Parque Escorial's office park to ELI on which a 150,000 square foot building was constructed. ELI is a partnership in which LDA holds a 45.26% interest in future cash flow generated by the building lease.  The building is leased to the State Insurance Fund of Puerto Rico, a government agency and such lease will terminate on June 30, 2030 at which point the lessee has the right to acquire it for one dollar.  ELI accounted for the transaction as a sales type lease, and a significant portion of the lease payments consist of tax-free interest due from a government agency.  The tax-free status stays intact when ELI distributes its income to LDA.

Property Management

IGP operates a property management business whereby it earns fees from the management of 2,653 of the Puerto Rico Apartment Properties that are based on a percentage of rents ranging from 2.85% to 9.25%.  The management contracts for these properties have terms of three years and are customarily renewed upon expiration.  IGP is also entitled to receive up to an aggregate of $192,000 annually in certain incentive management fees with respect to six of the Puerto Rico Apartment Properties.  IGP is also entitled to receive an additional incentive management fee from available net income on four of these properties, up to the maximum total management fee of 6.5% of gross income of these projects.  For 2008, the additional incentive fees amounted to $156,000, which will be paid during the first quarter of 2009.  The payment of these fees is subject to availability of surplus cash.  Management and other fees earned from properties included within the consolidated financial statements are eliminated in consolidation.

In addition, IGP currently manages 918 rental apartments owned by a third-party, non-profit entity, which acquired the units from IGP in 1996 under the provisions of the Low Income Housing Preservation and Resident Home Ownership Act (also known as "LIHPRHA").  The management fees from these apartments are based on a percentage of rents ranging from 8.0% to 9.25%.  The management agreements for these properties expire March 15, 2010.

Competition

The Puerto Rico Apartment Properties all receive rent subsidies and are therefore not subject to the same market conditions as properties charging market rate rents.  Our competition is within the subsidized markets.  We have been able to maintain an average annual occupancy of approximately 99.5%.

U.S. and Puerto Rico Operating Real Estate Government Regulation

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

Subsidy contracts for the U.S. and Puerto Rico Apartment Properties are scheduled to expire between 2009 and 2011. ACPT currently intends to seek the renewal of expiring subsidy contracts for its properties based on the most advantageous options available at the time of renewal.  Please refer to the table shown on page 6 of this Annual Report on Form 10-K for the expiration dates and amounts of subsidies for the respective properties.  We initiate the HUD contract renewal process annually.  For contracts where we have elected five-year terms, we are limited to increases based on an Operating Cost Adjustment Factor (“OCAF”).  At the end of the five-year term, or annually if a five-year term is not elected, we will have six options for renewing Section 8 contracts depending upon whether we can meet the eligibility criteria.  Historically, we have met the criteria necessary to renew our Section 8 contracts.

Some of the U.S. Apartment Properties and Puerto Rican Apartment Properties have mortgage loans that are insured by the Federal Housing Authority (“FHA”), or financed through the housing agencies in Maryland, Virginia (the “State Financing Agencies”), or Puerto Rico (the “Puerto Rico Financing Agency”). These properties are subject to guidelines and limits established by the U.S. and Puerto Rico Apartment Properties’ regulatory agreements with HUD and the State Financing Agencies or the Puerto Rico Financing Agency.  Three of the regulatory agreements in Puerto Rico also require that if cash from operations exceeds the allowable cash distributions, the surplus must be deposited into restricted escrow accounts held by the mortgagee and controlled by HUD or the Puerto Rico Financing Agency.  Funds in these restricted escrow accounts may be used for maintenance and capital improvements.

Three of our partnerships are limited distribution partnerships in that annual distributions cannot exceed certain pre-determined amounts.  For Vistas Del Turabo, distributions are limited to $10,000 per year.  For Bayamon Gardens, distributions are limited to $118,000 per year.  For Valle del Sol distributions are limited to $146,000 per year.  Any surplus cash generated by these properties must be deposited in a residual receipts account that with HUD approval, can be used for repairs to the property.

Our regulatory contracts with HUD and/or the mortgage lenders generally require that certain escrows be established as replacement reserves.  The balance of the replacement reserves is available to fund capital improvements as approved by HUD or the mortgage lender.  As of December 31, 2008, a total of $7.7 million was designated as replacement reserves for the U.S. and Puerto Rico Apartment Properties and $3.4 million as debt service reserves for the Puerto Rico Apartment Properties.

-11-

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

The U.S. Government has virtually eliminated subsidy programs for new construction of low and moderate income housing by profit-motivated developers such as ACPT.  Any new multifamily rental properties developed by ACPT in the U.S. are expected to offer market rate rents and no new construction of multifamily rental properties is expected in Puerto Rico.

U.S. LAND DEVELOPMENT OPERATIONS

Community Development

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

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

The development of St. Charles as a planned unit development ("PUD") began in 1972 when the Charles County government (the “County”) approved a comprehensive PUD agreement for St. Charles.  This master plan allows for the construction of 24,730 housing units and approximately 1,390 acres of commercial and industrial development.  As of December 31, 2008, there were 11,900 housing units remaining in St. Charles.  In addition, St. Charles has schools, recreation facilities, commercial, office and retail space occupying in excess of 4.4 million square feet.  ACPT, through outside planners, engineers, architects and contractors, obtains necessary approvals for land development, plans individual neighborhoods in accordance with regulatory requirements, constructs roads, utilities and community facilities.  In St. Charles, ACPT currently develops lots for sale for detached single-family homes, town homes, apartment complexes, and commercial and industrial development.

Fairway Village, named for the existing 18-hole public golf course it surrounds, is currently under development.  The master plan for Fairway Village provides for 3,346 dwelling units on 1,645 acres, including a business park and a 68-acre village center.  Opened in 1999, development of Fairway Village continues to progress as evidenced by the 119 lots settled in 2008 and the 158 completed lots in inventory as of December 31, 2008.  All settlements made in 2008 were the result of our March 2004 agreement with Lennar discussed below under “Customer Dependence”.  Since inception of Fairway Village, builders have settled 878 fully developed lots.  In addition to lots in inventory, infrastructure construction is nearly complete on the next 68 single family lots with completion expected in May 2009.  Development is complete for the Company to have access to the parcel designated for our Gleneagles Apartment complex.  Additional parcels are in the engineering phase.

Wooded Glen and Piney Reach comprise approximately 3,180 acres, and are planned for development near the completion date of Fairway Village. The County must approve the total number and mix of residential units before development can begin.  There can be no assurances that the remaining 11,900 units in St. Charles' master plan can be attained within the remaining acreage currently owned.

In 2008, the Company constructed a two story, 23,000 square foot commercial building located in the O’Donnell Lake Restaurant Park within St. Charles’ Westlake Village.  This commercial building has 20,000 square feet of net rentable space, 10,000 square feet on the first floor designated for two restaurant or retail tenants and 10,000 square feet on the second floor designated as office space.  We believe that the restaurant and retail space on the first floor is considered a prime location as it is adjacent to the promenade and board walk, two of the unique amenities of the restaurant park.  In addition, we expect that the inclusion of a hotel and another office building on adjacent lots will offer potential tenants opportunities for significant pedestrian traffic at the site.  As of December 31, 2008, none of the building was sold or leased.  The Company listed the building with a brokerage firm for sale or lease in early 2009.  The Company has experienced favorable traffic at the site considering the difficult commercial real estate market.  The Company is pursuing potential buyers or tenants aggressively.  However, there can be no assurance that the Company will be able to locate a buyer or lease the facility during 2009.

-12-

As of December 31, 2008, the Company owned 31.1 acres of developed commercial land and 158 residential lots were available for delivery.  The following table is a more detailed summary of the land inventory available in St. Charles as of December 31, 2008:

		Lot Type	Estimated Number of Lots	Approximate Acreage	Entitlements	Estimated Expected Date of Sale	Estimated Aggregate Sales Price
SMALLWOOD VILLAGE
	Commercial, Retail, Office:
	Henry Ford Circle	Commercial	6	6.86	A	2010 - 2011	$1.2 - $1.4 million
	Industrial:
	Industrial Park North Tract 21, Parcel F	Light Industrial	1	7.67	A	TBD	408K
	Industrial Park North Tract 23, Parcel A	Light Industrial	1	2.27	A	TBD	229K
WESTLAKE VILLAGE
	Commercial, Retail, Office:
	Town Center Parcel A3	Restaurant, Office, Retail	3	4.37	A	2009 - 2012	$3.6 million
	Parcel M	Office, Retail	1	2.61	A	2009	$450,000
	Hampshire Commercial Parcel Q	Commercial	1	9.94	C	TBD	$1.6 million
FAIRWAY VILLAGE
	Residential Lots:
	Sheffield Parcel G/M1	SF Detached	57	15.41	A	2009 – 2010	*
	Sheffield Parcel J	SF Attached	98	22.71	B	2009	*
	Gleneagles Parcel A	Multi-Family	120	12.40	B	Internal Use	N/A
	Gleneagles Parcel B	Multi-Family	184	13.00	B	Internal Use	N/A
	Gleneagles Parcel D	SF Detached	68	28.40	B	2009 - 2011	*
	Gleneagles Parcel E	SF Detached	117	53.70	B	2009 - 2011	*
	Gleneagles Parcel C	SF Attached	128	21.20	B	2010 - 2011	*
	Gleneagles Parcel F	SF Detached	84	31.00	B	2009 - 2010	*
	Gleneagles South Neighborhood	SF Attached	194	25.00	C	2011 - 2013	*
	Gleneagles South Neighborhood	SF Detached	642	224.40	C	2010 - 2013	*
	Gleneagles South Neighborhood	Multi-Family	165	14.00	C	Internal Use	N/A
	Commercial, Retail, Office:
	Middle Business Park Parcel D	Office, Commercial	14	22.5	B	TBD	TBD
	Fairway Village Center	Retail, Commercial	1	93.90	B	TBD	TBD
	Middle Business Park Parcel B	Office, Commercial	4	31.84	B	TBD	TBD
	Middle Business Park Parcel C	Office, Commercial	3	15.48	B	TBD	TBD
VILLAGE OF WOODED GLEN
	Residential Parcels	TBD	7,155	1810.40	D	TBD	TBD
	Wooded Glen Village Center	Retail, Commercial	1	30.00	C	TBD	TBD
VILLAGE OF PINEY REACH
	Residential Parcels	TBD	2,921	666.60	D	TBD	TBD
	Piney Reach Village Center	Retail, Commercial	1	37.30	C	TBD	TBD
	Piney Reach Industrial Park	Industrial	1	76.18	C	2010	$13.0 million
	Piney Reach Industrial Park	Industrial	66	506.59	C	TBD	TBD
TOTAL			12,037	3,785.73
(A) Sites are fully developed and ready for sale
(B) Completed master plan approval including all entitlements and received preliminary site plan approval for development
(C) Completed master plan approval including all entitlements
(D) Completed master plan approval including all entitlements excluding school allocations
TBD means To Be Determined.
*Price determined as a percentage of the "Base Selling Price" of the new home constructed and sold on the lot per the terms of the sales agreement with Lennar Corporation.

-13-

Homebuilding

In October 2008, the Company entered into an agreement with Surrey Homes in central Florida to contribute $2,000,000 to Surrey Homes over the next year in exchange for a 50% ownership interest in Surrey Homes.  During the fourth quarter of 2008, ACPT contributed $500,000 to Surrey Homes with the remainder to be contributed during the first three quarters of 2009.  Surrey Homes’ business model is focused on providing affordable quality homes with the lowest ongoing cost of ownership through a maintenance program of energy efficiency and other green initiatives.  Surrey Homes is establishing itself as a low overhead, lot option home builder and has obtained lot option contracts in certain developments within central Florida that we believe are currently experiencing good sales activity.  Early operations of Surrey Homes are designed to create a scalable, low overhead business that can quickly expand when the central Florida market turns around.  Surrey Homes is led by Jay Lewis who has 23 years of experience in the home building and residential development industries.  Mr. Lewis was previously a Vice-President and Division Manager for a publicly traded homebuilder.

Customer Dependence

In March 2004, the Company executed development and purchase agreements with Lennar’s homebuilding subsidiary to develop and sell approximately 1,950 residential lots, consisting of approximately 1,359 single-family lots and 591 town home lots in Fairway Village (the “Lennar Agreements”).  The Lennar Agreements require Lennar’s homebuilding subsidiary to provide $20,000,000 of letters of credit to secure the purchase of the lots.  The letters of credit will be used as collateral for major infrastructure loans from the County of up to $20,000,000 and will be reduced as the Company repays the principal of these loans.  As security for the Company’s obligations to Lennar, a junior lien was placed on the residential portion of Fairway Village.  For each lot sold in Fairway Village, the Company will deposit $10,300 in an escrow account to fund the principal payments due to the County at which time the lot is released from the junior lien.  Under the Lennar Agreements, the Company is responsible for making developed lots available to Lennar on a monthly basis, and subject to availability, the builder is required to purchase a minimum of 200 residential lots developed by the Company per year.  However, the continued slowing of the new homes sales market in the United States, and more specifically in the Washington D.C. suburban area, has adversely impacted Lennar’s willingness or ability to purchase the required lots.  Consequently, amendments to the Lennar Agreement have been agreed to as follows:

·   In December 2007, the Company executed the second amendment to the Lennar Agreements (the “December Amendment”) whereby the Company agreed to accept 51 lot settlements in December 2007 in satisfaction of Lennar’s lot purchase requirement for 2007, resulting in 78 total lots purchased by Lennar during 2007.  In addition, the Company agreed to temporarily reduce the final lot price for 100 lots (51 purchased in December 2007 and 49 purchased during the first six months of 2008) from 30% to 22.5% of the base price of the home sold on the lot, with guaranteed minimum prices of $78,000 per single family lot and $68,000 per town home lot.

·   In November 2008, the Company entered into the third amendment to the Lennar Agreements modifying the minimum number of lots that Lennar is required to purchase annually to 100 units, and increasing the minimum purchase price for such lots from 22.5% to 25% from January 2009 until December 31, 2011.  The amendment ended the exclusive relationship between Lennar and the Company.  With the termination of the exclusive relationship between Lennar and the Company in November, 2008, we have executed sales agreements with NVR, Inc., Richmond American Homes of Maryland, Inc., and Riverview Builders, LLC for the sale of additional lots in the first quarter of 2009.  During 2008, 119 lots were purchased by Lennar, which comprised 61 single-family lots and 58 town home lots.  All of the 2008 lot purchases were under the terms of the December Amendment.

In September 2004, the Company entered into a joint venture agreement with Lennar for the development of a 352-unit, active adult community located in St. Charles, Maryland; and transferred land to the joint venture in exchange for a 50% ownership interest in it and $4,277,000 in cash.  Lennar and the Company each had an equal interest in the joint venture.  The joint venture's operating agreement called for the development of 352 lots and delivery of these lots began in the fourth quarter of 2005.  The Company also managed the project's development for a market rate fee pursuant to a management agreement.  On November 19, 2008, the Company sold to Lennar the Company’s 50% interest in the joint venture and its property management rights for $3,467,000 in cash.  

Revenues from Lennar include residential land sales as well as certain management fees.  Total revenues from Lennar for our U.S. Land Development segment were $12,438,000 for the year ended December 31, 2008, which represented 84% of the U.S. Land Development segment's total revenue and 15% of our consolidated revenue for the year ended December 31, 2008.  No other customers accounted for more than 10% of our consolidated revenue for the year ended December 31, 2008.

Government Approvals

The St. Charles master plan has been incorporated into the County's comprehensive zoning plan. In addition, the County has agreed to provide sufficient water and sewer connections for the balance of the housing units to be developed in St. Charles.  Specific development plans for each village in St. Charles are subject to approval of the County Planning Commission. Such approvals have previously been received for the villages of Smallwood, Westlake and Fairway.  Approvals have not yet been sought on the final two villages, Wooded Glen and Piney Reach. In 2001, the County enacted the Adequate Public Facilities Policy, which limits the number of residential building permits issued to the amount of school allocations calculated in a given period.

Under a settlement agreement reached with the County in 2001, the County agreed to utilize a base line assumption of 200 school allocations per year; however, there are no guarantees that additional allocations will be granted in future years.  The County provided guaranteed school allocations to St. Charles for 898 new dwelling units.  The County subsequently granted allocations for an additional 200 dwelling units in 2005, 300 for 2006, 300 for 2007 and 300 units for 2008.  As of December 31, 2008, we have recorded 1,230 dwelling units with the County leaving us with a balance of 764 school allocations available for new dwelling units.  School allocations are used when the Company records the subdivision plats with the County.  The Company anticipates using 302 allocations in 2009 related to additional lot development in the Gleneagles Neighborhood.

-14-

As further stipulated in the settlement agreement, the County will also provide sewer connection for the next 2,000 units in Fairway Village at fees that will be $1,608 less per unit than the fee charged to builders outside of St. Charles.  As of December 31, 2008, approximately 1,350 of the sewer connections were available for use.  Our agreement reached with the County also provides for the possibility that we will be allowed to annex additional contiguous land to St. Charles.

Also pursuant to the settlement agreement, the Company agreed to accelerate the construction of two major roadway links to the County’s road system.  In return, the County agreed to issue general obligation public improvement bonds to finance $20,000,000 of this construction guaranteed by letters of credit provided by Lennar.  As of December 31, 2008, the County issued three separate Consolidated Public Improvement Bonds (the “Bonds”) totaling $20,000,000 on behalf of the Company.  The Bonds bear an interest rate between 4% and 8% and call for semi-annual interest payments and annual principal payments and mature in fifteen years.  The Bond Repayment Agreements with the County stipulate the borrowing and repayment provisions for the funds advanced.  Total cost of the construction project was approximately $31,138,000.

In August 2005, the Company signed a memorandum of understanding (“MOU”) with the Charles County Commissioners regarding a land donation that, as of 2008, houses a minor league baseball stadium and an entertainment complex.  Under the terms of the MOU, the Company donated 42 acres of land in St. Charles to the County on December 31, 2005.  The Company also agreed to expedite off-site utilities, storm-water management and road construction improvements that will serve the entertainment complex and future portions of St. Charles so that the improvements will be completed concurrently with the entertainment complex.  The County will be responsible for infrastructure improvements on the site of the complex.  In return, the County will issue the general obligation bonds to finance the infrastructure improvements.  In March 2006 and 2007, $4,000,000 and $3,000,000 of bonds were issued for this project, respectively.  In March 2008, an additional $3,000,000 of bonds were issued for completion of required stadium improvements.  As per the stipulations provided for in the Bond Repayment Agreement with the County, the funds for this project will be repaid by ACPT over a 15-year period.  In addition, the County agreed to increase the base line assumption from 200 to 300 school allocations per year commencing with the issuance of these bonds and continuing until such bonds are repaid in full.  The price of a school allocation is based on negotiations with the County; however, historically, the price has been approximately $16,500 per allocation for the Company.

Competition

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

Environmental Impact

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

The ongoing process of land development requires the installation, inspection and maintenance of erosion control measures to prevent the discharge of silt-laden runoff from areas under construction.  The capital expenditures for these environmental control facilities varies with the topography, proximity to environmental features, soil characteristics, soil erosion, and duration of construction.  In 2008, we spent nearly $80,000 for these costs.  As land development continues, an annual cost of approximately $100,000 can be expected.

-15-

PUERTO RICAN LAND DEVELOPMENT OPERATIONS

Community Development

The Puerto Rican Land Development Operation’s assets consist of more than 600 acres of developed and undeveloped land in the master planned communities of Parque Escorial in Carolina, Puerto Rico and Parque El Comandante in Canovanas, Puerto Rico (“Parque El Comandante”).  The land in Parque Escorial is being developed by the Company for a variety of residential uses, including condominiums as well as commercial and industrial uses.

The master plan for Parque Escorial was approved in 1994.  Parque Escorial is located approximately six miles from the central business district in San Juan, Puerto Rico.  It includes the construction of 2,700 dwelling units of various types on 282 acres of land and the development of 145 acres of land for commercial, office and light industrial uses.  The commercial site is anchored by a Wal-Mart and Sam's Club, each consisting of approximately 125,000 square feet.  LDA has developed and sold 255 acres of land in this community, and continues to own 120 acres of developed and undeveloped land.  Currently, LDA is developing the infrastructure of the fourth residential phase in Parque Escorial which will be developed in two phases.

As of December 31, 2008, site improvements for the first three residential phases of Parque Escorial, comprising 2,252 units, were completed and either sold to third party homebuilders or used by the Company’s homebuilding operations for the construction of condominiums.  The next residential phase in Parque Escorial, comprising approximately 220 units, is in the beginning stage of infrastructure development, and we expect to develop the last phase, comprising approximately 228 units, in the future.  There were no commercial land sales in backlog as of December 31, 2008.

In 1989, LDA acquired the 427-acre site of the former El Comandante Race Track in Carolina, Puerto Rico.  LDA also owns approximately 490 acres of land adjacent to the new El Comandante Race Track in Canovanas, Puerto Rico.  As of December 31, 2008, this land is the collateral supporting Puerto Rico's $10,000,000 credit facility, which matures in August 2009.  (While the Company will seek to refinance the line into a construction loan for the development of residential condominiums or extend the term of the facility, the current state of the credit market may prevent these plans from occurring.)  Currently, LDA is in the process of obtaining zoning approvals to convert the property into a master plan mixed-use community, Parque El Comandante, similar to Parque Escorial.  As part of the rezoning process in Parque El Commandante, in December 2007, a government agency requested the preparation of an Environmental Impact Statement which was submitted during the first quarter of 2008.  In March 2009, a public hearing was conducted with responses anticipated from the government agency during the second quarter of 2009.

Condominium pricing in Puerto Rico has declined similar to the United States’ market.  However, construction pricing has not declined in a similar manner as we are experiencing in the United States market.  The Company has considered the Hilltop project in the Parque Escorial property (“Hilltop”) to be the premier parcel in the portfolio due to the views of the island that will be enjoyed by future residents.  Accordingly, the Company had previously intended to build condominiums with expected selling ranging from $350,000 to $400,000.  However, sales of condominiums in excess of $350,000 are not occurring in the areas immediately surrounding Parque Escorial.  The Company believes that construction of a $350,000 product is no longer prudent and believes that construction financing could not be obtained at that level.  The Company is now anticipating construction of a product similar to Torres.  Due to increased cost of construction, decline in sales prices and the per unit land basis, the Company noted that the expected total costs of the project exceeded the expected sales proceeds.  The Company has recorded an impairment charge of $6,200,000 in the fourth quarter of 2008 based on an assessment of discounted cash flows assuming that the Company will build and sell condominium units at Hilltop similar to those built at Torres.

-16-

 The following table is a summary of the land inventory available in Puerto Rico as of December 31, 2008:

		Current Zoning	Lot Type	Estimated Number of Units/Parcels	Approximate Acreage	Entitlements	Expected Date of Sale	Estimated Asking Sales Price
PARQUE ESCORIAL
	Office Park:
	Lot IV-3b	Office	Office	1	2.7	A	TBD	$3.5 million
	Residential:
	Hilltop Phase I - 220 units	Residential	Residential	220	21.19	B	TBD	N/A
	Hilltop Phase II - 228 units	Residential	Residential	228	95.81	B	TBD	N/A
PARQUE EL COMANDANTE
	Mixed-use Lots:
	Phase I - Quarry Site	Residential	Mixed-use commercial	TBD	50.79	C	TBD	TBD
	Phase II - Route 66 North	Agricultural	Mixed-use	TBD	165.83	C	TBD	TBD
	Residential Lots:
	Phase I - Quarry Site	Commercial	Residential	TBD	26.11	C	TBD	TBD
	Phase III - Route 66 South	Agricultural	Residential	TBD	209.14	C	TBD	TBD
	Phase IV - Out-Parcel	Agricultural	Residential	TBD	38.85	C	TBD	TBD
	Total				610.42

(A) Sites are fully developed and ready for sale

(B) Completed master plan approval including all entitlements and received preliminary site plan approval for development

(C) Proposed master plan

Homebuilding

During the first quarter of 2004, IGP formed Torres to construct and sell a 160-unit residential project within Parque Escorial.  The project consists of a four tower condominium with 40 units in each tower (160 total units).  The construction of the four-tower condominium was completed in December 2006.  As of December 31, 2008, 154 units were sold.  However, sales of the remaining units have slowed substantially, and the Company sold three units during the last six months of 2008.  Of the remaining six unsold units, one unit was under contract as of December 31, 2008.  In 2008, the Puerto Rico real estate market suffered its worst year in the last three decades; however, we continued to sell units in our condominium complex at favorable prices, but at a slower pace than anticipated.  Assisting with these sales, the Puerto Rican government offered homebuyers a $25,000 incentive from the fourth quarter of 2007 through the fourth quarter of 2008.  This incentive is no longer available to homebuyers but the U.S. Government has offered first time homebuyers an $8,000 income tax credit, and the Company intends to offer certain incentives to homebuyers in order to sell the remaining six units, three of which are penthouse units.

 Government Approvals

Parque Escorial's master plan has been approved but specific site plans are subject to the planning board review and approval.  Recently, the Company obtained approval from the Puerto Rico Department of Natural and Environmental Resources (the “DNER”) for the infrastructure development of 220 residential units in Parque Escorial.

Parque El Comandante is in the planning stage and will require significant government approvals throughout the development process.  The master plan approval process is generally an 18 to 24 month process.  However, there can be no assurance that approvals for such development will be obtained, or if obtained, that the Company will be able to successfully develop such land.  Significant progress was made with the re-zoning application of the first phase of approximately 80 acres in El Comandante in 2008.  In March 2009, a public hearing was conducted with responses anticipated from the government agency during the second quarter of 2009.

 Competition

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

Environmental Impact

We believe that the Parque Escorial master plan can be completed without material adverse environmental impact and in compliance with government regulations.  All of the necessary agencies have endorsed Parque Escorial's environmental impact statement.  Wal-Mart has provided mitigation for 12 acres of wetlands impacted by its development of the shopping center site and other land.  An erosion and sedimentation control plan must be obtained prior to construction.  This plan specifies the measures to be taken to prevent the discharge of silt-laden runoff from areas under construction. In 2008, we did not incur any of these costs.  Once we begin development of the next phase, we expect to incur an estimated $10,000 per year during the development period.  We are in the planning stage of Parque El Comandante and will not have estimates for such costs until we are further in the design stage.

-17-

The DNER has enacted Regulation #25 whereby it requires the replacement of trees removed during land development of the proposed Hilltop project on a two-to-one basis.  In February 2006, IGP's agronomist submitted to DNER a tree mitigation plan.  On December 13, 2006, IGP received from DNER's the approval and permit, under certain conditions, to proceed with the tree mitigation plan.  As part of this mitigation plan, in September 2007, the Company signed a Mitigation Agreement with DNER which requires the Company to plant 10,900 trees in the Parque Escorial community over the next three years.  In addition, the Company segregated and donated 44 acres of land to the Municipality of Carolina, Puerto Rico to get the final approval to begin the land development at the Hilltop.  In addition, the Company paid $275,000 to the Municipality of Carolina, Puerto Rico for future maintenance costs of the urban forest.  These parcels of land will be a conservation area for an urban forest.

GENERAL

Employees

ACPT had 217 full-time employees as of December 31, 2008, 104 in the United States and 113 in Puerto Rico.  In Puerto Rico, 26 employees, or 11.9%, of the Company’s total workforce, were subject to a Collective Bargaining Agreement which expired in February 2007, and was currently under negotiations as of December 31, 2008.  Employees performing non-supervisory services through the Company's property management operations receive salaries funded by the properties.

Available Information

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

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

American Community Properties Trust

222 Smallwood Village Center

St. Charles, MD  20602

Attention:  Director of Investor Relations

(301) 843-8600

ITEM 1A. RISK FACTORS

 You should carefully consider the risks described below and all of the other information contained in this Annual Report on Form 10-K, including the financial statements and the notes thereto included in Part II, Item 8, of the Annual Report on Form 10-K.  If any of the following risks occurs, our business, financial condition or results of operations could be materially and adversely affected.

If current adverse global market and economic conditions continue or worsen, our business, results of operations, cash flows and financial condition may be adversely affected.

Recent market and economic conditions have been unprecedented and challenging, with significantly tighter credit markets and a recession that is expected to continue into the second half of 2009.  These conditions, combined with the deteriorating financial conditions of numerous financial institutions, rising unemployment and declining residential and commercial real estate markets, among other things, have contributed to increased market volatility and diminished expectations for the U.S. and other economies.

As a result of these conditions, the cost and availability of credit has been and may continue to be adversely affected in the markets in which we own properties and we and our tenants conduct operations.  Concern about the stability of the markets generally and the strength of numerous financial institutions specifically has led many lenders and institutional investors to reduce, and in some cases, cease, to provide funding to borrowers.  Continued turbulence in the U.S. and international markets and economies may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants and our lenders.  If these market and economic conditions continue, they may limit our ability, and the ability of our tenants, to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our and our tenants’ financial condition and results of operations.  If our tenants’ businesses or ability to obtain financing deteriorates further, they may be unable to pay rent to us, which could have a material adverse effect on our cash flows.

We cannot assure you that continuing long-term disruptions in the global economy and the continuation of tighter credit conditions among, and potential failures of, third party financial institutions as a result of such disruptions, will not have an adverse effect on our lenders.  If our lenders are not able to meet their funding commitment to us, our business, results of operation, cash flows and financial condition could be adversely affected.

In response to the deteriorating market and economic conditions in the U.S. and international markets, U.S. and foreign governments, central banks and other governmental and regulatory bodies have taken or are considering taking other actions to help stabilize the banking system and financial markets and to reduce the severity and length of the recession.  We cannot predict the duration or severity of the current economic challenges, nor can we provide assurance that our responses to the current economic downturn, or the U.S. and foreign governments, central banks and other governmental and regulatory bodies attempts to stabilize the banking system and financial markets and to stimulate the economy, will be successful.

-18-

The recent downturn in the commercial and residential real estate market has substantially reduced real estate values, which may cause us to not be able to sell developed property or cause us to sell such property at a loss.

The real estate business is a cyclical business.  Currently, weak economic conditions in the United States and Puerto Rico have substantially slowed residential and commercial property sales, which have caused a reduction in property values.  Continued significant declines in the prices for real estate could cause us not to be able to sell developed property or to have to sell such property at a loss, which could adversely affect our business and operations and our ability to make distributions to our shareholders.

We depend on our tenants to pay rents, and their inability to pay rents may substantially reduce our revenues and cash available for distributions to our shareholders.

Our investments in residential apartment properties are subject to varying degrees of risk that generally arise from the ownership of real estate. The underlying value of our properties and the ability to make distributions to our shareholders depend upon the ability of the tenants of our properties to generate enough income to pay their rents in a timely manner. Their inability to do so may be impacted by employment and other constraints on their personal finances, including debts, purchases and other factors. Changes beyond our control may adversely affect our tenants’ ability to make lease payments and consequently would substantially reduce both our income from operations and our ability to make distributions to our shareholders. These changes include, among others, the following:

               ● changes in national, regional or local economic conditions;

               ● changes in local market conditions; and

               ● changes in federal, state or local regulations and controls affecting rents, prices of goods, interest rates, fuel and

                   energy consumption.

               Due to these changes or others, tenants and lease guarantors, if any, may be unable to make their lease payments. A default by a tenant, the failure of a tenant’s guarantor to fulfill its obligations or other premature termination of a lease could, depending upon the size of the leased premises and our advisor’s ability to successfully find a substitute tenant, have a materially adverse effect on our revenues and the value of our common shares or our cash available for distribution to our shareholders.

If we are unable to find tenants for our properties, or find replacement tenants when leases expire and are not renewed by the tenants, our revenues and cash available for distribution to our shareholders will be substantially reduced.

Our revenue and cash available for distributions to shareholders could be materially adversely affected if any significant tenant or tenants were to become bankrupt or insolvent, or suffer a material adverse event or a downturn in their business.

         The bankruptcy or insolvency of a major tenant may adversely affect the income produced by our properties.  If any tenant becomes a debtor in a case under the Bankruptcy Code, we cannot evict the tenant solely because of the bankruptcy.  In addition, the bankruptcy court might authorize the tenant to reject and terminate its lease with us.  Our claim against the tenant for unpaid and/or future rent would be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease, and our claim for unpaid rent would likely not be paid in full.  Our revenue and cash available for distributions to our shareholders could be materially adversely affected if our significant tenants were to become bankrupt or insolvent or suffer a downturn in their business.

We may be unable to renew expiring leases or re-lease vacant space on a timely basis or on attractive terms, which could significantly decrease our cash flow.

Current tenants may not renew their leases upon the expiration of their terms.  Alternatively, current tenants may attempt to terminate their leases prior to the expiration of their current terms.  If non-renewals or terminations occur, we may not be able to locate qualified replacement tenants and, as a result, we could lose a significant source of revenue while remaining responsible for the payment of our obligations.  Moreover, the terms of a renewal or new lease may be less favorable than the current lease terms.  Any of these factors could cause a decline in lease revenue, which would have a negative impact on our profitability.

We may be subject to risks with respect to our acquisition and development activities.

            The agreements we execute to acquire properties generally are subject to customary conditions to closing, including completion of due diligence investigations which may be unacceptable.  Acquired properties may fail to perform as we expected in analyzing our investments.

We engage in development of certain types of properties for lease or sale. Development involves many risks, including the following:

                 ● we may be unable to obtain, or may suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other

                    required governmental permits and authorizations, which could result in increased costs, modification or

                    abandonment of these projects;

                 ● we may incur construction costs for property which exceed our original estimates due to increased costs for materials or labor or

                    other costs that we did not anticipate;

                 ● we may not be able to obtain financing on favorable terms or at all, which may render us unable to proceed with our development

                    activities;

                 ● we may be unable to complete construction and lease-up of a property on schedule, which could result in increased debt service

                    expense or construction costs; and

                 ● occupancy rates and rents at the newly completed property may not meet the expected levels and could be insufficient to

                     make the property profitable.

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

-19-

           Additionally, the time frame required for development, construction and lease-up of these properties means that we may have to wait years for significant cash returns and may never realize cash returns.  Because we anticipate paying cash distributions to our shareholders, if the cash flow from operations or refinancing is not sufficient, we may be forced to borrow additional money to fund such distributions.

Newly developed and acquired properties may not produce the returns that we expect, particularly in the current global economic environment, which could adversely affect our overall financial performance.

In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property.  In particular, we estimate the return on our investment based on expected occupancy and rental rates. Some of these estimates were made in advance of the recent economic downturn, and we cannot assure you that our operations at these properties will not be adversely affected by the current global economic environment relative to our original estimates.  Additionally, we have acquired, and may continue to acquire, properties not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is more fully leased at favorable rental rates.  If our estimated return on investment for the property proves to be inaccurate and the property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we expected in analyzing the investment.

The recent credit crisis may adversely affect potential homebuyers’ ability to obtain financing and our ability to obtain development financing or refinance current mortgage loans.

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

The Company has two lines of credit and one non-recourse mortgage that mature in 2009.  In the United States, a $14,000,000 revolving line of credit loan that was set to mature on April 14, 2009 has been extended to March 31, 2010 with quarterly scheduled payments as follows:  first quarter payment of $2,200,000 on March 31, 2009; second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of $300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December 31, 2009; and the remaining balance of approximately $571,000 in the first quarter of 2010.  Although the Company has extended this line of credit, the Company continues to work with other lenders to replace this facility entirely.  The Company has certain financial covenants related to this revolving line of credit.  As of December 31, 2008, the Company failed to meet the Minimum Net Worth covenant at the ACPT level as tangible net worth was $1,341,000.  The Company has received a waiver of this covenant requirement through March 31, 2010.  The failure to meet this covenant did not impact any other debt agreements.

In Puerto Rico, a $10,000,000 credit facility, with an outstanding balance of $4,327,000 as of December 31, 2008, matures on August 31, 2009.  The Company anticipates that the balance outstanding on this facility will be approximately $8,300,000 as of August 31, 2009.  While the Company will seek to refinance the line into a construction loan for the development of residential condominiums or extending the term of the facility, the current state of the credit market may prevent these plans from occurring.  IGP provided a guarantee on this credit facility; however, the lender's recourse under this guarantee is limited to the collateral, except in the case of fraud, intentional misrepresentation, or misappropriation of income associated with the collateral.  In the event of a default, the lender's sole recourse is to foreclose on the property.  An event of default on this facility will not affect any other debt facility held by the Company.  The collateral to support the line of credit consists of 427 acres of land, which has a cost basis of $11,500,000 at December 31, 2008.  There is no income generated from this property as it is in the planning stages for the development of the Company’s second planned community in Puerto Rico.

Also in Puerto Rico, the Company has a mortgage balance maturing on April 30, 2009.  As of December 31, 2008, the balance due was $6,816,000.  The Company is in the process of refinancing this mortgage.  However, should the Company be unable to negotiate or refinance with acceptable terms, the sole collateral for this mortgage is the Monserrate Associates apartment property, which has a cost basis of $3,785,000 at December 31, 2008.  This property generated approximately $2,700,000 of revenue and $400,000 of pre-tax income in 2008.

Borrowing increases our business risks.

Debt service increases the expense of operations since we are responsible for retiring the debt and paying the attendant interest, which may result in decreased cash available for distribution to our shareholders. In the event the fair market value of our properties was to increase, we could incur more debt without a commensurate increase in cash flow to service the debt. In addition, our trustees can change our policy relating to the incurrence of debt at any time without shareholder approval.

We may incur indebtedness secured by our properties, which subjects those properties to foreclosure.

           Incurring mortgage indebtedness increases the risk of possible loss.  Most of our borrowings to acquire properties are secured by mortgages on our properties.  If we default on our secured indebtedness, the lender may foreclose and we could lose our entire investment in the properties securing such loan which could adversely affect distributions to shareholders.  For federal tax purposes, any such foreclosure would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage and, if the outstanding balance of the debt secured by the mortgage exceeds our basis of the property, there could be taxable income upon a foreclosure.  To the extent lenders require us to cross-collateralize our properties, or our loan agreements contain cross-default provisions, a default under a single loan agreement could subject multiple properties to foreclosure.

-20-

Increases in interest rates could increase the amount of our debt payments and adversely affect our results of operations and our ability to make cash distributions to our shareholders.

           Higher interest rates could increase debt service requirements on variable rate debt and could adversely affect our results of operations and reduce the amounts available for distribution to our shareholders.  Additionally, such change in economic conditions could cause the terms on which borrowings become available to be unfavorable.  In such circumstances, if we are in need of capital to repay indebtedness in accordance with its terms or otherwise, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

Increased construction of similar properties that compete with our properties in any particular location could adversely affect the operating results of our properties and our cash available for distribution to our stockholders.

We may acquire properties in locations which experience increases in construction of properties that compete with our properties.  This increased competition and construction could:

                 ● make it more difficult for us to find tenants to lease units in our apartment communities;

                 ● force us to lower our rental prices in order to lease units in our apartment communities; and

                 ● substantially reduce our revenues and cash available for distribution to our shareholders.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our

properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to adverse changes in the performance of such properties may be limited, thus harming our financial condition.  The real estate market is affected by many factors that are beyond our control, including:

                 ● adverse changes in national and local economic and market conditions;

                 ● changes in interest rates and in the availability, cost and terms of debt financing;

                 ● changes in governmental laws and regulations, fiscal policies and zoning ordinances and costs of compliance with laws and

                     regulations, fiscal policies and ordinances;

                 ● the ongoing need for capital improvements, particularly in older buildings;

                 ● changes in operating expenses; and

                 ● civil unrest, acts of war and natural disasters, including earthquakes and floods, which may result in uninsured and

                     underinsured losses.

We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us.  We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

                We may be required to expend funds to correct defects or to make improvements before a property can be sold.  We cannot assure you that we will have funds available to correct those defects or to make those improvements.  In acquiring a property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property.  We may also acquire properties that are subject to a mortgage loan that may limit our ability to sell the properties prior to the loan’s maturity.  These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our security holders.

Lack of geographic diversity may expose us to regional economic downturns that could adversely impact our operations or our ability to recover our investment in one or more properties.

         Geographic concentration of properties exposes us to economic downturns in the areas where our properties are located.  Because we mainly operate in the suburban areas surrounding Washington D.C. and Puerto Rico, our portfolio of properties may not be geographically diversified.  A regional recession in any of these areas could adversely affect our ability to generate or increase operating revenues, attract new tenants or dispose of unproductive properties.

Competition with entities that have greater financial resources could make it more difficult for us to acquire attractive properties and achieve our investment objectives.

               We compete for investment opportunities with entities with substantially greater financial resources.  These entities may be able to accept more risk than our board of trustees believes is in our best interests.  This competition may limit the number of suitable investment opportunities offered to us.  This competition also may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire properties.  In addition, we believe that competition from entities organized for purposes similar to ours may increase in the future.

Our revenue and cash available for distributions to shareholders could be materially adversely affected if Lennar or any other significant customer were to become bankrupt or insolvent, or suffer a material adverse event or a downturn in their business.

Revenues from Lennar include residential land sales as well as certain management fees.  Total revenues from Lennar within our U.S. Land Development segment were $12,438,000 for the year ended December 31, 2008 which represented 84% of the U.S. Land Development segment’s revenue and 15% of our consolidated revenue for the year ended December 31, 2008.  No other customers accounted for more than 10% of our consolidated revenue for the year ended December 31, 2008.  Loss of all or a substantial portion of our land sales, as well as our joint venture’s land sales, to Lennar would have a significant adverse effect on our financial results.

    Although Lennar was contractually obligated to purchase 200 lots per year, the market is not currently sufficient to absorb this sales pace.  Accordingly, Lennar’s management requested and the Company granted a reduction of the 200 lot requirement for 2008 through 2011.  Management agreed to accept a total of 119 lots as satisfaction of their lot takedown requirement for 2008 and 100 lots per year for 2009 through 2011.  In addition, the Company agreed to a temporary price reduction to 25% of the selling price of the home for 2009 through 2011.  Should Lennar not comply with their obligations pursuant our amended contract or there be a reduced demand for our commercial property our revenue and cash available for distributions to our shareholders would be adversely impacted.

-21-

We may be unable to renew our HUD subsidy contracts and may lose federal funding to service these contracts.

As of December 31, 2008, we owned equity interests in multifamily rental properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes.  These programs, which are usually administered by HUD or state housing finance agencies, typically provide mortgage insurance, favorable financing terms or rental assistance payments to the property owners.  Historically, there have been delays in the receipt of subsidy payments which generally occur upon contract renewal and HUD’s annual budget renewal process.  For HUD properties held in partnerships in which we serve as General Partner, we may be required to fund operating cash deficits when these delays occur.  General Partner advances or loans to the partnerships may then become subject to the repayment provisions required by the respective partnership agreements which may impede the timing of repayment.  Furthermore, as a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts.  If permitted rents on a property are insufficient to cover costs, our cash flow from these properties will be negatively impacted, and our management fees may be reduced or eliminated.

An uninsured loss or a loss that exceeds the insurance policies on our properties could subject us to lost capital or revenue on those properties.

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

The costs of compliance with, or liabilities under, environmental laws may adversely affect our operating results.

         Our operating expenses could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations.  An owner of real property can face liability for environmental contamination created by the presence, release or discharge of hazardous substances on the property.  We may face liability regardless of:

                ● our lack of knowledge of the contamination;

                ● the timing of the contamination;

                ● the cause of the contamination; or

                ● the party responsible for the contamination of the property.

          There may be environmental problems associated with our properties of which we are unaware.  If environmental contamination exists on our properties, we could become subject to strict, joint and several liability for the contamination by virtue of our ownership interest.

                The presence of hazardous substances on a property may adversely affect our ability to sell the property, and we may incur substantial remediation costs, thus harming our financial condition. In addition, although many of our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to strict liability by virtue of our ownership interest for environmental liabilities created by our tenants, and we cannot be sure that our tenants would satisfy their indemnification obligations under the applicable sales agreement or lease.  Certain leases with significant tenants do not indemnify us against environmental liabilities arising from these tenants’ activities on the property.  The discovery of material environmental liabilities attached to our properties could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.

Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.

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

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unintended expenditures that adversely impact our ability to pay distributions to our shareholders.

     Under the Americans with Disabilities Act of 1990, or ADA, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons.  These requirements became effective in 1992.  A number of additional U.S. federal, state and local laws may also require modifications to our properties or restrict certain further renovations of the properties, with respect to access thereto by disabled persons.  Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and an order to correct any non-complying feature, which may require substantial capital expenditures.  We have not conducted an audit or investigation of all of our properties to determine our compliance, and we cannot predict the ultimate cost of compliance with the ADA or other legislation.  If one or more of our properties is not in compliance with the ADA or other legislation, then we would be required to incur additional costs to bring the property into compliance.

-22-

          In addition, our properties are subject to various other federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with various requirements, we might incur governmental fines or private damage awards.  In addition, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures.

                If we incur substantial costs to comply with the ADA or any other legislative or regulatory requirements, our financial condition, results of operations, cash flow, market price of our common stock and our ability to satisfy our debt service obligations and to pay distributions to our shareholders could be adversely affected.

Our business could be harmed if key personnel terminate their employment with us.

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

Terrorist attacks and other acts of violence or war may affect any market on which our securities trade, the markets in which we operate, our operations and our profitability.

Terrorist attacks may negatively affect our operation and profitability.  These attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs.  The terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks.  In addition, certain losses resulting from these types of events are uninsurable and others would not be covered by our current terrorism insurance.  Additional terrorism insurance may not be available at a reasonable price or at all.  If the properties in which we invest are unable to obtain sufficient and affordable insurance coverage, the value of these investments could decline, and in the event of an uninsured loss, we could lose all or a portion of an investment.

The United States may enter into armed conflicts in the future.  The consequences of any armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.

Any of these events could result in increased volatility in or damage to the United States and worldwide financial markets and economy.  They also could result in a continuation of the current economic uncertainty in the United States or abroad.  Adverse economic conditions could affect the ability of our tenants to pay rent, which could have a material adverse effect on our operating results and financial condition, as well as our ability to make distributions to our security holders, and may adversely affect and/or result in volatility in the market price for our securities.

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

  The Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), provides that publicly traded partnerships such as ACPT will, as a general rule, be taxed as corporations for U.S. federal income tax purposes, subject to certain exceptions.  We have relied in the past, and expect to continue to rely on an exception to this general rule for publicly traded partnerships that earn 90% or more of their gross income for every taxable year from specified types of “qualifying income,” including dividends.  If we fail to meet this “qualifying income” exception or are otherwise treated as a corporation for federal income tax purposes, the income we earn from our Puerto Rico operations would be subject to increased taxes.

 We do not believe that there would be an increase in the U.S. income taxes that would be imposed on our U.S. operations if ACPT were not to qualify as a partnership for U.S. federal income tax purposes because our U.S. operations are conducted through U.S. corporations that are subject to U.S. federal income tax.  However, our classification as a partnership does permit us to reduce the overall taxes that the Company pays on the operations of our Puerto Rican subsidiary (because, in ACPT’s current partnership tax structure, ACPT is taxed in Puerto Rico, but not in the United States, on those operations).  If we were not able to qualify as a partnership for U.S. federal income tax purposes, the net result would be anincremental increase in ACPT’s total tax expense on income for operations in Puerto Rico, although it is not practicable to quantify that potential impact.  In addition, if we were not to qualify as a partnership for U.S. federal income tax purposes, any foreign tax credits generated by our Puerto Rico operations would be used by us and would no longer be passed through to our shareholders.

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

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

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

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

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

-23-

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

The amount of unrealized receivables may exceed the net taxable capital gain that a shareholder would otherwise realize on the sale of our shares, and may be recognized even if the shareholder would realize a net taxable capital loss on the sale.  Thus, a shareholder may recognize both ordinary income and capital loss upon a sale of our shares.  Accordingly, a shareholder considering the sale of our shares is urged to consult a tax advisor concerning the portion of the proceeds that may be treated as ordinary income.  In addition, the shareholder is required to report to us any sale of his or her shares, unless the broker effecting the transaction files a Form 1099-B with respect to the sale transaction.

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

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

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

We would experience adverse tax consequences with respect to the income earned from our Puerto Rico operations if the IRS successfully asserts that the “anti-stapling” rules apply to our investments in IGP Group and our U.S. corporate subsidiaries.

                   If we were subject to the “anti-stapling” rules of Section 269B of the Internal Revenue Code, we would experience adverse tax consequences as a result of owning more than 50% of the value of both a domestic corporate subsidiary and a foreign corporate subsidiary, such as IGP Group.  If the “anti-stapling” rules applied, IGP Group would be treated as a domestic corporation, which would cause IGP Group to be subject to U.S. federal income tax.  The net result would be an incremental increase in ACPT’s total tax expense on income for operations in Puerto Rico, although it is not practicable to quantify that potential impact.  In addition, if the anti-stapling rules applied, we would no longer have foreign tax credits attributable to our Puerto Rico operations to pass through to our shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None

ITEM 2. PROPERTIES

   ACPT owns real property located in the United States and Puerto Rico.  As of December 31, 2008, the Company held investments in multifamily and commercial real estate properties, apartment properties under construction, community development land holdings, and homebuilding units.  Refer to the tables in Item 1 of this Annual Report on Form 10-K for additional information.

-24-

ITEM 3. LEGAL PROCEEDINGS

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

Comité Loiza Valley en Acción, Inc. vs. Cantera Hipódromo, Inc., Carlos Ortiz Brunet, his wife Frances Vidal; Land Development Associates, S.E.; Integrand Assurance Company; American International Insurance Company; Et als, No. FPE97-0759(406), Superior Court of Carolina, Puerto Rico.  On November 24, 1997, Comité Loiza Valley en Acción, Inc., resident owners of Urbanización Loiza Valley in Canovanas, Puerto Rico, a neighborhood consisting of 56 houses near the property owned by LDA, filed a claim in the Superior Court of Carolina, Puerto Rico against Cantera Hipodromo, Inc. (the “lessee” who operates a quarry on the land owned by LDA), the owners of the lessee, the lessee’s insurance companies and LDA.  The Plaintiffs allege that as a result of certain explosions occurring in the quarry, their houses have suffered different types of damages and they have also suffered physical injuries and mental anguish.  The damages claimed exceed $11,000,000.  The physical damage to the property is estimated at less than $1,000,000.  The lease agreement contains an indemnification clause in favor of LDA.  The lessee has public liability insurance coverage of $1,000,000 through Integrand Assurance Company and an umbrella insurance coverage of $2,000,000 through American International Insurance Company.  Integrand’s legal counsel has provided the legal defense for all parties to date but in September 2003 declared that the allegations in the complaint regarding public nuisance do not fall under their policy.  In November 2003, the lessee’s legal counsel filed a motion in opposition to such allegation.  On January 28, 2005, the appellate court in Puerto Rico confirmed the trial court’s decision and Integrand was forced to provide coverage and pay attorneys’ fees to LDA and to Cantera Hipodromo.  On February 11, 2005, Integrand filed a reconsideration motion in the appellate court and on February 28, 2005 the same court dismissed the motion presented by Integrand.  On March 17, 2005, Integrand filed a request of certiorari in the Supreme Court of Puerto Rico and on March 23, 2005, an opposition to the expedition of the certiorari was filed.  On June 6, 2005, the Supreme Court denied said request.  Hence, LDA is an added insured on the damage claims in the complaint.  The trial began in 2007 and continued throughout 2008.  A judgment is expected to be entered near the end of 2009.

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

Arlena Chanye et al. vs. American Rental Management Company Case No.s RH-TP-06-28366/RH-TP-06-28577.  In 2006, a group of approximately 60 tenants of Capital Park Towers Apartments (“Capital Park”) a property managed, but not owned by ARMC and located at 301 G Street, S.W., Washington, D.C. filed a tenant petition with the Rent Administrator for the District of Columbia challenging increases in rent implemented with respect to said tenants units during the previous three year period (“Initial Case”).  Following the initial petition, a group of 60 additional tenants filed a similar petition in May of 2008.  While the Company has numerous defenses to the claims asserted in both cases, at this time management believes that potential exposure to damages in these cases is probable and estimates the loss at approximately $230,000.  Generally, these types of losses are covered by our insurance policies.  However, the Company has recently been informed that our insurance carrier intends to deny these claims.  We intend to vigorously defend against the claims asserted and will continue to pursue coverage under our insurance policies.  Given the current circumstances, the Company accrued $230,000 in the third quarter 2008 related to the potential losses.  However, absent a settlement of the case, it will likely take a number of years before the case is concluded and a final determination rendered.  The Company's Chairman has an economic interest in the property related to a note receivable from Capital Park.

   The Company and/or its subsidiaries have been named as defendants, along with other companies, in tenant-related lawsuits.  The Company carries liability insurance against these types of claims that management believes meets industry standards.  To date, payments made to the plaintiffs of the settled cases were covered by our insurance policy.  The Company believes it has strong defenses to these ordinary course claims, and intends to continue to defend itself vigorously in these matters.

   In the normal course of business, ACPT is involved in various pending or unasserted claims.  In the opinion of management, these are not expected to have a material impact on the financial condition or future operations of ACPT.

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

    No matters were submitted to a vote of the shareholders during the fourth quarter of the fiscal year ended December 31, 2008.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

   The executive officers of the Company are as follows:

Name	Age	Position
J. Michael Wilson	43	Chairman
Stephen K. Griessel	49	Chief Executive Officer
Matthew M. Martin	33	Chief Financial Officer and Secretary
Eduardo Cruz Ocasio	62	Senior Vice President and Assistant Secretary
Jorge Garcia Massuet	70	Vice President
Harry Chalstrom	48	Vice President
Mark L. MacFarland	39	Vice President
Rafael Velez	52	Vice President

-25-

                   Messrs. Wilson and Griessel are also members of our Board of Trustees.  Brief biographies of Messrs. Wilson and Griessel are incorporated by reference to the Company’s Proxy Statement to be filed with the SEC for its Annual Shareholder’s Meeting to be held in June 2009.  Biographical information for our other executive officers is as follows:

   Matthew M. Martin was appointed Chief Financial Officer of the Company effective October 1, 2008.  Mr. Martin has been employed with the Company since 2005 as Chief Accounting Officer, and has been serving as the Company’s Principal Financial Officer since August 2008.  Prior to joining the Company, he worked for FTI Consulting serving as a Manager in the Forensic and Litigation Consulting practice from 2002 to 2005.  Prior to joining FTI Consulting, he managed audits for Arthur Andersen.  Mr. Martin is a Certified Public Accountant in the State of Maryland and is a Certified Fraud Examiner.

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

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

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

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

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

PART II

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

   The principal market for our Company’s common shares is the NYSE Amex (formerly the American Stock Exchange), where the Company’s common shares are listed under the symbol "APO”.  As of the close of business on March 3, 2009, there were 129 shareholders of record of ACPT’s common shares.  On March 3, 2009 the closing price reported by the NYSE Amex was $3.50.

   The table below sets forth, for the periods indicated, the high and low closing prices of the Company’s shares as reported on the NYSE Amex, and the dividends declared per common share for such calendar quarter.

		Price Range of ACPT Shares		Dividends
		High	Low	Declared
2008	Quarter
	Fourth	$         10.20	$       3.10	$      0.10
	Third	14.25	10.20	-
	Second	19.01	13.45	-
	First	20.00	14.50	-
2007	Quarter
	Fourth	$        25.75	$     17.50	$          -
	Third	27.59	19.22	0.10
	Second	20.33	18.58	0.10
	First	19.47	17.64	0.10

Minimum annual distributions

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

Non-required dividend distributions to shareholders

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

Unregistered equity securities

The Company has not sold any unregistered equity securities or purchased any of its registered equity securities during the twelve months ended December 31, 2008.

ITEM 6. SELECTED FINANCIAL DATA

                     The following table sets forth selected consolidated financial and operating data of the Company as of and for each of the five years ended December 31, 2008.  The information in the following table should be read in conjunction with "Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

	Year Ended December 31,
	2008			2007 (1)			2006 (2)		2005			2004
	(In thousands, except per share and operating data)
Income Statement Data:
Total operating revenues	$	82,914		$	85,376		$	98,163	$	62,313		$	49,011
Total operating expenses		75,558			69,294			73,168		51,207			40,932
Operating income		7,356			16,082			24,995		11,106			8,079
(Loss) income before provision (benefit) for income taxes		(10,503	)		(848	)		7,485		6,855			4,331
Income tax provision (benefit)		853			(307	)		2,894		(690	)		1,500
Net (loss) income		(11,356	)		(541	)		4,591		7,545			2,831
Earnings (loss) per share
Basic	$	(2.18	)	$	(0.10	)	$	0.88	$	1.45		$	0.55
Diluted	$	(2.18	)	$	(0.10	)	$	0.88	$	1.45		$	0.55
Balance Sheet Data:
Total assets	$	355,193		$	360,724		$	346,699	$	217,085		$	184,027
Recourse debt		39,416			25,589			29,351		32,818			27,192
Non-recourse debt		276,120			279,981			270,720		119,865			98,879
Other liabilities		38,316			42,708			30,774		29,912			29,065
Total liabilities		353,852			348,278			330,845		182,595			155,136
Shareholders' equity		1,341			12,446			15,854		34,490			28,891
Cash dividends declared and paid per common share	$	0.10		$	0.30		$	0.83	$	0.40		$	0.35
Operating Data:
Rental apartment units managed at end of period		7,225			7,225			7,693		7,491			7,406
Residential lots sold		119			78			135		94			70
Residential lots transferred to homebuilding		-			-			-		-			160
Residential lots transferred to joint venture		-			-			-		-			352
Joint venture lots delivered		-			48			61		25			-
Residential lots transferred to investment property division		-			-			-		252			-
Commercial and business park acres sold		4			12			15		11			3
Homes sold		15			29			78		32			55
Net operating income (3):
U.S. Operating Real Estate segment		21,326			19,181			16,433		11,766			10,478
Puerto Rico Operating Real Estate segment (5)		11,216			10,873			10,561		-			-
Funds from Operations (4):
U.S. Operating Real Estate segment		6,757			7,588			7,147		6,420			4,451
Puerto Rico Operating Real Estate segment (5)		2,335			1,940			1,199		-			-

U.S. Operating Real Estate Segment
Net income	$	675		$	1,996		$	2,538		$	2,593	$	1,239
Depreciation		6,082			5,592			4,609			3,827		3,212
FFO	$	6,757		$	7,588		$	7,147		$	6,420	$	4,451
Puerto Rico Operating Real Estate Segment (5)
Net loss	$	(1,434	)	$	(254	)	$	(2,416	)		-		-
Depreciation and unconsolidated partnership adjustment		3,769			2,194			3,615			-		-
FFO	$	2,335		$	1,940		$	1,199			-		-

(1) The financial statements as of and for the year ended December 31, 2007 reflect the adoption of  Financial Accounting Standards Board Interpretation No. 48 “Account for Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007 (Refer to Note 3 and 11 of our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K).

(2) The financial statements as of and for the year ended December 31, 2006 reflect the adoption of Emerging Issues Task Force 04-05, “Determining Whether a General Partner as a Group Controls a Limited Partnership or Similar Entity When The Limited Partners Have Certain Rights” (“EITF 04-05”) on January 1, 2006 (Refer to Note 3 of our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K ).

(3) Net Operating Income (“NOI”), defined as real estate rental revenue less real estate operating expenses, is the primary performance measure we use to assess the results of our operations.  When considered with the financial statements prepared in accordance with principles of accounting generally accepted in the United States (“GAAP”), it is helpful to investors in understanding our performance because it captures the performance of our real estate operations in a measure that is comparable with other entities that have different capitalization.  We provide NOI as a supplement to operating income and net income calculated in accordance with GAAP.  NOI does not represent operating income or net income calculated in accordance with GAAP.  As such, it should not be considered an alternative to operating income or net income as an indication of our operating performance.  See “Results of Operations” for the U.S. and Puerto Rican Real Estate Operating segments for a reconciliation of NOI to operating income.

(4) FFO is a non-GAAP financial measure that we believe, when considered with the financial statements prepared in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property.  We compute FFO in accordance with the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss), computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

(5)   Puerto Rico rental property operations were unconsolidated for the years ended December 31, 2004 and 2005.

-26-

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

       The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing in Item 8 of this Annual Report on Form 10-K.

GENERAL

ACPT is a self managed holding company that is primarily engaged in the business of investing in and managing multifamily rental properties as well as community development and homebuilding through its consolidated subsidiaries.  In 2008, ACPT operated in two principal lines of business, Operating Real Estate and Land Development, and conducted its operations in both the United States and Puerto Rico.

U.S. Operating Real Estate

Our U.S. Operating Real Estate business is managed through American Rental Properties Trust ("ARPT") and American Rental Management Company ("ARMC").  ARPT holds the general and limited partnership interests in our single-purpose entities that own the U.S. Apartment Properties.  ARPT's ownership in these entities ranges from 0.1% to 100%.  Our U.S. Operations also include the management of apartment properties in which we have an ownership interest and one third-party owned apartment property.    Effective March 1, 2009, ARMC will no longer manage the third-party owned apartment property.

Puerto Rican Operating Real Estate

Our Puerto Rican Operating Real Estate business is conducted through Interstate General Properties Limited Partnership S.E. ("IGP").  IGP owns interests in the Puerto Rico Apartment Properties and two commercial properties and provides property management services to the Puerto Rico Apartment Properties, apartment properties owned by third parties, our Puerto Rican commercial properties, and home-owner associations related to our Puerto Rican planned communities.  IGP also provides management services for our Puerto Rican homebuilding and community development operations.  The Puerto Rico Apartment Properties are organized into separate partnerships and receive HUD subsidies.  IGP's ownership in these partnerships ranges from 1% to 52.5%.  IGP's ownership in the commercial properties ranges from 28% to 100%.

U.S. Land Development

Our U.S. Land Development operations are managed through American Land Development, Inc. ("ALD").  ALD owns and develops our land holdings in St. Charles, Maryland, which consists of a 9,000 acre planned community consisting of residential, commercial, recreational and open space land.  ALD also had a 50% interest in a land development joint venture formed to develop land for an active adult community in St. Charles, Maryland, until we sold our interest in the venture in November 2008.  In October 2008, the Company entered into an agreement with Surrey Homes, LLC (“Surrey Homes”) to contribute $2,000,000 over the next year in exchange for a 50% ownership interest in Surrey Homes.

Puerto Rican Land Development

Our Puerto Rican Land Development operations are conducted through Land Development Associates, S.E. (“LDA”).  LDA holds our community development assets in Puerto Rico, which consists of two planned communities.  The first planned community, Parque Escorial, is currently under development and consists of residential, commercial and recreational land similar to our U.S. land development operations but on a smaller scale.  Our second planned community, Parque El Commandante, is currently in the planning stages.  Our homebuilding operation builds condominiums for sale on land located in its planned communities.  LDA retained a limited partner interest in two commercial buildings in Parque Escorial opened in 2001 and 2005, which were built on land contributed by LDA.

ACPT is taxed as a U.S. partnership and its income flows through to its shareholders.  ACPT is subject to Puerto Rico taxes on IGP Group’s taxable income, generating foreign tax credits that have been passed through to ACPT’s shareholders. A federal tax regulation has been proposed that could eliminate the ability to pass through these foreign tax credits to ACPT’s shareholders.  Comments on the proposed regulation are currently being evaluated with the final regulation effective for tax years beginning after the final regulation is ultimately published in the Federal Register.   ACPT’s income consists of (i) certain passive income from IGP Group, a controlled foreign corporation, (ii) distributions from IGP Group and (iii) dividends from ACPT’s U.S. subsidiaries.  Other than Interstate Commercial Properties (“ICP”), which is taxed as a Puerto Rico corporation, the income from the remaining Puerto Rico operating entities passes through to IGP Group or ALD.  Of this income, only the portion attributable to the profits on the residential land sold in Parque Escorial passes through to ALD.  ALD, ARMC, and ARPT are taxed as U.S. corporations.  The taxable income from the U.S. apartment properties flows through to ARPT.

EXECUTIVE SUMMARY OF 2008 RESULTS

Consolidated operating revenues are derived primarily from rental revenue, community development land sales and home sales.

For the year ended December 31, 2008, our consolidated rental revenues increased $1,521,000, or 2%, to $62,243,000 as compared to $60,722,000 for the year ended December 31, 2007.  The increase was primarily attributable to overall rent increases at comparable properties in both the United States and Puerto Rico.  ACPT’s consolidated net operating income (“NOI”), defined as real estate rental revenue less real estate operating expenses, increased $2,486,000, or 8%, to $32,564,000 during the year ended December 31, 2008 as compared to $30,078,000 year ended December 31, 2007.  This represents ACPT’s annual rent increase of 3% and the impact of our costs saving initiatives in 2008.

-27-

Community development land sales for the year ended December 31, 2008 increased $240,000, or 1%, to $14,726,000 as compared to $14,486,000 for the year ended December 31, 2007.  Land sales, currently sourced from the U.S. Land Development segment, result in large part from a sales agreement with Lennar Corporation (“Lennar”) which purchased 119 lots during 2008 as compared to 78 during 2007.  In November, 2008, the Company amended its agreement with Lennar modifying the minimum number of lots that Lennar is required to take down annually to 100 lots and increasing the minimum purchase price for such lots between November 2008 and December 31, 2011 from 22.5% to 25% of the selling price of the home constructed and sold to the homebuyer, subject to certain minimum pricing.  In addition, on November 19, 2008, the Company sold its 50% interest in St. Charles Active Adult Community, LLC to Lennar recognizing $2,792,000 as revenue related to previously deferred items.  Commercial land sales in 2008 comprised 3.7 commercial acres in St. Charles, Maryland for $1,900,000.  The Company sold two previously developed lots within Henry Ford Circle, totaling approximately two acres for $363,000 and one parcel within the O’Donnell Lake Restaurant Park, our latest commercial development project located near the St. Charles Towne Center, for 1.7 acres for $1,625,000.

Home sales for year ended December 31, 2008 decreased $3,850,000, or 51%, to $3,730,000 as compared to $7,580,000 for the year ended December 31, 2007.  Home sales, currently sourced from the Puerto Rican Land Development segment, are impacted by the local real estate market.  The Puerto Rico real estate market has slowed substantially.  The Company closed 15 units during 2008 (only three during the last six months) as compared to 29 units closed during 2007.  As of December 31, 2008, six completed units remain within inventory.  The Company intends to offer incentives to homebuyers along with the federal incentives offered to first time homebuyers in order to sell the remaining six units, three of which are penthouse units.

ACPT recognized an impairment charge of $7,456,000 in the fourth quarter of 2008 related to the land holdings in Puerto Rico and five Baltimore properties.  In Puerto Rico, the Company determined that construction of a $350,000 product for the Hilltop project is no longer prudent and believes that construction finance could not be obtained at that level.   The Company is now anticipating construction of a product similar to Torres.  Due to increased cost of construction, decline in sales prices and the per unit land basis, the Company noted that the expected total costs of the project exceeded the expected sales proceeds.  The Company has recorded an impairment of $6,200,000 in the fourth quarter of 2008 based on an assessment of expected discounted cash flows assuming that the Company will build and sell condominium units on the parcel similar to those built at Torres.  The carrying value of the land holdings was $6,100,000 as of December 31, 2008.  During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the two remaining properties.  Based on those offers, the Company has recorded an impairment charge of $1,256,000 during the fourth quarter of 2008 to reduce the carrying value of the properties to their estimated fair market value less costs to sell as of December 31, 2008 of $35,400,000.   

The Company pools its overhead costs, including accounting, human resources, office management, technology and executive office costs, and allocates those costs to its segments based on percentages of management’s allocated time.  During 2008, the Company incurred $4,691,000 of severance and salary expenses for employees who are no longer with the Company.  Included in this amount was: $2,100,000 in severance payments to the Company’s former Chief Operating Officer and Chief Financial Officer based on stipulations in their employment agreements; $805,000 in severance payments in the fourth quarter as we initiated an organizational restructuring to reduce overhead costs and reduce future cash outflows; and $360,000 in accrued  consulting fees to former Company executives in 2008.  In addition, the Company recorded equity compensation expense in the fourth quarter of $562,000 to capture the impact of an agreement between a primary shareholder of the Company and the Company's Chief Executive Officer ("CEO") to provide the CEO with the economic benefit of 185,550 shares of their common stock as of October 1, 2008.  The Company has also focused on non-labor cost-cutting efforts over the past year in advertising, office expenses, and travel costs and has budgeted to maintain or reduce costs throughout the Company in the year to come.  General, administrative, selling and marketing costs company-wide increased $3,636,000, or 34%, to $14,483,000 as compared to $10,847,000 for the year ended December 31, 2007.

On a consolidated basis, the Company reported a net loss of $11,356,000 for the year ended December 31, 2008.  The net loss included a provision for income taxes of $853,000, resulting in a consolidated effective tax rate of approximately (8.1%).  The consolidated effective rate was impacted by the losses for which no benefit can be recognized, tax rate differences between jurisdictions, a valuation allowance on the net deferred tax asset, non-deductible equity compensation, and by accrued penalties.  For further discussion of these items, see “Results of Operations-Provisions for Income Taxes.”

NEW ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF PRESENTATION

   In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”  SFAS 157 defines fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.  SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances.  SFAS 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates.  The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS 157 requires fair value measurements to be disclosed by level within the fair value hierarchy.  The Company adopted SFAS 157 on January 1, 2008, and it did not have a material impact.  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value election is designed to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The Company did not adopt any fair value election upon adoption.

   The balance sheet carrying amounts of cash and cash equivalents, receivables and other current assets approximate fair value due to the short-term nature of these items and represent Level 1 assets under the fair value hierarchy in SFAS No. 157

   We measure long term debt at fair value on a recurring basis.  As of December 31, 2008, the book value of long-term fixed rate debt was $294,721,000, and the fair value of total debt was $343,076,000.  As of December 31, 2007 the book value of long-term fixed rate debt was $296,735,000, and the fair value of total debt was $311,988,000.  Fair value was determined by discounting future cash flows using borrowing rates currently available to the Company for debt with similar terms and maturities.  This represents Level 3 liabilities under the fair value hierarchy in SFAS No. 157.

-28-

    On December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 replaces the concept of minority interest with noncontrolling interests in subsidiaries.  Noncontrolling interests will now be reported as a component of equity in the consolidated statement of financial position.  Earnings attributable to noncontrolling interests will continue to be reported as a part of consolidated earnings; however, SFAS 160 requires that income attributable to both controlling and noncontrolling interests be presented separately on the face of the consolidated income statement.  In addition, SFAS 160 provides that when losses attributable to noncontrolling interests exceed the noncontrolling interest’s basis, losses continue to be attributed to the noncontrolling interest as opposed to being absorbed by the consolidating entity.  SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively.  SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008.  This statement is effective for us on January 1, 2009.  Early adoption is prohibited.  As of January 1, 2009, the Company will reclassify $882,000 from Minority Interest (currently shown in liabilities) to a new line item, Noncontrolling Interests, to be included in shareholders’ equity.  In addition, $13,687,000 of Minority Interest, which is currently included in Retained Earnings as it represents distributions and losses in excess of basis, will also be reclassified to the Noncontrolling Interests line item.

  On December 4, 2007, the FASB issued Statement No. 141R, “Business Combinations” (“SFAS 141R”).  This statement changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and delays when restructurings related to acquisitions can be recognized.  The standard is effective for fiscal years ending after December 15, 2008 and will only impact the accounting for acquisitions we make after its adoption. We expect SFAS 141R will have an impact on our accounting for future business combinations once adopted, but the effect is dependent upon the acquisitions that are made in the future

CRITICAL ACCOUNTING POLICIES

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

Sales, Profit Recognition and Cost Capitalization

Community development land sales are recognized at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer, and ACPT has no significant continuing involvement.  Under the provisions of SFAS 66, related to condominium sales, revenues and costs are recognized when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not be converted to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the total cost of the project can be reasonably estimated.  Accordingly we recognize revenue and costs upon settlement with the homebuyer which doesn’t occur until after we receive use and occupancy permits for the building.

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

The Company considers all debt and related interest expense available for capitalization to the extent of average qualifying assets for the period.  Interest specific to the construction of qualifying assets, represented primarily by our recourse debt, is first considered for capitalization.  To the extent qualifying assets exceed debt specifically identified, a weighted average rate including all other debt is applied.  Any excess interest is reflected as interest expense.

Investment in Unconsolidated Real Estate Entities

The Company accounts for investments in unconsolidated real estate entities that are not considered variable interest entities under FIN 46(R) in accordance with SOP 78-9 "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock". For entities that are considered variable interest entities under FIN 46(R), the Company performs an assessment to determine the primary beneficiary of the entity as required by FIN 46(R). The Company accounts for variable interest entities in which the Company is not a primary beneficiary and does not bear a majority of the risk of expected loss in accordance with the equity method of accounting.

-29-

The Company considers many factors in determining whether or not an investment should be recorded under the equity method, such as economic and ownership interests, authority to make decisions, and contractual and substantive participating rights of the partners. Income and losses are recognized in accordance with the terms of the partnership agreements and any guarantee obligations or commitments for financial support. The Company's investments in unconsolidated real estate entities accounted for under the equity method of accounting consisted of general partnership interests in two limited partnerships which own certain U.S. Apartment Properties; a limited partnership interest in a limited partnership that owns a commercial property in Puerto Rico; a 50% ownership interest in a joint venture formed as a limited liability company which was sold on November 19, 2008; and effective October 28, 2008, a 50% ownership interest in Surrey Homes. 

Impairment of Long-Lived Assets

ACPT carries its rental properties, homebuilding inventory, land and development costs at the lower of cost or fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  For real estate assets such as our rental properties which the Company plans to hold and use, which includes property to be developed in the future, property currently under development and real estate projects that are completed or substantially complete, we evaluate whether the carrying amount of each of these assets will be recovered from their undiscounted future cash flows arising from their use and eventual disposition.  If the carrying value were to be greater than the undiscounted future cash flows, we would recognize an impairment charge to the extent the carrying amount is not recoverable.  Our estimates of the undiscounted operating cash flows expected to be generated by each asset are performed on an individual project basis and based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for apartment units, competition, changes in market rental rates, and costs to operate and complete each project. 

ACPT recognized an impairment charge of $7,456,000 in the fourth quarter of 2008 related to the land holdings in Puerto Rico and five Baltimore properties. Condominium pricing in Puerto Rico has declined similar to those in the United States.  However, construction pricing has not declined in a similar manner as we are experiencing in the United States.  The Company has considered the Hilltop project in Parque Escorial to be the premier parcel in the portfolio due to the views of the island that will be enjoyed by future residents.  Accordingly, the Company had previously intended to build condominiums with expected selling prices ranging from $350,000 to $400,000.  However, sales of condominiums in excess of $350,000 are not occurring in the areas immediately surrounding Parque Escorial.  The Company believes that construction of a $350,000 product is no longer prudent and believes that construction financing could not be obtained at that level.  The Company is now anticipating construction of a product similar to Torres.  Due to increased cost of construction, decline in sales prices and the per unit land basis, the Company noted that the expected total costs of the project outweighed the expected sales proceeds.  The Company has recorded an impairment of $6,200,000 in the fourth quarter of 2008 based on an assessment of discounted cash flows assuming that the Company will build and sell condominium units on the parcel similar to those build at Torres.

During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties.  The primary factor driving the decision to sell was the strategic disposition of underperforming assets.  Without any letters of intent or definitive agreements to purchase the properties as of December 31, 2008, the properties were considered “held for use” as of December 31, 2008.  Since estimated net sales proceeds are now known, the Company has recorded an impairment charge of $1,256,000 to reduce the carrying value of the properties to their estimated fair market value less costs to sell as of December 31, 2008 of $35,400,000.

The Company evaluates, on an individual project basis, whether the carrying value of its substantially completed real estate projects, such as our homebuilding inventory that are to be sold, will be recovered based on the fair value less cost to sell.  If the carrying value were to be greater than the fair value less costs to sell, we would recognize an impairment charge to the extent the carrying amount is not recoverable.  Our estimates of the fair value less costs to sell are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, comparable sales, demand for commercial and residential lots and competition.  The Company performed similar reviews for land held for future development and sale considering such factors as the cash flows associated with future development expenditures.  Should this evaluation indicate an impairment had occurred, the Company will record an impairment charge equal to the excess of the historical cost over fair value less costs to sell.

Depreciation of Investments in Real Estate

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

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

                ● Furniture, fixtures and equipment over five to seven years using the straight-line method;

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

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

Income Taxes

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

The Company provides for income taxes using the asset and liability method based on the requirements of SFAS No. 109 (“SFAS 109”), “Accounting for Income Taxes,” which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company periodically assesses future realization of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.

-30-

Realization of deferred tax assets associated with net operating loss ("NOL") and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the applicable tax jurisdiction. Periodically, not less than annually,  the Company reviews the recoverability of tax assets recorded on the balance sheet and the necessity of providing valuation allowances, to reduce deferred tax assets to the amount that more likely than not will be realized.  Deferred tax assets are reduced if certain subsidiary cumulative operating losses exist, estimates of taxable income during the carryforward period do not exist or are significantly reduced or alternative tax strategies are not viable.

Effective December 31, 2006, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes – an interpretation of SFAS 109.  FIN 48 provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In accordance with FIN 48, the Company recognized a cumulative-effect adjustment of $1,458,000, increasing the Company’s liability for uncertain tax positions, interest, and penalties, and reducing the December 31, 2006 balance of retained earnings.  See Note 11 to the Company’s consolidated financial statements in Item 8 of this Annual Report on Form 10-K for more information on income taxes.

Contingencies

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

RESULTS OF OPERATIONS

The following discussion is based on the consolidated financial statements of the Company.  It compares the components of the results of operations of the Company by segment for the two years ended December 31, 2008 and 2007.  Historically, the Company’s financial results have been significantly affected by the cyclical nature of the real estate industry.  Accordingly, the Company’s historical financial statements may not be indicative of future results.  This discussion should be read in conjunction with the accompanying consolidated financial statements and notes included in Item 8 of this Annual Report on Form 10-K.

OPERATING REAL ESTATE

For the year ended December 31, 2008, our Operating Real Estate line of business generated $32,542,000 of net operating income compared to $30,054,000 of net operating income generated by that line of business for the same period in 2007.  Additional information and analysis of the U.S. Operating Real Estate and Puerto Rican Operating Real Estate operations can be found in the tables below.

U.S. Operating Real Estate Operations

	For the years ended
		December 31, 2008			December 31, 2007
Operating revenues		$	39,515		$	38,416
Operating expenses			18,189			19,235
Net operating income			21,326			19,181
Management and other fees, substantially all from related entities			157			194
General, administrative, selling and marketing			(1,441	)		(2,252	)
Impairment charges			(1,256	)		-
Depreciation and amortization			(6,082	)		(5,592	)
Operating income			12,704			11,531
Other expenses			(10,405	)		(9,998	)
Income before benefit for income taxes			2,299			1,533
Provision (benefit) for income taxes			1,624			(463	)
Net  income		$	675		$	1,996
Depreciation			6,082			5,592
FFO		$	6,757		$	7,588

Net Operating Income

Net Operating Income (“NOI”), defined as real estate rental revenue less real estate operating expenses, is the primary performance measure we use to assess the results of our operations.  We provide NOI as a supplement to net income calculated in accordance with GAAP. NOI does not represent net income calculated in accordance with GAAP.  As such, it should not be considered an alternative to net income as an indication of our operating performance.  NOI is calculated as net income, less non-real estate (“other”) revenue and the results of discontinued operations (including the gain on sale, if any), plus interest expense, depreciation and amortization and general and administrative expenses.

NOI increased $2,145,000, or 11%, to $21,326,000 during the year ended December 31, 2008 as compared to $19,181,000 for the year ended December 31, 2007.  As described below, the increase in NOI is due to annual rent increases and a full year of rental revenues at Sheffield Greens Apartments in addition to an overall decrease in rental property operating expenses due to management’s cost saving initiatives.

-31-

Rental Property Revenues and Operating Expenses

For the year ended December 31, 2008, rental property revenues increased $1,100,000, or 3%, to $39,515,000 compared to $38,416,000 for the same period in 2007.  The increase in rental revenues was primarily the result of a full year of rental revenues for Sheffield Greens Apartments (“Sheffield Greens”), which accounted for approximately $654,000 of the increase as the property was completed in the middle of 2007.  The increase was also attributable to an overall 2% increase in rents between periods with vacancies remaining consistent at 4% for both years.

Rental property operating expenses decreased $1,046,000, or 5%, for the year ended December 31, 2008 to $18,189,000 compared to $19,235,000 for the same period of 2007.  The overall decrease in rental property operating expenses was primarily the result of management’s cost saving initiatives with significant decreases in spending on advertising, repairs and maintenance, office expenses, snow removal, and rehabilitation of apartment properties.  A portion of the decrease was due to the completion of the leasing efforts at Sheffield Greens.  In 2007, the Company incurred $484,000 on advertising and rental concessions compared to $150,000 in 2008 in order to increase occupancy.  In addition, the Company saw a decline in real estate taxes and insurance costs.  The cost savings were partially offset by a full year of operating expenses at Sheffield Greens of approximately $280,000.  

Management and Other Fees

We earn monthly management fees from all of the apartment properties that we own as well as our management of apartment properties owned by third parties and affiliates of J. Michael Wilson.  Management fees generated by each of the properties accounted for less than 1% of the Company’s total revenue.  This section includes only the fees earned from the non-consolidated properties as the fees earned from the consolidated properties are eliminated in consolidation.  For the year ended December 31, 2008, the Company recognized $157,000 in management and other fees compared to $194,000 for the same period in 2007.

General, Administrative, Selling and Marketing Expenses

The primary component of the general, administrative, selling and marketing expenses is the corporate overhead allocation.  General, administrative, selling and marketing expenses decreased $811,000, or 36%, to $1,441,000 during the year ended December 31, 2008, as compared to $2,252,000 for the same period in 2007.  The decrease was due to a decrease in the corporate allocation percentage to 55% in 2008 from 63% in 2007.  See “Results of Operations – Corporate.”

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

Impairment Charges

In 2008, ACPT recognized an impairment charge of $1,256,000 related to the re-valuation of the five Baltimore properties.  During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the two remaining properties.  Based on those offers, the Company has recorded an impairment charge during the fourth quarter of 2008 to reduce the carrying value of the properties to their estimated fair market value less costs to sell as of December 31, 2008 of $35,400,000.  There were no impairment charges for the year ended December 31, 2007.

     Interest Expense

For 2008 and 2007, interest expense primarily consisted of interest incurred on the non-recourse debt from our investment properties.  Interest expense decreased $361,000, or 2%, to $13,078,000 for the year ended December 31, 2008, as compared to $13,439,000 for the same period in 2007.  The decrease in interest expense resulted from routine amortization of our loans.  

Minority Interest in Consolidated Entities

Minority interest in consolidated entities includes the total minority partners’ share of the consolidated partnership’s earnings and distributions to minority partners in excess of their basis in the consolidated partnership.  Losses charged to the minority interest are limited to the minority partner's basis in the partnership.  Because the minority interest holders in most of our partnerships have received distributions in excess of their basis, we anticipate volatility in minority interest expense.  Although this allows us to recognize 100 percent of the income of the partnerships up to accumulated distributions and losses in excess of the minority partner’s basis previously required to be recognized as our expense, we will be required to recognize as expense 100 percent of future distributions to minority partners and any subsequent losses.  Beginning on January 1, 2009, we no longer are required to absorb distributions and losses in excess of basis.

Minority interest expense increased $106,000, or 45%, to $461,000 for the year ended December 31, 2008 compared to $335,000 for the same period in 2007.  The increase is due to an increase in surplus cash distributions to limited partners between periods.

Funds from Operations

FFO is a non-GAAP financial measure that we believe, when considered with the financial statements prepared in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property.  FFO is defined as net income (loss), computed in accordance with GAAP, excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

-32-

FFO decreased $831,000, or 11%, to $6,757,000 for the year ended December 31, 2008 compared to $7,588,000 for the same period in 2007.  The decrease was driven by the impact of the impairment charges and the increase in the provision for taxes due to the valuation allowance against the net deferred tax asset offset by a full twelve months of operations of Sheffield Greens apartments.

Puerto Rican Operating Real Estate Operations

	For the years ended
		December 31, 2008			December 31, 2007
Operating revenues		$	22,728		$	22,306
Operating expenses			11,512			11,433
Net operating income			11,216			10,873
Management and other fees, substantially all from related entities			624			635
General, administrative, selling and marketing			(3,631	)		(3,159	)
Depreciation and amortization			(3,769	)		(3,694	)
Operating income			4,440			4,655
Other expenses			(5,837	)		(4,536	)
(Loss) income before benefit for income taxes			(1,397	)		119
Provision for income taxes			37			373
Net loss		$	(1,434	)	$	(254	)
Depreciation and unconsolidated entity adjustment			3,769			2,194
FFO		$	2,335		$	1,940

Net Operating Income

NOI increased $343,000, or 3%, to $11,216,000 during the year ended December 31, 2008 as compared to $10,873,000 for the year ended December 31, 2007.  NOI increased due to annual rent increases offset by increases in operating expenses due to the effect of inflation.

Rental Property Revenues and Operating Expenses

Rental property revenues increased $422,000, or 1%, to $22,728,000 for the year ended December 31, 2008 compared to $22,306,000 for the same period of 2007.  The increase in our rental property revenues was primarily the result of an overall rent increase of 3% from HUD on our multifamily apartment properties partially offset by a 9% decrease in rental revenues from our commercial rental property, EOB, as a result of decreased occupancy.

Rental property operating expenses increased $80,000, or 1%, to $11,512,000 for the year ended December 31, 2008 compared to $11,432,000 for the same period of 2007.  The increase was the result of the effect of inflation at our multifamily apartment properties operating expenses.  The increase was offset in part by a $32,000 decrease in operating expenses for our commercial rental property, EOB as a result of the decreased occupancy.

General, Administrative, Selling and Marketing Expenses

The primary component of general, administrative, selling and marketing expenses is the corporate overhead allocation.  General, administrative, selling and marketing expenses increased $472,000, or 15%, to $3,631,000 during the year ended December 31, 2008, as compared to $3,159,000 for the same period in 2007.  The increase was primarily due to an increase in overall corporate overhead expenses and an increase in the corporate allocation percentage to 70% in 2008 from 64% in 2007.  See “Results in Operations – Corporate.”

The apartment properties reimburse IGP for certain costs, including accounting, human resources, office management and technology, incurred at IGP’s office that are attributable to the operations of those properties.  In accordance with EITF 01-14, the costs and reimbursement of these costs are not considered general, administrative, selling, and marketing expenses but rather, are reflected as separate line items on the consolidated income statement.  Due to the fact that we moved our corporate office to our new office building, Escorial Office Building One, in 2007, rent expense and parking expenses are eliminated in consolidation.

Interest Expense

For the year ended December 31, 2008, interest expense decreased $508,000, or 7%, to $6,088,000 as compared to $6,596,000 for the same period in 2007.  The decrease in interest expense resulted from routine amortization of our loans.  

Equity in Earnings from Unconsolidated Entities

Equity in earnings from unconsolidated entities decreased $1,500,000, or 100%, to $0 for the year ended December 31, 2008 compared to $1,500,000 for the same period in 2007.  The decrease related to the payment in full of the note receivable from El Monte in 2007.  The note was received as part of the sale of the El Monte facility, at which point the Company determined that the cost recovery method of accounting was appropriate for gain recognition.  Accordingly, revenue was deferred until collection of the note receivable, which occurred in January 2007.

Funds from Operations

FFO increased $395,000, or 20%, to $2,335,000 for the year ended December 31, 2008 compared to $1,940,000 for the same period in 2007.  The increase was driven primarily by the increase in NOI.

-33-

LAND DEVELOPMENT

For the year ended December 31, 2008, our Land Development line of business generated $2,082,000 of operating income compared to $2,248,000 of operating income generated by the line of business for the same period in 2007.  This line of business includes both land and home sales for our U.S. and Puerto Rican operations. Additional information and analysis of the U.S and Puerto Rican Land Development operations can be found below.

U.S. Land Development Operations

	For the years ended
		December 31, 2008			December 31, 2007
Operating revenues
Community development - land sales		$	14,726		$	14,486
Management and other fees, substantially all from related entities			-			142
Total revenues			14,726			14,628
Operating expenses
Cost of land sales			9,572			11,169
General, administrative, selling and marketing			3,558			2,734
Depreciation and amortization			5			5
Total expenses			13,135			13,908
Operating income			1,591			720
Other expenses			(2,584	)		(2,056	)
Loss before benefit for income taxes			(993	)		(1,336	)
Benefit for income taxes			(406	)		(654	)
Net loss		$	(587	)	$	(682	)

Community Development Land Sales Revenue

Land sales revenue in any one period is affected by the mix of lot sizes and, to a greater extent, the mix between residential and commercial sales.  Community development land sales revenue increased $240,000, or 1%, to $14,726,000 for the year ended December 31, 2008 compared to $14,486,000 for the year ended December 31, 2007.  The increase is primarily the result of an increase in delivery of residential lots to Lennar, offset by a decrease in commercial land sales.  The Company sold 3.7 commercial acres in 2008 compared to 12.0 commercial acres in 2007.  While the Company received letters of intent for various commercial lots, financing by the potential buyers was not readily available due to the decline in the U.S. economy.

Residential Land Sales

For the year ended December 31, 2008, we delivered 61 single-family lots and 58 town home lots to Lennar, resulting in the recognition of revenues of $78,000 per single family lot and $68,000 per town home lot plus $2,600 per lot of water and sewer fees, road fees and other off-site fees.  The total revenue recognized at initial settlement was $8,702,000 for the year ended December 31, 2008.  For the year ended December 31, 2007, we delivered 34 single-family lots and 44 town home lots to Lennar, resulting in the recognition of revenues ranging from $121,000 to $78,000 per single family lot and $85,000 to $65,000 per town home lot plus water and sewer fees, road fees and other off-site fees.  The total revenue recognized at initial settlement was $5,964,000 for the year ended December 31, 2007.

During the years ended December 31, 2008 and 2007, we also recognized $632,000 and $2,295,000, respectively, of additional revenue for lots that were previously sold to Lennar.  This additional revenue was based on the final settlement price of the homes as provided by our agreement with Lennar.  During 2008, new town homes in Fairway Village were priced between $300,000 and $370,000 while single-family homes in Fairway Village are priced between $340,000 and $440,000.  The homes sold by Lennar to the homebuyer in 2008 resulted in a total average final lot price of $90,000 per single family lot and $73,000 per town home lot.  For 2007, the homes sold by Lennar to the homebuyer resulted in a total average final lot price of $120,000 per single family lot and $94,000 per town home lot.  

Commercial Land Sales

For the year ended December 31, 2008, we sold 3.7 commercial acres in St. Charles, Maryland for $1,900,000 compared to 12.0 commercial acres of land in St. Charles, Maryland for $5,333,000 for the year ended December 31, 2007.  Sales in 2008 included two previously developed lots within Henry Ford Circle, totaling approximately 2 acres, for $363,000 and one 1.7 acre parcel within the O’Donnell Lake Restaurant Park, our latest commercial development project located near the St. Charles Towne Center, for $1,625,000.  As of December 31, 2008, our inventory contained 78.79 commercial acres in St. Charles under contract for a total of $13,450,000.  The final sale of the land for use as a natural gas fired power plant is ultimately contingent on the purchaser’s ability to obtain financing.  While commitments have been made for the cash equity portion of the project and state permits have been received, financing is currently dependent on the purchaser entering into favorable power sales contracts.

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

In September 2004, the Company entered into a joint venture agreement with Lennar for the development of St. Charles Active Adult Community, LLC, a 352-unit, active adult community located in St. Charles, Maryland.  The Company managed the project’s development for a market rate fee pursuant to a management agreement.  In September 2004, the Company transferred land to the joint venture in exchange for a 50% ownership interest in the joint venture and $4,277,000 in cash.  The Company’s investment in the joint venture was recorded at 50% of the historical cost basis of the land with the other 50% recorded within our deferred charges and other assets.  The proceeds received were reflected as deferred revenue.  The deferred revenue and related deferred costs were recognized into income as the joint venture sold lots to Lennar.  On November 19, 2008, the Company sold to Lennar the Company’s 50% interest in the joint venture including its property management rights for $3,467,000 in cash.  Historically management fees from the joint venture have not materially impacted the Company's financial position.

The joint venture did not sell any lots to Lennar’s homebuilding division during 2008 compared to 48 lots delivered in 2007.  However, the Company did recognize $2,792,000 in previously deferred revenues and costs in the fourth quarter of 2008 as a result of the sale of its interest to Lennar.  For the year ended December 31, 2007, the Company recognized a net $1,063,000 in deferred revenue, management fees and off-site fees and $358,000 of deferred costs for the year ended December 31, 2007.

Gross Margin on Land Sales

The gross margin on land sales was 20%, excluding the proceeds from the sale of the Active Adult Community, for the year ended December 31, 2008 as compared to 23% for the year ended December 31, 2007.  Our gross margins on land sales in the U.S. can fluctuate based on changes in the mix of residential and commercial land sales.  The reduction in gross margin between 2008 and 2007 was primarily the result of a decrease in our estimate of relative sales values for our residential lots as a result of the downturn in the real estate market and the reduced pricing granted to Lennar during the fourth quarter of 2007 and 2008.  In 2008, annual residential land sales at 29% margins made up the bulk of revenues compared to residential land sales in 2007 with margins of 36%.  For the years ended December 31, 2007 and 2008, commercial land sales gross margins increased from 12% to 50%, respectively.  The commercial margins for 2007 were impacted by increases in the costs of constructing the boardwalk on the restaurant park in St. Charles, Maryland, as the actual bid proposals received in 2007 were higher than the engineer’s expected cost.

Customer Dependence

Revenues from Lennar include residential land sales as well as certain management fees.  Total revenues from Lennar within our U.S. land development segment were $9,638,000 for the year ended December 31, 2008 which represents 24% of the U.S. land development segment's revenue and 11% of our consolidated revenue.  No other customers accounted for more than 10% of our consolidated revenue for the year ended December 31, 2008.  The loss of all or a substantial portion of our land sales to Lennar would have a significant adverse effect on our financial results until such lost sales could be replaced.

General, Administrative, Selling and Marketing

The primary component of general, administrative, selling and marketing expenses is the corporate overhead allocation.  General, administrative, selling and marketing expenses increased $824,000, or 30%, to $3,558,000 during the year ended December 31, 2008 as compared to $2,734,000 for the same period of 2007.  This increase was due to an increase in the Company’s total overhead costs as well as an increase in the allocation percentage to 45% in 2008 from 37% in 2007.  See “Results of Operations – Corporate.”

Interest Expense

Interest expense decreased $38,000, or 1%, to $2,855,000 for the year ended December 31, 2008 as compared to $2,893,000 for the same period in 2007.  This decrease was due to an increase in capitalized interest to $2,520,000 for the year ended December 31, 2008 from $1,271,000 of interest capitalized during 2007 as the amount of assets available for interest capitalization increased due to new projects in Charles County, including the construction of an office building within the O’Donnell Lake Restaurant Park and additional infrastructure investments on the County Road projects.

Puerto Rican Land Development Operations

	For the years ended
		December 31, 2008			December 31, 2007
Operating revenues
Homebuilding – home sales		$	3,730		$	7,580
Operating expenses
Cost of home sales			2,898			5,549
General, administrative, selling and marketing			341			503
Impairment charges			6,200			-
Total expenses			9,439			6,052
Operating income			(5,709	)		1,528
Other income			698			1,085
(Loss) Income before benefit for income taxes			(5,011	)		2,613
Provision for income taxes			-			-
Net (loss) income		$	(5,011	)	$	2,613

Community Development Land Sales

There were no community development land sales during the years ended December 31, 2008 and 2007.

Homebuilding

For the year ended December 31, 2008, homebuilding revenues decreased $3,850,000, or 51%, to $3,730,000 as compared to $7,580,000 for the year ended December 31, 2007.  The decrease was primarily driven by a reduction in the number of units sold and a decrease in the average selling price per unit.  Within the Torres project, 15 units were sold during 2008 at an average selling price of approximately $248,000, generating aggregate revenues of $3,850,000.  For the year ended December 31, 2007, 29 units within the Torres project were sold at an average selling price of $261,000 per unit generating $7,580,000 in home sales revenue.  The gross profit margin on units sold for the year ended December 31, 2008 was 22% as compared to 27% for the same period of 2007.  The decrease in the gross profit percentage was attributable to the selling of lower priced units during 2008 as compared to 2007.

The Puerto Rico real estate market has slowed substantially from 2007 to 2008.  For the year ended December 31, 2008, the Company had entered into 17 new contracts and had two canceled contracts.  For the year ended December 31, 2007, the Company had 22 new contracts and eight canceled contracts.  Because the Puerto Rico real estate market has slowed substantially from 2007 to 2008, the Company intends to offer incentives to homebuyers in addition to the incentives offered to first time homebuyers by the federal government in order to sell the remaining six units, three of which are penthouse units.

-34-

General, Administrative, Selling and Marketing Expenses

The primary component of the general, administrative, selling and marketing expenses is the corporate overhead allocation.  General, administrative, selling and marketing expenses decreased $163,000, or 32%, to $341,000 during the year ended December 31, 2008, as compared to $504,000 for the same period in 2007.  The decrease was due to a decrease in the corporate allocation percentage to 19% in 2008 from 28% in 2007 despite an increase in total corporate overhead costs.  See “Results of Operations – Corporate.”

Impairment Charges

In 2008, ACPT recognized an impairment charge of $6,200,000 related to the revaluation of the Hilltop project in Parque Escorial. Condominium pricing in Puerto Rico has declined similar to those in the United States.  However, construction pricing has not declined in a similar manner as we are experiencing in the United States.  The Company has considered the Hilltop project in Puerto Rico to be the premier parcel in the portfolio due to the views of the island that will be enjoyed by future residents.  Accordingly, the Company had previously intended to build condominiums with expected selling prices ranging from $350,000 to $400,000.  However, sales of condominiums in excess of $350,000 are not occurring in the areas immediately surrounding Parque Escorial.  The Company believes that construction of a $350,000 product is no longer prudent and believes that construction financing could not be obtained at that level.  The Company is now anticipating construction of a product similar to Torres.  Due to increased costs of construction and a decline in sales prices, the Company noted that the expected total costs of the project exceeded the expected sales proceeds.  The Company has recorded an impairment of $6,200,000 in the fourth quarter of 2009 based on an assessment of discounted cash flows assuming that the Company will build and sell condominium units on the parcel similar to those build at Torres.  The estimated value as of December 31, 2008 was $6,100,000.  There were no impairment charges for the year ended December 31, 2007. 

Interest Expense

For the year ended December 31, 2008, interest expense decreased $63,000, or 26%, to $182,000 as compared to $245,000 for the same period in 2007.  The decrease in interest expense is attributable to the increase in capitalized interest from $180,000 in 2007 to $256,000 in 2008.

CORPORATE - - Results of Operations:

The Company pools its overhead costs, including accounting, human resources, office management and technology as well as corporate and other executive office costs, by geographical location as it is more effective for allocating to the Company’s lines of business.  All corporate costs, except those costs required to operate as a public company, are allocated quarterly based on a percentage of management’s estimated usage of time.  The allocation percentages fluctuate based on the resources and oversight required to operate that segment.

Total general, administrative, selling and marketing costs increased $3,636,000, or 34%, to $14,483,000 for the year ended December 31, 2008 as compared to $10,847,000 for the same period in 2007.  In the U.S., the increase was $3,369,000, or 4%, to $11,450,000 in 2008 from $8,081,000 in 2007; whereas, in Puerto Rico the increase was $262,000, or 9%, to $3,033,000 in 2008 from $2,771,000 in 2007.

    The 42% increase in the U.S. overhead is primarily attributable to fees associated with severance packages related to the departure of the Company’s former Chief Financial Officer and the retirement of the Company’s former President and Chief Operating Officer totaling approximately $2,100,000.  Severance packages of approximately $350,000 were also provided to the employees included in the Company’s workforce reduction in early November 2008 in the U.S.  In addition, the Company recorded an equity compensation expense in the fourth quarter of $562,000 to capture the impact of an agreement between a primary shareholder of the Company and the Company’s Chief Executive Officer (“CEO”) to provide the CEO with the economic benefit of 185,550 shares of their common stock as of October 1, 2008.  These increases were partially offset by a reduction in the accrual for stock appreciation rights due to a decrease in share price as well as a decrease in the number of shares outstanding.  In 2008, 55% of the U.S. overhead was allocated to the Operating Real Estate segment while 45% was allocated to the Land Development segment.  In 2007, these allocations were 63% to the Operating Real Estate segment and 37% to the Land Development segment.  This shift is primarily related to the method by which the Company allocates overhead.

The 9% increase in the Puerto Rican overhead is primarily attributable to an increase in salaries and benefits related to the severance packages provided to the employees involved in the Company’s workforce reduction in December 2008 of approximately $450,000.  Offsetting this increase were noted decreases in property and municipal taxes paid in 2008 compared to 2007 and a reduction in legal expenses due to a refund received in 2008 from an insurance company for legal services paid by the Company during 2007.

-35-

INCOME TAXES

Provision for (Benefit from) Income Taxes

United States

The effective tax rates for the years ended December 31, 2008 and 2007 were (29%) and 41%, respectively.  The statutory tax rate is 40%, which includes a 35% federal rate and a 5% state rate which is net of the federal deduction.  The difference between the statutory tax rate and the effective tax rate for 2008 is primarily due to certain non-deductible expenses and a valuation allowance against the net deferred tax asset, and accrued penalties.  The effective tax rate for 2007 differs from the statutory tax rate as a result of the impact of a statutory tax rate change effective for 2008 on the Company’s net deferred tax assets.  This was partially offset by penalties accrued on uncertain tax positions as well as certain nondeductible expenses creating permanent differences. 

Puerto Rico

The effective tax rates for 2008 and 2007 were 6% and 43%, respectively.  The statutory tax rate is 29%.  The difference between the statutory tax rate and the effective tax rate for 2008 is primarily due to a basis adjustment on loan which was partially offset by losses for which no benefit can be recognized, foreign tax credits, and a valuation allowance against the net deferred tax asset.  The effective tax rate for 2007 is primarily due to the double taxation on the earnings of our wholly owned corporate subsidiary, ICP.  As a result of a non-recurring gain recorded in the first quarter of 2007 related to its investment in El Monte, ICP’s current taxes payable and ACPT’s related deferred tax liability on the ICP undistributed earnings experienced a considerable increase. 

Valuation of Deferred Tax Assets

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense.  The deferred tax assets and liabilities are recognized based on the future tax consequences attributable to the temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis.  The Company measures the deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.  SFAS 109, requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not, defined by SFAS 109 as a likelihood of more than 50 percent, such assets will not be realized.  The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in the Company’s financial statements or tax returns and future profitability.  Accounting for deferred tax consequences represents management’s best estimate of future events.  Should factors change impacting the Company’s forecast of future taxable income in determining the realizability of the Company’s net deferred tax assets, the Company may be required to recognize additional valuation allowance in future periods.  Changes in the Company’s current estimates, due to unanticipated events or otherwise, could have a material impact on the Company’s financial condition and results of operations.

In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is “more likely than not” the deferred tax assets will not be realized, the Company would be required to establish a valuation allowance. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.  As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. SFAS 109 states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets.

This assessment, which is completed on a subsidiary and taxing jurisdiction basis, takes into account a number of types of evidence, including the following:

·   For certain subsidiaries, losses were experienced in 2008, 2007, and 2006.  As indicated above, in making the assessment of the realizability of deferred tax assets the Company assessed reversing temporary differences, available tax planning strategies and estimates of future taxable income.  The recent financial operating losses of certain subsidiaries was heavily weighted and, accordingly, as of December 31, 2008 there was little or no weight to subjectively determine projections of future taxable income exclusive of reversing temporary differences for certain subsidiaries in cumulative loss situation.  Tax planning strategies have not been a necessary consideration historically and, in certain cases, have not been employed in the current analysis.  The Company does not record a deferred tax valuation allowance relating to the net unrealized losses on limited partnership investments because it is more likely than not that these losses would reverse or be used in future periods through tax planning strategies that could be implemented by the subsidiary.  

·   For other certain subsidiaries which were not in a cumulative loss situations, but for which benefits were recorded for NOL and tax credit carryforwards, the Company assessed the reversing of temporary differences.  Not all of these subsidiaries could reasonably predict future taxable income in the near term nor were tax planning strategies an option.

As a result of changes in judgment on the realizability of future tax benefits, a valuation allowance was established.  The Company establishes a valuation allowance for deferred tax assets, net of reversed deferred tax liabilities,for situations where recent financial operating losses or a cumulative loss existed and Company could not determine that the benefits of the resulting tax credit carryforwards could more likely than not be realized.  At December 31, 2008 and 2007, the Company’s net deferred tax assets were $32,799,000 and $34,075,000, respectively, and the valuation allowance was $3,403,000 and $0, respectively.  A return to profitability by certain subsidiaries in future periods may result in a reversal of the valuation allowance relating to certain recorded deferred tax assets.

-36-

LIQUIDITY AND CAPITAL RESOURCES

Summary of Cash Flows

As of December 31, 2008, the Company had cash and cash equivalents of $24,035,000 and $20,599,000 in restricted cash.  Included in the Company’s cash and cash equivalents is $11,778,000 of cash located within multifamily apartment entities, and over which the Company does not have direct control.  ACPT receives surplus cash distributions as well as management fees from these entities.  As of December 31, 2008, the Company had corporate available funds of $12,257,000.  The following table sets forth the changes in the Company’s cash flows ($ in thousands):

	Years Ended December 31,
	2008			2007
Operating Activities	$	(7,319	)	$	(5,466	)
Investing Activities		(4,773	)		(7,350	)
Financing Activities		11,215			10,269
Net Decrease in Cash	$	(877	)	$	(2,547	)

Operating Activities

For the year ended December 31, 2008, operating activities used $7,319,000 of cash flows compared to $5,466,000 of cash flows used in operating activities for the year ended December 31, 2007.  The $1,853,000 increase in cash flows used in operating activities primarily resulted from the Company paying approximately $2,800,000 of severance payments related to the retirement of the Chief Operating Officer, departure of the Chief Financial Officer and a reduction in workforce.  In addition, the Company received a non-recurring $2,000,000 fee from a right of way agreement in 2007.  These increased uses of cash were offset in part by a reduction of $2,960,000 in additions to our community development assets.  From period to period, cash flow from operating activities is also impacted by changes in our net income, as discussed more fully under "Results of Operations," as well as other changes in our receivables and payables.

Investing Activities

For the year ended December 31, 2008, net cash used in investing activities was $4,773,000 compared to $7,350,000 for the same period of 2007.  Cash provided by or used in investing activities generally relates to increases in our investment portfolio through acquisition, development or construction of rental properties and land held for future use, net of returns on our investments.  The $2,577,000 decrease in the cash used in investing activities between periods was primarily the result of the impact of the sale of our interest in the St. Charles Active Adult Community joint venture, which was partially offset by the investment of $3,103,000 in the O’Donnell Lake Restaurant Park, our latest commercial development project located near the St. Charles Towne Center as compared to $598,000 needed to complete the construction in 2007 of Sheffield Greens.

Financing Activities

For the year ended December 31, 2008, net cash provided by financing activities was $11,215,000 as compared to $10,269,000 for the year ended December 31, 2007.  This increase in cash provided by financing activities was primarily the result of the net differences in the timing of and increases in mortgage amounts for properties refinanced, differences in county bond proceeds, dividends to shareholders and debt curtailment from sales between the years ended December 31, 2008 and 2007.  The fluctuations in cash proceeds and repayments of debt between 2008 and 2007 relate to mortgage refinancings completed during 2007 which were not replicated in 2008.  The Company paid dividends to shareholders for the first three quarters of 2007 compared to only paying the required dividend in the fourth quarter of 2008 resulting in a net cash increase of $1,032,000.  (Under the terms of the Declaration of Trust of ACPT, the Company must make minimum annual distributions to the shareholders equal to at least 45% of the net taxable income allocated to the shareholders.)  Partially offsetting these increases was a decrease in cash proceeds from debt financing of $12,562,000 and $5,158,000 from the Charles County bond escrows as the County Bond projects were completed in 2008.

Liquidity Requirements

     Our short-term and long-term liquidity requirements consist primarily of obligations under capital and operating leases, normal recurring operating expenses, regular debt service requirements, investments in community development and certain non-recurring expenditures.  The Company has historically met its short-term and long-term liquidity requirements from cash flow generated from residential and commercial land sales, home sales, property management fees, rental property revenue, and financings.  However, with the current economic environment, there are no assurances that future sales will occur or that the Company will have adequate access to credit.

Pursuant to agreements with the County Commissioners, the Company is committed to completing $13,710,000 of infrastructure projects, all of which are eligible to be funded by County bond proceeds, either through existing bond receivables or future issuances.  The Company expects to incur $3,443,000 of this development over the next 12 months.  Further, as the Company nears completion of several significant Charles County Roads Projects, $2,759,000 of retention and open payables as of December 31, 2008 will be required to be funded, of which $915,000 is eligible for bond funding.  These project costs and the difference between the cost of County projects and any bond proceeds available to fund related expenditures will be funded out of the Company’s available cash flows.

On April 14, 2006, the Company closed a three-year $14,000,000 revolving line of credit loan (“the Revolver”) secured by a first lien deed of trust on property located in St. Charles, Maryland.  The maximum amount of the loan at any one time is $14,000,000, bears interest at Prime Rate plus 0.75% (4.00% at December 31, 2008) and was set to mature on April 14, 2009 but has been extended to March 31, 2010.  The facility includes various sub-limits on a revolving basis for amounts to finance apartment project acquisitions and land development in St. Charles.  The terms require certain financial covenants to be calculated annually as of December 31, including a tangible net worth to senior debt ratio for ALD and a test for ACPT.  The Company had $6,572,000 outstanding on this facility as of December 31, 2008 which is scheduled to be repaid quarterly as follows:  first quarter payment of $2,200,000 on March 31, 2009; second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of $300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December 31, 2009; and the remaining balance of approximately $571,000 in the first quarter of 2010.  Although the Company has extended this line of credit, the Company continues to work with other banks to replace this facility entirely.  There is no assurance that the Company will be able to renegotiate favorable terms or find an alternative facility before the facility matures.  The Company has certain financial covenants related to this revolving line of credit.  As of December 31, the Company failed to meet the Minimum Net Worth restriction at the ACPT level as tangible net worth was $1,341,000.  The Company has received a waiver of this covenant requirement through March 31, 2010.  The failure to meet this covenant did not impact any other debt agreements.

-37-

On July 22, 2008, the Company signed a construction contract for $5,960,000 of site development related to the infrastructure of Hilltop phase I site development for the future construction of 220 condominium units in Parque Escorial.  This work is currently in process and as of December 31, 2008, Puerto Rico planning and development activities had a remaining commitment of $3,231,000, all of which is expected to be incurred over the next twelve months.  Our $10,000,000 credit facility, which matures on August 31, 2009, will be used to fund these expenditures and had an outstanding balance of $4,327,000 as of December 31, 2008.  The Company anticipates that the balance outstanding on this facility will be approximately $8,300,000 as of August 31, 2009.  While the Company will seek to refinance the line into a construction loan for the development of residential condominiums or extend the term of the facility, the current state of the credit market may prevent these plans from occurring.  IGP provided a guarantee on this credit facility; however, the lender's recourse under this guarantee is limited to the collateral, except in the case of fraud, intentional misrepresentation, or misappropriation of income associated with the collateral.  In the event of a default, the lender's sole recourse is to foreclose on the property.  An event of default on this facility will not affect any other debt facility held by the Company. The collateral to support the line of credit consists of 427 acres of land, which has a cost basis of $11,500,000 at December 31, 2008.  There is no income generated from this property as it is in the planning stages for the development of the Company’s second planned community in Puerto Rico.

 Also in Puerto Rico, the Company has a mortgage balance maturing on April 30, 2009.  As of December 31, 2008, the balance due was $6,816,000.  The Company is in the process of refinancing this mortgage.  However, should the Company be unable to negotiate or refinance with acceptable terms, the sole collateral for this mortgage is the Monserrate Associates apartment property, which has a cost basis of $3,785,000 at December 31, 2008.  This property generated approximately $2,700,000 of revenue and $400,000 of pre-tax income in 2008.

In addition to the activity noted above, we may seek additional development loans and permanent mortgages for continued development and expansion of other parts of St. Charles and Parque Escorial, potential opportunities in Florida and other potential rental property opportunities.

There has been a current reduction in the demand for residential real estate in the St. Charles and Parque Escorial markets.  Should this reduced demand result in a significant decline in the prices of real estate in the St. Charles and Parque Escorial markets or defaults on our sales contracts, it could adversely impact our cash flows.  With the third amendment of the agreement with Lennar reducing Lennar’s contractual obligation to take 100 lots per year, the market may not be sufficient to absorb this sales pace.  While the Company has negotiated agreements with other national and local homebuilders, there is no guarantee that lot sales from these agreements will be absorbed by the market.  Management has also noted a current reduction in the demand for commercial properties.  Sustained reductions in demand for our commercial property would adversely impact our cash flows.

As a result of our existing commitments and the downturn in the residential real estate market, management expects to use its resources conservatively in 2009.  Anticipated cash flow from operations, existing loans, refinanced or extended loans, asset sales, and new financing are expected to meet our financial commitments for the next 12 months.  However, there are no assurances that these funds will be generated.    

The Company will evaluate and determine on a continuing basis, depending upon market conditions and the outcome of events described under the section titled "Special Note Regarding Forward-Looking Statements," the most efficient use of the Company's capital, including acquisitions and dispositions, purchasing, refinancing, exchanging or retiring certain of the Company's outstanding debt obligations, distributions to shareholders and its existing contractual obligations.

Recourse Debt - U.S. Land Development Operations

Pursuant to an agreement reached between ACPT and the County in 2002, the Company agreed to accelerate the construction of two major roadway links to the road system.  As part of the agreement, the County agreed to issue general obligation public improvement Bonds (“the Bonds”) to finance $20,000,000 of this construction guaranteed by letters of credit provided by Lennar as part of a residential lot sales contract for 1,950 lots in Fairway Village.  The Bonds were issued in three installments with the final $6,000,000 installment issued in March 2006.  The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate for total Bonds issued to date of 5.1%, and call for semi-annual interest payments and annual principal payments and mature in fifteen years.  Under the terms of bond repayment agreements between the Company and the County, the Company is obligated to pay interest and principal on the full amount of the Bonds.  Therefore, the Company recorded the full amount of the debt and a receivable from the County representing the undisbursed Bond proceeds to be advanced to the Company as major infrastructure development within the project occurs.  As of December 31, 2008, all of the bond proceeds have been used to fund the specified development.  As part of the agreement, the Company will pay the County a monthly payment equal to one-sixth of the semi-annual interest payments and one-twelfth of the annual principal payment due on the Bonds.  The County also requires ACPT to fund an escrow account from lot sales that will be used to repay this obligation.

In August 2005, the Company signed a MOU with the County Commissioners regarding a land donation that is now the site of a minor league baseball stadium and will house a planned entertainment complex.  Under the terms of the MOU, the Company donated 42 acres of land in St. Charles to the County on December 31, 2005.  The Company also agreed to expedite off-site utilities, storm-water management and road construction improvements that will serve the entertainment complex and future portions of St. Charles so that the improvements will be completed concurrently with the entertainment complex.  The County will be responsible for infrastructure improvements on the site of the complex.  In return, the County agreed to issue additional general obligation bonds to finance the infrastructure improvements.  In March 2006, $4,000,000 of bonds were issued for this project, with an additional $3,000,000 issued in both March 2007 and March 2008.  These bonds bear interest rates ranging from 4.9% to 5.75%, for a blended rate of 5.2%, call for semi-annual interest payments and annual principal payments, and mature in 15 years.  The terms of the bond repayment agreement are similar to those noted above.  As of December 31, 2008, $2,052,000 of these bond proceeds are recorded as a receivable and available to fund the related infrastructure.  In addition, the County agreed to issue an additional 100 school allocations a year to St. Charles commencing with the issuance of bonds.

-38-

In December 2006, the Company reached an agreement with the County whereby the Company receives interest payments on any undistributed bond proceeds held in escrow by the County.  The agreement covers the period from July 1, 2005, through the last draw made by the Company.  For the years ended December 31, 2008 and 2007, the Company recognized $78,000 and $540,000 of interest income on these escrowed funds, respectively.

On April 14, 2006, the Company closed a three-year $14,000,000 revolving line of credit loan (“the Revolver”) secured by a first lien deed of trust on property located in St. Charles, Maryland.  The maximum amount of the loan at any one time is $14,000,000, bears interest at Prime plus 0.75% (4.00% at December 31, 2008) and was set to mature on April 14, 2009 but has been extended to March 31, 2010.  The Company had $6,572,000 outstanding on this facility as of December 31, 2008 which is scheduled to be repaid quarterly as follows:  first quarter payment of $2,200,000 on March 31, 2009; second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of $300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December 31, 2009; and the remaining balance of approximately $571,000 in the first quarter of 2010.  As of December 31, 2008, the Company’s tangible net worth was $1,341,000, and the Company was not in compliance with the minimum net worth test.  The Company received a waiver of this covenant for the period through March 31, 2010. 

On April 2, 2008, the Company secured a two-year, $3,600,000 construction loan for the construction of a commercial restaurant/office building within the O’Donnell Lake Restaurant Park.  The facility is secured by the land along with any improvements constructed and bears interest at the Prime Rate (3.25% at December 31, 2008).  At the end of the two-year construction period, the Company may convert the loan to a 5-year permanent loan, amortized over a 30-year period at a fixed interest rate to be determined.  As of December 31, 2008, $3,102,000 was outstanding under this facility leaving $498,000 available to fund completion of the building.  As of December 31, 2008, the building was substantially complete.

Recourse Debt - Puerto RicanLand Development Operations

Substantially all of the Company's 490 acres of community development land assets in Parque El Comandante within the Puerto Rico segment are encumbered by a $10,000,000 recourse revolving line of credit facility.  The homebuilding and land assets in Parque Escorial are not encumbered by this facility and remain unencumbered as of December 31, 2008.  The line of credit bears interest at a fluctuating rate equivalent to the LIBOR Rate plus 225 basis points (4.1% at December 31, 2008) and matures on August 31, 2009.  The facility is currently being used to fund the development of infrastructure in Parque Escorial, specifically the development of our Hilltop project, as well as Parque El Comandante.  The outstanding balance of this facility on December 31, 2008 was $4,327,000.  As of August 31, 2009, the Company anticipates that the balance outstanding on this facility will be approximately $8,300,000.  While the Company will seek to refinance the line into a construction loan for the development of residential condominiums or extend the term of the facility, the current state of the credit market may prevent these plans from occurring.  IGP provided a guarantee on this credit facility; however, the lender's recourse under this guarantee is limited to the collateral, except in the case of fraud, intentional misrepresentation, or misappropriation of income associated with the collateral.  In the event of default, the lender's sole recourse is to foreclose on the property.  

Non-Recourse Debt - U.S. Operating Real Estate Operations

As more fully described in Note 5 to our Consolidated Financial Statements included in this Annual Report on Form 10-K, the non-recourse apartment properties' debt is collateralized by apartment projects.  As of December 31, 2008, approximately 38% of this debt is secured by the Federal Housing Administration ("FHA").  Material changes during 2007 to the Non-Recourse debt consists of newly acquired debt and the refinancing of existing debt.  There were no significant changes to our non-recourse debt obligations for our U.S. Operating Real Estate Operations during the year ended December 31, 2008.

Non-Recourse Debt - Puerto Rican Operating Real Estate Operations

As more fully described in Note 5 to our Consolidated Financial Statements included in this Form 10-K, the non-recourse debt is collateralized by the respective multifamily apartment project or commercial building.  As of December 31, 2008, approximately 1% of this debt is secured by the FHA.

On May 12, 2008, IGP agreed to provide a fixed charge and debt service guarantee related to the Escorial Office Building I, Inc. (“EOB”) mortgage.  The fixed charge and debt service guarantee requires IGP to contribute capital in cash in such amounts required to cause EOB to comply with the related financial covenants.  The guarantee will remain in full force until EOB has complied with the financial covenants for four consecutive quarters.  The Company does not expect the funding of this guarantee to have a material impact on its liquidity and cash flows.  

Also in Puerto Rico, the Company has a mortgage balance maturing on April 30, 2009.  As of December 31, 2008, the balance due was $6,816,000.  The Company is in the process of refinancing this mortgage.  However, should the Company be unable to negotiate or refinance with acceptable terms, the sole collateral for this mortgage is the Monserrate Associates apartment property which has a cost basis of $3,785,000 at December 31, 2008.  This property generated approximately $2,700,000 of revenue and $400,000 of pre-tax income in 2008.

There were no other significant changes to our non-recourse debt obligations for our Puerto Rican Operating Real Estate Operations during the year ended December 31, 2008.

Purchase Obligations and Other Contractual Obligations

In addition to our contractual obligations described above, we have other purchase obligations consisting primarily of contractual commitments for normal operating expenses at our apartment properties, recurring corporate expenditures including employment, consulting and compensation agreements and audit fees, non-recurring corporate expenditures such as improvements at our investment properties, the construction of the new apartment projects in St. Charles, Maryland, costs associated with our land development contracts for the County’s road projects and the development of our land in U.S. and Puerto Rico.  Our U.S. and Puerto Rico land development and construction contracts are subject to increases in cost of materials and labor and other project overruns.  Our overall capital requirements will depend upon acquisition opportunities, the level of improvements on existing properties and the cost of future phases of residential and commercial land development.  In 2009, the Company plans to continue its development activity within the master planned communities in St. Charles and Puerto Rico and may commit to future contractual obligations at that time.

-39-

As of December 31, 2008, as required by the provisions of FIN 48, the Company has $16,657,000 recorded as FIN 48 accrued income tax liabilities and $4,216,000 as accrued interest on unpaid income tax liabilities related to uncertain tax positions.  We are unable to reasonably estimate the ultimate amount or timing of settlement of these liabilities.

In October 2008, the Company entered into an agreement with Surrey Homes to contribute $2,000,000 over the next year in exchange for a 50% ownership interest in Surrey Homes.  The Company is committed to contributing $1,500,000 during the first three quarters of 2009.

DEBT GUARANTEES AND OTHER OBLIGATIONS

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

IMPACT OF INFLATION AND CHANGING PRICES

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

INTERCOMPANY DIVIDEND RESTRICTIONS

A significant portion of our debt and regulatory agreements require us to abide by covenants which, among other things, limit the ability of our subsidiaries to pay dividends or distributions.  The regulatory agreements governing the apartment properties limit the dividend to annual or semi-annual distributions of no more than surplus cash. In addition, within the Puerto Rico segment the distributions of two multifamily rental property partnerships are limited; one is limited to a specified annual cumulative rate of 6% and another is limited to a maximum distribution amount of $146,000.  These restrictions are not expected to impair our ability to conduct our business through our subsidiaries or to pursue our development plans.  Further, these partnerships have made distributions or have accumulated losses in excess of the investment, resulting in equity deficits.  Accordingly, no equity is restricted related to these subsidiaries as of December 31, 2008.

As discussed above, during 2006 the Company closed on a $14,000,000 revolving credit facility.  This facility requires that ALD have a Senior Debt to Equity Ratio, as defined by the agreement, of not more than three to one and restricts ALD from making dividend payments to ACPT.  As of December 31, 2008, the Company had $6,572,000 outstanding on this facility and was in compliance with this financial covenant.

ACPT DIVIDEND RESTRICTIONS

In addition to the ALD Senior Debt to Equity covenant, the Revolver requires ACPT to maintain a Minimum Net Worth of $5,547,000.  As of December 31, the Company failed to meet the Minimum Net Worth restriction at the ACPT level.  The Company has received a waiver of this covenant requirement through March 31, 2010.  

INSURANCE AND RISK OF UNINSURED LOSS

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

We renewed our insurance coverage on May 1, 2008 for our Puerto Rico operations and October 1, 2008 for our U.S. operations for one-year policy terms.  Although the insurance coverage provided for in the renewal policies did not materially change from the preceding year, our overall premium costs decreased by 14% as compared to the prior policy year.

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

OFF-BALANCE SHEET ARRANGEMENTS

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

-40-

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of

American Community Properties Trust

We have audited the accompanying consolidated balance sheets of American Community Properties Trust (a Maryland real estate investment trust) (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended.  Our audits also included the financial statement schedule listed in the Index at Item 15(a). These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Community Properties Trust at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

McLean, Virginia

March 30, 2009

-41-

AMERICAN COMMUNITY PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

	Years Ended December 31,
	2008			2007
Revenues
Rental property revenues	$	62,243		$	60,722
Community development-land sales		14,726			14,486
Homebuilding-home sales		3,730			7,580
Management and other fees, substantially all from related entities		754			941
Reimbursement of expenses related to managed entities		1,461			1,647
Total revenues		82,914			85,376
Expenses
Rental property operating expenses		29,679			30,644
Cost of land sales		9,572			11,169
Cost of home sales		2,898			5,549
General, administrative, selling and marketing		14,483			10,847
Depreciation and amortization		10,009			9,438
Impairment charges		7,456			-
Expenses reimbursed from managed entities		1,461			1,647
Total expenses		75,558			69,294
Operating Income		7,356			16,082
Other income (expense)
Interest and other income		623			1,392
Equity in earnings from unconsolidated entities		657			2,192
Interest expense		(17,405	)		(18,726	)
Minority interest in consolidated entities		(1,734	)		(1,788	)
Loss before provision (benefit) for income taxes		(10,503	)		(848	)
Provision (benefit) for income taxes		853			(307	)
Net loss	$	(11,356	)	$	(541	)
Loss per share –Basic and Diluted	$	(2.18	)	$	(0.10	)
Weighted average shares outstanding:
Basic and Diluted		5,217			5,207
Cash dividends per share	$	0.10		$	0.30
The accompanying notes are an integral part of these consolidated statements.

-42-

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
	As of December 31, 2008			As of December 31, 2007
ASSETS
ASSETS:
Investments in real estate:
Operating real estate, net of accumulated depreciation
of $159,202 and $150,292, respectively	$	156,728		$	164,352
Land and development costs		96,266			84,911
Condominiums under construction		1,745			4,460
Rental projects under construction or development		4,564			853
Investments in real estate, net		259,303			254,576
Cash and cash equivalents:
Cash and cash equivalents – Direct Control		12,257			13,935
Cash and cash equivalents – Multifamily Apartment Entities		11,778			10,977
Cash and cash equivalents		24,035			24,912
Restricted cash and escrow deposits		20,599			20,223
Investments in unconsolidated real estate entities		5,121			6,528
Receivable from bond proceeds		2,052			5,404
Accounts receivable, net		1,445			2,676
Deferred tax assets		32,799			34,075
Property and equipment, net of accumulated depreciation		920			1,045
Deferred charges and other assets, net of amortization of
$3,611 and $2,764, respectively		8,919			11,285
Total Assets	$	355,193		$	360,724
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Non-recourse debt	$	276,120		$	279,981
Recourse debt		39,416			25,589
Accounts payable and accrued liabilities		23,361			24,874
Deferred income		200			3,214
Accrued current income tax liability		14,755			14,620
Total Liabilities		353,852			348,278
SHAREHOLDERS' EQUITY
Common shares, $.01 par value, 10,000,000 shares authorized,
5,229,954 shares issued and outstanding
as of December 31, 2008 and December 31, 2007		52			52
Treasury stock, 67,709 shares at cost		(376	)		(376	)
Additional paid-in capital		18,144			17,377
Retained (deficit) earnings		(16,479	)		(4,607	)
Total Shareholders' Equity		1,341			12,446
Total Liabilities and Shareholders' Equity	$	355,193		$	360,724

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

-43-

 

AMERICAN COMMUNITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
	Common Shares							Additional		Retained
			Par		Treasury			Paid-in		(Deficit)
	Number		Value		Stock			Capital		Earnings			Total
Balance December 31, 2006		5,229,954	$	52	$	(376	)	$	17,238	$	(1,060	)	$	15,854
Net loss		-		-		-			-		(541	)		(541	)
Dividends Paid		-		-		-			-		(1,548	)		(1,548	)
Cumulative effect of change in accounting for FIN 48		-		-		-			-		(1,458	)		(1,458	)
Vesting of restricted trustee shares		-		-		-			139		-			139
Balance December 31, 2007		5,229,954		52		(376	)		17,377		(4,607	)		12,446
Net loss		-		-		-			-		(11,356	)		(11,356	)
Dividends paid		-		-		-			-		(516	)		(516	)
Equity Compensation		-		-		-			767		-			767
Balance December 31, 2008		5,229,954	$	52	$	(376	)	$	18,144	$	(16,479	)	$	1,341
The accompanying notes are an integral part of these consolidated statements.

-44-

AMERICAN COMMUNITY PROPERTIES TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2008			2007
Cash Flows from Operating Activities
Net loss	$	(11,356	)	$	(541	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization		10,009			9,438
Distribution to minority interests in excess of basis		1,587			1,988
Benefit for deferred income taxes		1,276			(6,044	)
Equity in earnings-unconsolidated entities		(657	)		(2,191	)
Distribution of earnings from unconsolidated entities		737			692
Cost of land sales		9,572			11,169
Cost of home sales		2,898			5,549
Impairment charges		7,456			-
Stock based compensation expense		500			12
Amortization of deferred loan costs		863			920
Changes in notes and accounts receivable		1,231			1,644
Additions to community development assets		(27,127	)		(30,087	)
Right of way easement		-			2,000
Homebuilding-construction expenditures		(183	)		(744	)
Deferred income-joint venture		(3,014	)		(377	)
Changes in accounts payable, accrued liabilities		(1,111	)		1,106
Net cash used in operating activities		(7,319	)		(5,466	)
Cash Flows from Investing Activities
Investment in rental property construction		(3,711	)		(598	)
Change in investments - unconsolidated entities		1,327			1,562
Cash from newly consolidated properties		-			-
Change in restricted cash		(376	)		(546	)
Additions to rental operating properties, net		(3,337	)		(7,542	)
Other assets		1,324			(226	)
Net cash used in investing activities		(4,773	)		(7,350	)
Cash Flows from Financing Activities
Cash proceeds from debt financing		12,395			24,957
Payment of debt		(3,896	)		(21,129	)
County Bonds proceeds, net of undisbursed funds		4,819			9,977
Payments of distributions to minority interests		(1,587	)		(1,988	)
Dividends paid to shareholders		(516	)		(1,548	)
Net cash provided by financing activities		11,215			10,269
Net Decrease in Cash and Cash Equivalents		(877	)		(2,547	)
Cash and Cash Equivalents, Beginning of Year		24,912			27,459
Cash and Cash Equivalents, End of Year	$	24,035		$	24,912

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

-45-

AMERICAN COMMUNITY PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION

American Community Properties Trust ("ACPT") is a self-managed holding company that is primarily engaged in the business of investing in and managing multifamily rental properties as well as community development and homebuilding.  ACPT’s operations are primarily concentrated in the Washington, D.C. metropolitan area and Puerto Rico and are carried out through its U.S. subsidiaries, American Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC "), American Land Development, Inc. ("ALD") and their subsidiaries and its Puerto Rican subsidiary, IGP Group Corp. ("IGP Group").

ACPT is taxed as a U.S. partnership and its income flows through to its shareholders.  ACPT is subject to Puerto Rico income taxes on IGP Group’s taxable income, generating foreign tax credits that have been passed through to ACPT’s shareholders.  A federal tax regulation has been proposed that could eliminate ACPT’s ability to pass through these foreign tax credits to its shareholders.  Comments on the proposed regulation are currently being evaluated, and the final regulation will be effective for tax years beginning after the final regulation is ultimately published in the Federal Register.  ACPT’s income consists of (i) certain passive income from IGP Group, (ii) additional distributions from IGP Group including Puerto Rico taxes paid on behalf of ACPT and (iii) dividends from ACPT’s U.S. subsidiaries.  Other than Interstate Commercial Properties (“ICP”), which is a subsidiary of IGP Group and is taxed as a Puerto Rico corporation, the income from the remaining Puerto Rico operating entities passes through to IGP Group or ALD.  Of this income, only the portion is attributable to the profits, losses or gains on the residential land sold in our Parque Escorial property passes through to ALD.  ALD, ARMC, and ARPT are taxed as U.S. corporations. 

United States Subsidiaries

ARPT

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

ARMC

ARMC performs property management services in the United States for the U.S. Apartment Properties and for one other third-party owned apartment community.  Effective March 1, 2009, ARMC ceased managing the third-party owned apartment community.

ALD

ALD owns interests in and operates community developments, including the following:

1.   a 100% ownership interest in St. Charles Community LLC ("SCC LLC"), which holds approximately 3,790 acres of land in St. Charles, Maryland;

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

3.   through November 19, 2008, a 50% interest, through SCC LLC, in a land development joint venture, St. Charles Active Adult Community, LLC (“Active Adult Community”).  ACPT sold its interest in Active Adult Community to Lennar Corporation (“Lennar”) in the fourth quarter 2008; and

4.   effective on October 28, 2008, a 50% interest in Surrey Homes, LLC (“Surrey Homes”), which is a homebuilding company that was created to meet the needs of developing communities in central Florida with a lot option, low overhead model.

Puerto Rican Subsidiaries

IGP Group

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

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

2.   general partner interests in nine partnerships, which collectively own and operate a total of 12 multifamily rental facilities in Puerto Rico (the “Puerto Rico Apartment Properties”), and a limited partner interest in two of these partnerships;

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

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

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

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

-46-

(2) LIQUIDITY RESOURCES AND DEBT MATURITIES

The Company is in discussions with lenders to refinance or extend certain debt that is scheduled to mature in the near term. The Company’s loans contain various financial, cross collateral, cross default, technical and restrictive provisions.  The Company has two lines of credit and one non-recourse mortgage that mature in 2009.  In the United States, a $14,000,000 revolving line of credit loan that was set to mature on April 14, 2009 has been extended to March 31, 2010 with quarterly scheduled payments as follows:  first quarter payment of $2,200,000 on March 31, 2009; second quarter payment of $1,300,000 on June 30, 2009; third quarter payment of $300,000 on September 30, 2009; fourth quarter payment of $2,200,000 on December 31, 2008; and the remaining balance of approximately $571,000 in the first quarter of 2010. Although the Company has extended this line of credit, the Company continues to work with other lenders to replace this facility entirely. The Company has certain financial covenants related to this revolving line of credit.  As of December 31, 2008, the Company failed to meet the Minimum Net Worth covenant at the ACPT level as tangible net worth was $1,341,000.  The Company has received a waiver of this covenant requirement through March 31, 2010.  The failure to meet this covenant did not impact any other debt agreements.

In Puerto Rico, a $10,000,000 credit facility, with an outstanding balance of $4,327,000 as of December 31, 2008, matures on August 31, 2009.   The Company anticipates that the balance outstanding on this facility will be approximately $8,300,000 as of August 31, 2009.   While the Company will seek to refinance the line into a construction loan for the development of residential condominiums or extend the term of the facility, the current state of the credit market may prevent these plans from occurring.  IGP, another subsidiary of the Company, provided a guarantee on this credit facility; however, the lender’s recourse under this guarantee is limited to the collateral, except in the case of fraud, intentional misrepresentation, or misappropriation of income associated with the collateral. In the event of a default, the lender’s sole recourse is to foreclose on the property.  An event of default on this facility will not affect any other debt facility held by the Company. The collateral to support the line of credit consists of 427 acres of land, which has a cost basis of $11,500,000 at December 31, 2008.  There is no income generated from this property as it is in the planning stages for the development of the Company’s second planned community in Puerto Rico.

     Also in Puerto Rico, the Company has a mortgage balance maturing on April 30, 2009.  As of December 31, 2008, the balance due was $6,816,000.  The Company is in the process of refinancing this mortgage.  However, should the Company be unable to negotiate or refinance with acceptable terms, the sole collateral for this mortgage is the Monserrate Associates apartment property, which has a cost basis of $3,785,000 at December 31, 2008.  This property generated approximately $2,700,000 of revenue and $400,000 of pre-tax income in 2008.

As a result of the Company’s existing commitments and the downturn in the residential real estate market, the Company expects to use its resources conservatively in 2009.  Anticipated cash flow from operations, existing loans, refinanced or extended loans, asset sales, and new financing are expected to meet financial commitments for the next twelve months.  However, there are no assurances that these funds will be generated.  Even without refinancing or extending existing loans, the Company has sufficient liquidity to satisfy its obligations as they come due, with the exception of the Puerto Rico debt discussed above.

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

Basis of Presentation

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

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

     The consolidated group includes ACPT and its four major subsidiaries, ARPT, ARMC, ALD, and IGP Group.  In addition, the consolidated group includes the following other entities:

Alturas del Senorial Associates Limited Partnership	Land Development Associates S.E.
American Housing Management Company	LDA Group, LLC
American Housing Properties L.P.	Milford Station I, LLC
Bannister Associates Limited Partnership	Milford Station II, LLC
Bayamon Garden Associates Limited Partnership	Monserrate Associates Limited Partnership
Carolina Associates Limited Partnership S.E.	New Forest Apartments, LLC
Coachman's Apartments, LLC	Nottingham South, LLC
Colinas de San Juan Associates Limited Partnership	Owings Chase, LLC
Crossland Associates Limited Partnership	Palmer Apartments Associates Limited Partnership
Escorial Office Building I, Inc.	Prescott Square, LLC
Essex Apartments Associates Limited Partnership	St. Charles Community, LLC
Fox Chase Apartments, LLC	San Anton Associates S.E.
Gleneagles Apartments, LLC	Sheffield Greens Apartments, LLC
Headen House Associates Limited Partnership	Torres del Escorial, Inc.
Huntington Associates Limited Partnership	Turabo Limited Dividend Partnership
Interstate Commercial Properties, Inc.	Valle del Sol Associates Limited Partnership
Interstate General Properties Limited Partnership, S.E.	Village Lake Apartments, LLC
Jardines de Caparra Associates Limited Partnership	Wakefield Terrace Associates Limited Partnership
Lancaster Apartments Limited Partnership	Wakefield Third Age Associates Limited Partnership

-47-

    The Company's investments in entities that it does not control are recorded using the equity method of accounting.  Refer to Note 4 for further discussion regarding Investments in Unconsolidated Real Estate Entities.

Summary of Significant Accounting Policies

Sales, Profit Recognition and Cost Capitalization

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 66, “Accounting for Sales of Real Estate,” community development land sales are recognized at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer, and ACPT has no significant continuing involvement.  Under the provisions of SFAS No. 66, related to condominium sales, revenues and costs are to be recognized when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not be converted to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the total cost of the project can be reasonably estimated.  Accordingly we recognize revenues and costs upon settlement with the homebuyer which doesn’t occur until after we receive use and occupancy permits for the building.

      The costs of developing the land are allocated to our land assets and charged to cost of sales as the related inventories are sold using the relative sales value method which rely on estimated costs and sales values.   In accordance with SFAS No. 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects", the costs of acquiring and developing land are allocated to these assets and charged to cost of sales as the related inventories are sold.  Within our homebuilding operations, the costs of acquiring the land and construction of the condominiums are allocated to these assets and charged to cost of sales as the condominiums are sold.  The cost of sales is determined by the percentage of completion method.  The Company considers interest expense on all debt available for capitalization to the extent of average qualifying assets for the period.  Interest specific to the construction of qualifying assets, represented primarily by our recourse debt, is first considered for capitalization.  To the extent qualifying assets exceed debt specifically identified, a weighted average rate including all other debt is applied.  Any excess interest is reflected as interest expense.

Revenue Recognition for Rental Properties

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

Allowance for Doubtful Accounts

We record a provision for losses on accounts receivable equal to the estimated uncollectible amounts.  This estimate is based on our historical experience and a review of the current status of the Company's receivables.  The allowance for uncollectible receivables was $1,502,000 and $1,424,000 at December 31, 2008 and 2007, respectively.

Management Fees

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

Impairment of Long-Lived Assets

ACPT carries its rental properties, homebuilding inventory, land and development costs at the lower of cost or fair value in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  For real estate assets such as our rental properties which the Company plans to hold and use, which includes property to be developed in the future, property currently under development and real estate projects that are completed or substantially complete, we evaluate whether the carrying amount of each of these assets will be recovered from their undiscounted future cash flows arising from their use and eventual disposition.  If the carrying value were to be greater than the undiscounted future cash flows, we would recognize an impairment charge to the extent the carrying amount is not recoverable.  Our estimates of the undiscounted operating cash flows expected to be generated by each asset are performed on an individual project basis and based on a number of assumptions that are subject to economic and market uncertainties, including, among others, demand for apartment units, competition, changes in market rental rates, and costs to operate and complete each project.

In 2008, ACPT recognized an impairment charge of $7,456,000 related to the revaluation of the five Baltimore properties and the Hilltop project in Puerto Rico. During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties.  The primary factor driving the decision to sell was the strategic disposition of underperforming assets.  Based on those offers, the Company has recorded an impairment charge of $1,256,000 during the fourth quarter of 2008 to reduce the carrying value of the properties to their estimated fair market value less costs to sell as of December 31, 2008 of $35,400,000.  The assets, liabilities, and results of operations for these properties and the corresponding impairment charge are included in U.S. Real Estate Operating segment.  These properties represent $35,292,000 of the Company’s Operating Real Estate balance and $30,129,000 of the Company’s non-recourse debt balance as of December 31, 2008.

Condominium pricing in Puerto Rico has declined similar to those in the United States.  However, construction pricing has not declined in a similar manner as we are experiencing in the United States.  The Company has considered the Hilltop project in Puerto Rico to be the premier parcel in the portfolio due to the views of the island that will be enjoyed by future residents.  Accordingly, the Company had previously intended to build condominiums with expected selling prices ranging from $350,000 to $400,000.  However, sales of condominiums in excess of $350,000 are not occurring in the areas immediately surrounding Parque Escorial.  The Company believes that construction of a $350,000 product is no longer prudent and believes that construction financing could not be obtained at that level.   The Company is now anticipating construction of a product similar to Torres.  Due to increased costs of construction and a decline in sales prices, the Company noted that the expected total costs of the project exceeded the expected sales proceeds.  The Company has recorded an impairment charge of $6,200,000 in the fourth quarter of 2008 based on an assessment of discounted cash flows assuming that the Company will build and sell condominium units on the parcel similar to those built at Torres.  The estimated value as of December 31, 2008 was $6,100,000.  There were no impairment charges for the year ended December 31, 2007.

-48-

    The Company evaluates, on an individual project basis, whether the carrying value of its substantially completed real estate projects, such as our homebuilding inventory that are to be sold, will be recovered based on the fair value less cost to sell.  If the carrying value were to be greater than the fair value less costs to sell, we would recognize an impairment charge to the extent the carrying amount is not recoverable.  Our estimates of the fair value less costs to sell are based on a number of assumptions that are subject to economic and market uncertainties, including, among others, comparable sales, demand for commercial and residential lots and competition.  The Company performed similar reviews for land held for future development and sale considering such factors as the cash flows associated with future development expenditures.  Should this evaluation indicate that an impairment has occurred, the Company will record an impairment charge equal to the excess of the historical cost over fair value less costs to sell.  There have been no impairment charges for the years ended December 31, 2008 and 2007 related to its completed real estate projects.

Cost Reimbursements

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

Depreciable Assets and Depreciation

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

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

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

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

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

Operating Real Estate

The table below presents the major classes of depreciable assets as of December 31, 2008 and 2007 (in thousands):

	December 31,
	2008		2007
Building	$	266,071	$	265,115
Building improvements		10,599		10,414
Equipment		13,749		13,603
		290,419		289,132
Less: Accumulated depreciation		159,202		150,292
		131,217		138,840
Land		25,511		25,512
Operating properties, net	$	156,728	$	164,352

Other Property and Equipment

In addition, the Company owned other property and equipment of $920,000 and $1,045,000, net of accumulated depreciation of $2,553,000 and $2,294,000, respectively, as of December 31, 2008 and December 31, 2007, respectively.

Depreciation

Total depreciation expense was $10,009,000 and $9,438,000 for the years ended December 31, 2008 and 2007, respectively.

Investment in Unconsolidated Apartment Partnerships

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

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

-49-

Minority Interest in Consolidated Entities

We reflect unaffiliated partners' interests in consolidated real estate partnerships as an accrued liability on our consolidated balance sheet.  This accrued liability in consolidated real estate partnerships represents the minority partners' share of the underlying net assets of our consolidated real estate partnerships.  When these consolidated real estate partnerships make cash distributions or allocate losses to minority limited partners in excess of the minority limited partners' basis in the property, we generally absorb the excess losses and record a charge equal to the amount of such excess distribution.  We report these charges and the minority partners’ share of income during the current period in the consolidated statements of income as minority interest in consolidated entities.  Although this allows us to recognize 100 percent of the income of the partnerships up to accumulated distributions and losses in excess of minority partners’ basis previously required to be recognized as our expense, we will be required to recognize as expense 100 percent of future distributions to minority partners, net of our recapture of minority partner’s share of income, and any subsequent losses.  For the years ended December 31, 2008 and 2007, we recorded in the consolidated financial statements charges for excess partnership losses and distributions to minority partners of approximately $187,000 and $352,000, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, unrestricted deposits with financial institutions and short-term investments with original maturities of three months or less. Restricted cash and escrow deposits include funds held in restricted escrow accounts used for maintenance and capital improvements with the approval of HUD and/or the State Finance Agency.  The account also includes tenant security deposits as well as deposits collected within our homebuilding operations as well as funds in an escrow account that are restricted for the repayment of the County bonds.

As of December 31, 2008, the Company had cash and cash equivalents of $24,035,000 and $20,599,000 in restricted cash.  Included in the Company’s cash and cash equivalents is $11,778,000 of cash located within multifamily apartment entities, and to which the Company does not have direct control.  Cash flow from our consolidated apartment properties whose mortgage loans are insured by the Federal Housing Authority ("FHA"), or financed through the housing agencies in Maryland, Virginia or Puerto Rico (the "Financing Agencies,") are subject to guidelines and limits established by the apartment partnerships' regulatory agreements with HUD and the State Financing Agencies.  For two of our Puerto Rico partnerships, the regulatory agreements also require that if cash from operations exceeds the allowable cash distributions, the surplus must be deposited into restricted escrow accounts held by the mortgagee and controlled by HUD or the applicable Financing Agency.

Income Taxes

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

     The Company provides for income taxes using the asset and liability method based on the requirements of SFAS No. 109 (“FSAS 109”), “Accounting for Income Taxes,” which includes an estimate of the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The Company periodically assesses future realization of deferred tax assets and the adequacy of deferred tax liabilities, including the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.

Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the applicable tax jurisdiction.  Periodically, not less than annually, the Company reviews the recoverability of tax assets recorded on the balance sheet and the necessity of providing valuation allowances, to reduce deferred tax assets to the amount that more likely than not will be realized.  Deferred tax assets are reduced if certain subsidiaries’ cumulative operating losses exist, estimates of taxable income during the carryforward period do not exist or are significantly reduced or alternative tax strategies are not viable.

Effective December 31, 2006, the Company adopted FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an interpretation of SFAS 109.  FIN 48 provides guidance for the recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  In accordance with FIN 48, the Company recognized a cumulative-effect adjustment of $1,458,000, increasing the Company’s liability for uncertain tax positions, interest, and penalties, and reducing the December 31, 2006 balance of retained earnings. See Note 11 to the Company’s consolidated financial statements for more information on income taxes.

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

-50-

Earnings Per Share and Dividends

The Company follows the provisions of SFAS No. 128, “Earnings per Share.” The calculation of basic earnings per share is based on the average number of common shares outstanding during the period. The calculation of diluted earnings per share includes the effect of all potentially dilutive securities (primarily unvested restricted share grants as described in Note 8).  For 2008 and 2007, 8,000 and 7,000shares, respectively, were excluded from diluted shares due to their antidilution effect on earnings per share.  The following table presents the number of shares used in the calculation of basic earnings per share and diluted earnings per share (in thousands, except per share data):

	Years Ended December 31,
	2008			2007
Net loss	$	(11,356	)	$	(541	)
Weighted average shares outstanding:
Basic and Diluted		5,217			5,207
Loss per share:
Basic and Diluted	$	(2.18	)	$	(0.10	)

The Company accrues for dividends when declared.  During the year ended December 31, 2008, the Company declared and paid cash dividends of $0.10 per share on 5,229,954 common shares outstanding.  During the year ended December 31, 2007, the Company declared and paid cash dividends of $0.30 per share on 5,229,954 common shares outstanding.

Share Based Payments

In accordance with Statement of Financial Accounting Standard (SFAS) No. 123(R) “Share Based Payment,” liability instruments are measured at fair value, and we measure the total compensation cost for equity based payments at the grant date fair value and amortize the expense over the related service period.

Comprehensive Income

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

Reclassification

Certain amounts from prior years have been reclassified to conform to our current year’s presentation.  Specifically, the Company reclassified prior year segment presentation to conform to a change in the current year segment presentation.  See Note 13 below for further discussion.

Use of Estimates

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

Impact of Recently Adopted Accounting Standards

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and in February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”  SFAS 157 defines fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.  SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances.  SFAS 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates.  The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS 157 requires fair value measurements to be disclosed by level within the fair value hierarchy.  The Company adopted SFAS 157 on January 1, 2008, and it did not have a material impact.  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  The fair value election is designed to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The Company did not adopt any fair value election upon adoption of SFAS 159.  See Note 12 to the consolidated financial statements for further discussion.

Impact of Recently Issued Accounting Standards

On December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”).  SFAS 160 replaces the concept of minority interest with noncontrolling interests in subsidiaries.  Noncontrolling interests will now be reported as a component of equity in the consolidated statement of financial position.  Earnings attributable to noncontrolling interests will continue to be reported as a part of consolidated earnings; however, SFAS 160 requires that income attributable to both controlling and noncontrolling interests be presented separately on the face of the consolidated income statement.  In addition, SFAS 160 provides that when losses attributable to noncontrolling interests exceed the noncontrolling interest’s basis, losses continue to be attributed to the noncontrolling interest as opposed to being absorbed by the consolidating entity.  SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests.  All other requirements of SFAS 160 shall be applied prospectively.  SFAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008.  This statement is effective for us on January 1, 2009.  Early adoption is prohibited.  As of January 1, 2009, the Company will reclassify $882,000 from Minority Interest (currently shown in liabilities) to a new line item, Noncontrolling Interests, to be included in shareholders’ equity.  In addition, $13,687,000 of Minority Interest, which is currently included in Retained Earnings as it represents distributions and losses in excess of basis, will also be reclassified to the Noncontrolling Interests line item.  

On December 4, 2007, the FASB issued Statement No. 141R, “Business Combinations” (“SFAS 141R”).  This statement changes the accounting for acquisitions specifically eliminating the step acquisition model, changing the recognition of contingent consideration from being recognized when it is probable to being recognized at the time of acquisition, disallowing the capitalization of transaction costs and delays when restructurings related to acquisitions can be recognized.  The standard is effective for fiscal years ending after December 15, 2008 and will only impact the accounting for acquisitions we make after its adoption.  We expect SFAS 141R will have an impact on our accounting for future business combinations once adopted, but the effect is dependent upon the acquisitions that are made in the future.

(4) INVESTMENT IN UNCONSOLIDATED REAL ESTATE ENTITIES

The Company accounts for investments in unconsolidated real estate entities that are not considered variable interest entities under FIN 46(R) in accordance with SOP 78-9 "Accounting for Investments in Real Estate Ventures" and APB Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock".  For entities that are considered variable interest entities under FIN 46(R), the Company performs an assessment to determine the primary beneficiary of the entity as required by FIN 46(R).  The Company accounts for variable interest entities in which the Company is not a primary beneficiary and does not bear a majority of the risk of expected loss in accordance with the equity method of accounting.

Apartment Partnerships

The unconsolidated apartment partnerships as of December 31, 2008 and December 31, 2007 included Brookside Gardens Limited Partnership (“Brookside”) and Lakeside Apartments Limited Partnership (“Lakeside”) that collectively represent 110 rental units.  We have determined that these two entities are variable interest entities under FIN 46(R).  However, the Company is not required to consolidate the partnerships due to the fact that the Company is not the primary beneficiary and does not bear the majority of the risk of expected losses.  The Company holds an economic interest in Brookside and Lakeside but, as a general partner, we have significant influence over operations of these entities that is disproportionate to our economic ownership.  In accordance with SOP 78-9 and APB No. 18, these investments are accounted for under the equity method.  The Company is exposed to losses consisting of our net investment, loans and unpaid fees for Brookside of $231,000 and for Lakeside of $165,000 and $172,000 as of December 31, 2008, and December 31, 2007, respectively.  All amounts are fully reserved.  Pursuant to the partnership agreement for Brookside, the Company, as general partner, is responsible for providing operating deficit loans to the partnership in the event that it is not able to generate sufficient cash flows from its operating activities.

Commercial Partnerships

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

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

Land Development/Homebuilding Joint Ventures

In September 2004, the Company entered into a joint venture agreement with Lennar Corporation for the development of a 352-unit, active adult community located in St. Charles, Maryland.  The Company managed the project's development for a market rate fee pursuant to a management agreement.  In September 2004, the Company transferred land to the joint venture in exchange for a 50% ownership interest and $4,277,000 in cash.  The Company's investment in the joint venture was recorded at 50% of the historical cost basis of the land with the other 50% recorded within our deferred charges and other assets.  The proceeds received were reflected as deferred revenue.  The deferred revenue and related deferred costs were recognized into income as the joint venture sold lots to Lennar.  For the year ended December 31, 2007, the joint venture delivered 48 lots to Lennar, recognizing $1,063,000 in deferred revenue, off-site fees and management fees and $358,000 of deferred costs.  On November 19, 2008, the Company sold to Lennar  the Company’s 50% interest in St. Charles Active Adult Community, LLC (the “Active Adult Community").  The Company transferred all of its rights, title and interest in the Active Adult Community, including the Company’s interest as the manager of the Active Adult Community to Lennar for $3,467,000 in cash.  The Company recognized $2,792,000 in community development land sales revenues related to previously unrecognized portions of the initial land sale to the joint venture.

In October 2008, the Company entered into an agreement with Surrey Homes, LLC to contribute $2,000,000 over the next year in exchange for a 50% ownership interest of the Series A Units.  During the fourth quarter of 2008, ACPT contributed $500,000 with the remainder to be contributed during the first three quarters of 2009.  Surrey Homes’ business model is focused on providing affordable quality homes with the lowest ongoing cost of maintenance through energy efficiency and other green initiatives.  Surrey Homes is establishing itself as a low overhead, lot option home builder.  

We have determined that our investment in Surrey Homes is a variable interest entity under FIN 46(R); however, we are not required to consolidate the partnership as the Company is not the primary beneficiary and does not bear the majority of the risk of expected losses.  In accordance with SOP 78-9 and APB No. 18, this investment is accounted for under the equity method.  The Company is exposed to losses consisting of our initial investment of $500,000 as of December 31, 2008.

-51-

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

                                                                                                                                                          0;                                                                               

						Land
	Apartment			Commercial		Development/
	Properties			Property		Homebuilding		Total
	(in thousands)
Summary Financial Position:
Total Assets
December 31, 2008	$	4,781		$	27,005	$	2,478	$	34,264
December 31, 2007		4,980			27,379		12,397		44,756
Total Non-Recourse Debt
December 31, 2008		3,123			22,380		-		25,503
December 31, 2007		3,189			22,960		4,722		30,871
Total Other Liabilities
December 31, 2008		960			153		-		1,113
December 31, 2007		976			147		741		1,864
Total Equity
December 31, 2008 (2)		698			4,472		2,478		7,648
December 31, 2007 (2)		815			4,272		6,934		12,021
Company's Investment, net (1)
December 31, 2008		-			4,632		489		5,121
December 31, 2007		(1	)		4,701		1,828		6,528

Summary of Operations:
Total Revenue
Year Ended December 31, 2008	827		3,567	1,626		6,020
Year Ended December 31, 2007	811		3,636	4,983		9,430
Net Income (Loss)
Year Ended December 31, 2008	(118	)	1,826	(22	)	1,686
Year Ended December 31, 2007	(141	)	1,869	-		1,728
Company's recognition of equity in
Earnings (Loss)
Year Ended December 31, 2008	(1	)	669	(11	)	657
Year Ended December 31, 2007	(1	)	692	-		691
Summary of Cash Flows:
Cash flows from operating activities
Year Ended December 31, 2008	90		1,814	1,576		3,480
Year Ended December 31, 2007	101		1,864	3,977		5,942
Company's share of cash flows from
operating activities
Year Ended December 31, 2008	1		821	788		1,610
Year Ended December 31, 2007	1		844	1,989		2,834
Operating cash distributions
Year Ended December 31, 2008	-		1,625	-		1,625
Year Ended December 31, 2007	-		1,641	-		1,641
Company's share of operating
cash distributions
Year Ended December 31, 2008	-		737	-		737
Year Ended December 31, 2007	-		754	-		754

Notes:

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

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

-52-

(5) DEBT

The Company's outstanding debt is collateralized primarily by land, land improvements, homebuilding assets, receivables, investment properties, investments in partnerships, and rental properties.  The following table summarizes the indebtedness of the Company at December 31, 2008 and 2007 (in thousands):

	Maturity	Interest	Outstanding as of
	Dates	Rates	December 31,		December 31,
	From/To	From/To	2008		2007
Recourse Debt
Community Development (a)(b)(c)(d)	04-15-09/03-01-23	3.25%/8%	$	39,232	$	25,490
General obligations (e)	06-01-09/03-13-12	Non-interest
		bearing/8.55%		184		99
Total Recourse Debt				39,416		25,589
Non-Recourse Debt
Investment Properties (f)(g)	04-30-09/08-01-47	4.95%/10%		276,120		279,981
Total Non-Recourse Debt				276,120		279,981
Total debt			$	315,536	$	305,570

a)   As of December 31, 2008, $25,232,000 of the community development recourse debt is owed to Charles County Commissioners and relates to the general obligation bonds issued by the Charles County government, with 15 year amortization of maturities, with the earliest in June 2019, as described in detail under the heading "Financial Commitments" in Note 6.  As of December 31, 2008, the Company has a receivable balance related to the bonds of $2,052,000.

b)   On April 14, 2006, the Company closed a three year $14,000,000 revolving acquisition and development loan (“the Revolver”) secured by a first lien deed of trust on property located in St. Charles, MD.  The maximum amount of the loan at any one time is $14,000,000, bears interest at Prime plus 0.75% (4.00% at December 31, 2008) and was set to mature on April 14, 2009 but has been extended to March 31, 2010.  The facility includes various sub-limits on a revolving basis for amounts to finance apartment project acquisitions and land development in St. Charles.  The terms require certain financial covenants to be calculated annually as of December 31, including a tangible net worth to senior debt ratio for ALD and a minimum net worth test for ACPT.  As of December 31, 2008, $6,571,000 was outstanding on the Revolver. During the first quarter of 2009, the Company renegotiated the terms of the agreement.  See Note 2 for further discussion.

c)   LDA has a $10,000,000 revolving line of credit facility that bears interest at a fluctuating rate equivalent to the LIBOR Rate plus 225 basis points (4.1% as of December 31, 2008) and matures on August 31, 2009.  The facility is to be used to fund the development of infrastructure of Parque Escorial and Parque El Comandante.  The outstanding balance of this facility on December 31, 2008, was $4,327,000.  See Note 2 for further discussion.

d)   On April 2, 2008, the Company secured a two-year, $3,600,000 construction loan for the construction of a commercial restaurant/office building within the O’Donnell Lake Restaurant Park.  The facility is secured by the land along with any improvements constructed and bears interest at Wall Street Journal published Prime Rate (3.25% at December 31, 2008).  At the end of the two-year construction period, the Company may convert the loan to a 5-year permanent loan, amortized over a 30 year period at a fixed interest rate to be determined.  As of December 31, 2008, $3,102,000 was outstanding under this facility leaving $498,000 available to fund completion of the building.  As of December 31, 2008, the building was substantially complete.

e)   The general recourse debt outstanding as of December 31, 2008, is made up of various capital leases outstanding within our U.S. and Puerto Rico operations, as well as installment loans for vehicles and other miscellaneous equipment.

f)   The non-recourse debt related to the investment properties is collateralized by the multifamily rental properties and the office building in Parque Escorial.  As of December 31, 2008, approximately $73,642,000 of this debt is secured by the Federal Housing Administration ("FHA") or the Maryland Housing Fund.  $10,732,000 of the non-recourse debt balance is due in 2009.

g)   On May 12, 2008, IGP agreed to provide a fixed charge and debt service guarantee related to the Escorial Office Building I, Inc (“EOB”) mortgage.  The fixed charge and debt service guarantee requires IGP to contribute capital in cash in such amounts required to cause EOB to comply with the related financial covenants.  The guarantee will remain in full force until EOB has complied with the financial covenants for four consecutive quarters.

The Company’s loans contain various financial, cross collateral, cross default, technical and restrictive provisions.  As of December 31, 2008, the Company is in compliance with all but one of its financial covenants and the other provisions of its loan agreements.  As of December 31, 2008, the Company failed to meet the Minimum Net Worth restriction at the ACPT level as tangible net worth was $1,341,000.  The Company has received a waiver of this covenant requirement through March 31, 2010.

ACPT's weighted average interest rate on the amounts outstanding at December 31, 2008 and 2007 on its variable rate debt was 3.6% and 7.23%, respectively.

-53-

The aggregate minimum principal maturities of ACPT's indebtedness at December 31, 2008 are as follows (in thousands):

2009	$	23,307
2010		9,039
2011		6,290
2012		6,653
2013		17,836
Thereafter		252,411
	$	315,536

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

	December 31,
	2008		2007
Expensed	$	17,405	$	18,726
Capitalized		2,776		1,451
	$	20,181	$	20,177

(6) COMMITMENTS AND CONTINGENT LIABILITIES

Financial Commitments

Pursuant to an agreement reached between ACPT and the Charles County Commissioners in 2002, the Company agreed to accelerate the construction of two major roadway links to the Charles County (the "County") road system.  As part of the agreement, the County agreed to issue general obligation public improvement bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by letters of credit provided by Lennar as part of a residential lot sales contract for 1,950 lots in Fairway Village.  The Bonds were issued in three installments with the final $6,000,000 installment issued in March 2006.  The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate for total Bonds issued to date of 5.1%, and call for semi-annual interest payments and annual principal payments and mature in 15 years.  Under the terms of Bond repayment agreements between the Company and the County, the Company is obligated to pay interest and principal to the County based on the full amount of the Bonds; as such, the Company recorded the full amount of the debt and a receivable from the County representing the remaining Bond proceeds to be advanced to the Company as major infrastructure development within the project occurs.  As part of the agreement, the Company will pay the County a monthly payment equal to one-sixth of the semi-annual interest payments and one-twelfth of the annual principal payment.  The County and the Lennar agreement require ACPT to fund an escrow account from lot sales to be used to repay the principal portion of these Bonds.

In August 2005, the Company signed a memorandum of understanding ("MOU") with the Charles County Commissioners regarding a land donation that is anticipated to house a planned minor league baseball stadium and entertainment complex.  Under the terms of the MOU, the Company donated 42 acres of land in St. Charles to the County on December 31, 2005.  The Company also agreed to expedite off-site utilities, storm-water management and road construction improvements that will serve the entertainment complex and future portions of St. Charles so that the improvements will be completed concurrently with the entertainment complex.  In return, the County agreed to issue $7,000,000 of general obligation bonds to finance the infrastructure improvements.  In March 2006, $4,000,000 of bonds were issued for this project, with an additional $3,000,000 issued in both March 2007 and March 2008.  These bonds bear interest rates ranging from 4.9% to 5.75%, for a blended rate of 5.2%, call for semi-annual interest payments and annual principal payments, and mature in 15 years.  The terms of the bond repayment agreement are similar to those noted above.  In addition, the County agreed to issue an additional 100 school allocations a year to St. Charles commencing with the issuance of bonds.

During 2006, the Company reached an agreement with Charles County whereby the Company receives interest payments on any undistributed bond proceeds held in escrow by the County.  The agreement covers the period from July 1, 2005 through the last draw made by the Company.  For the years ended December 31, 2008 and 2007 the Company recognized $78,000 and $540,000 of interest income on these escrowed funds, respectively.

As of December 31, 2008, ACPT is guarantor of $24,654,000 of surety bonds for the completion of land development projects with Charles County; substantially all are for the benefit of the Charles County Commissioners.

Consulting Agreements and Severance Arrangements

ACPT entered into a consulting agreement with Carlos Rodriguez, the former Executive Vice President and Chief Executive Officer for IGP, a wholly owned Puerto Rico subsidiary of ACPT, effective July 1, 2008.  Under the terms of the Consulting Agreement, the Company will pay Mr. Rodriguez $100,000 per year through June 2010.

On June 24, 2008, ACPT and Cynthia L. Hedrick mutually reached an agreement that Ms. Hedrick’s employment as Executive Vice President and Chief Financial Officer of the Company would end.  In accordance with her employment agreement, Ms. Hedrick received a lump sum payment of $600,000.

On October 1, 2008, Mr. Edwin L. Kelly notified the Company that he would retire as the Company’s President and Chief Operating Officer effective December 1, 2008.  Pursuant to his employment agreement, Mr. Kelly received a severance payment of $1,500,000.  The Company has also agreed to enter into a consulting agreement with Mr. Kelly providing compensation for his services at a rate of $10,000 per month, for an initial term of one year.

-54-

Guarantees

ACPT and its subsidiaries typically provide guarantees for another subsidiary's loans. In many cases more than one company guarantees the same debt. Since all of these companies are consolidated, the debt or other financial commitment made by the subsidiaries to third parties and guaranteed by ACPT, is included within ACPT's consolidated financial statements.  As of December 31, 2008, ACPT has guaranteed $39,232,000 debt.  The guarantees will remain in effect until the debt service is fully repaid by the respective borrowing subsidiary.  The terms of the debt service guarantees outstanding range from one to nine years.   We do not expect any of these guarantees to impair the individual subsidiary or the Company's ability to conduct business or to pursue its future development plans.

Legal Matters

Loiza Valley

On November 24, 1997, Comité Loiza Valley en Acción, Inc., resident owners of Urbanización Loiza Valley in Canovanas, Puerto Rico, a neighborhood consisting of 56 houses near the property owned by LDA, filed a claim in the Superior Court of Carolina, Puerto Rico against Cantera Hipodromo, Inc. (the “lessee” who operates a quarry on the land owned by LDA), the owners of the lessee, the lessee’s Insurance Companies and LDA.  The Plaintiffs allege that as a result of certain explosions occurring in the quarry, their houses have suffered different types of damages and they have also suffered physical injuries and mental anguish.  The damages claimed exceed $11,000,000.  The physical damage to the property is estimated at less than $1,000,000.  The lease agreement contains an indemnification clause in favor of LDA.  The lessee has public liability insurance coverage of $1,000,000 through Integrand Assurance Company and an umbrella insurance coverage of $2,000,000 through American International Insurance Company.  The trial began in 2007 and continued throughout 2008.  A judgment is expected to be entered near the end of 2009.

Capital Park

In 2006, a group of approximately 60 tenants of Capital Park Towers Apartments (“Capital Park”) a property managed, but not owned by ARMC and located at 301 G Street, S.W., Washington, D.C. filed a tenant petition with the Rent Administrator for the District of Columbia challenging increases in rent implemented with respect to said tenants units during the previous three year period (“Initial Case”).  Following the initial petition, a group of 60 additional tenants filed a similar petition in May of 2008.  While the Company has numerous defenses to the claims asserted in both cases, at this time management believes that potential exposure to damages in these cases is probable and estimates the loss at approximately $230,000.  Generally, these types of losses are covered by our insurance policies.  However, the Company has recently been informed that our insurance carrier intends to deny these claims.  We intend to vigorously defend against the claims asserted and will continue to pursue coverage under our insurance policies.  Given the current circumstances, the Company accrued $230,000 in the third quarter 2008 related to the potential losses.  However, absent a settlement of the case, it will likely take a number of years before the case is concluded and a final determination rendered.  The Company's Chairman has an economic interest in the property related to a note receivable from Capital Park.

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

The Company and/or its subsidiaries have been named as defendants, along with other companies, in tenant-related lawsuits.  The Company carries liability insurance against these types of claims that management believes meets industry standards.  To date, payments made to the plaintiffs of the settled cases were covered by our insurance policy.  The Company believes it has strong defenses to these ordinary course claims, and intends to continue to defend itself vigorously in these matters.

In the normal course of business, ACPT is involved in various pending or unasserted claims. In the opinion of management, these are not expected to have a material impact on the financial condition or future operations of ACPT.

-55-

(7) LEASES

ACPT operates certain property and equipment under leases, some with purchase options that expire at various dates through 2010.  ACPT is also obligated under several non-cancelable operating leases for office space and equipment.  Capital leases of $77,000, exclusive of interest, are reported with general recourse debt in the Debt Note (see Note 5). The following is a schedule of the future minimum lease payments for operating leases as of December 31, 2008 (in thousands):

	Operating
	Obligations
2009	$	358
2010		250
2011		42
2012		3
Total minimum lease payments	$	653

Rental expense under non-cancelable operating leases was $525,000 in 2008 and $424,000 in 2007 and is included in general, administrative, selling and marketing expenses and rental properties operating expenses in the accompanying consolidated statements of income.

ACPT leases office space to tenants under certain non-cancelable operating leases expiring through 2015.  The following is a schedule of the future minimum payments to be received as of December 31, 2008 (in thousands):

	Lease
	Income
2009	$	788
2010		841
2011		674
2012		632
2013		644
Thereafter		1,007
Total minimum lease payments	$	4,586

-56-

(8) RELATED PARTY TRANSACTIONS

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

CONSOLIDATED STATEMENT OF INCOME:
	Years Ended December 31,
	2008		2007
Management and Other Fees (A)
Unconsolidated subsidiaries with third party partners	$	43	$	42
Affiliates of J. Michael Wilson, Chairman		-		43
	$	43	$	85
Rental Property Revenues (B)	$	36	$	57
Interest and Other Income
Unconsolidated real estate entities with third party partners	$	8	$	8

				Years Ended December 31,
				2008			2007
General and Administrative Expense
Reserve additions and other write-offs-
Unconsolidated real estate entities with third party partners	(A)			$	(16	)	$	43
Reimbursement to IBC for ACPT's share of
J. Michael Wilson's compensation					415			390
Reimbursement of administrative costs-
Affiliates of J. Michael Wilson, Chairman					(18	)		(23	)
Legal fees paid to J. Michael Wilson’s attorney		(C3	)		-			225
Consulting Fees -
James J. Wilson, IWT Chairman		(C1	)		150			200
Thomas J. Shafer, Trustee		(C2	)		60			60
				$	591		$	895

BALANCE SHEET:		Balance		Balance
		December 31,		December 31,
		2008		2007
Other Assets
Receivables - All unsecured and due on demand
Unconsolidated subsidiaries		$	10	$	-
Affiliate of J. Michael Wilson,  Chairman			2		5
		$	12	$	5
Additional Paid-in Capital	(C4)	$	562	$	-

(A)          Management and Other Services

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

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

(B)           Rental Property Revenue

 On September 1, 2006, the Company, through one of its Puerto Rican subsidiaries, Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson Family.  The lease provides for 1,842 square feet of office space to be leased by CWT for five years at $19.00 per rentable square foot.  The Company provided CWT with an allowance of $9,000 in tenant improvements which are being amortized over the life of the lease.  On February 25, 2008, CWT executed its rights under the lease and provided six months written notice of its intention to terminate the lease, effective August 24, 2008.  The lease agreement is unconditionally guaranteed by Interstate Business Corporation (“IBC”), a company owned by the J. Michael Wilson Family.

-57-

 (C)           Other

  Other transactions with related parties are as follows:

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

                2)   Represents fees paid to Thomas J. Shafer, a Trustee, pursuant to a consulting agreement.

3)

The Independent Trustees concluded that certain legal fees and expenses incurred by J. Michael Wilson in connection with the preliminary work being done in seeking a strategic partner to recapitalize the Company are in the best interest of the Company and the minority shareholders.  Accordingly, the Independent Trustees authorized the Company to fund up to $225,000 of such costs, all of which have been incurred as of December 31, 2007.

4)

A primary shareholder of the Company agreed in principle to provide the Company’s Chief Executive Officer with the economic benefit of 185,550 shares of their common stock as of October 1, 2008.  According to SFAS 123(R), any share-based payments awarded to an employee of the reporting entity by a related party for services provided to the entity are share-based payment transactions under SFAS123(R) unless the transfer is clearly for a purpose other than compensation for services to the reporting entity.  Therefore, in essence, the economic interest holder makes a capital contribution to the reporting entity, and the reporting entity makes a share-based payment to its employee in exchange for services rendered.  The Company has recognized $562,000 in compensation expense in 2008 related to this grant.

Related Party Acquisitions

El Monte

On April 30, 2004, the Company purchased a 50% limited partner interest in El Monte Properties S.E. ("El Monte") from Insular Properties Limited Partnership ("Insular") for $1,462,500.  Insular is owned by the J. Michael Wilson Family.  Per the terms of the agreement, the Company was responsible to fund $400,000 of capital improvements and lease stabilization costs, and had a priority on cash distributions up to its advances plus accrued interest at 8%, investment and a 13% cumulative preferred return on its investment.  The purchase price was based on a third party appraisal of $16,500,000 dated April 22, 2003.  The Company's limited partnership investment was accounted for under the equity method of accounting.

In December 2004, a third party buyer purchased El Monte for $20,000,000: $17,000,000 in cash and $3,000,000 in two notes of $1,500,000 each that bear an interest rate of prime plus 2%, with a ceiling of 9%, and mature on December 3, 2009.  The net cash proceeds from the sale of the real estate were distributed to the partners.  As a result, the Company received $2,500,000 in cash and recognized $986,000 of income in 2004.  El Monte distributed a $1,500,000 note to the Company in January 2005.  On January 24, 2007, the Company received $1,707,000 as payment in full of the principal balance and all accrued interest related to the El Monte note receivable.  Accordingly, in 2007 the Company recorded $1,500,000 as equity in earnings and $207,000 as interest income.

(9) SHARE GRANTS AND APPRECIATION RIGHTS

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

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

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

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

Trustee Share Grants

On August 28, 2006, the Company awarded 8,000 shares to each of its four non-employee Trustees pursuant to the Trustee Share Plan.  The shares vest annually at a rate of 1,600 per year, per Trustee, with the initial tranche of shares vesting immediately at the grant date.  In June 2008, the Company accelerated the vesting of the shares of two trustees, who did not return to the Board of Trustees, with all previously unvested shares vesting as of June 30, 2008.  In accordance with SFAS 123(R), the Company measured compensation cost as $643,000, which represents the grant date fair value.  The Company will recognize compensation expense over the vesting period and accordingly, recognized $175,000 and $129,000 for the year ended December 31, 2008 and 2007, respectively.

-58-

Employee Share Grants

During the fourth quarter of 2008, ACPT and the Chief Executive Officer entered into an employment agreement, which included restricted stock awards with both performance and time vesting criteria.  ACPT has agreed to award 363,743 in common shares with 50% subject to time vesting equally over the next five years on the anniversary of the grant and 50% subject to performance vesting over a period not to exceed five years.  ACPT will not be able to issue shares until the plan has been approved by the shareholders of the Company.  Once the plan is approved, the shares will be issued.  In accordance with SFAS 123(R), ACPT began accruing compensation cost for the 50% time vesting portion of the equity awards based on the current fair value using a grant date of October 1, 2008, the date of the completed employee agreement.  The value will be remeasured on a quarterly basis until the measurement date, when the total compensation costs to be accrued over the next five years will be determinable.  The Company has recognized $39,000 in compensation expense in 2008.   For the remaining portion of the award, the performance criteria have not yet been established or approved.  Therefore, the factors pertinent to determining the value of the compensation have not been determined.  Once the criteria have been finalized, grant and measurement dates for the remaining 50% subject to performance vesting will be established.  Accruals of compensation cost for this portion of the award will be based on the probable outcome of those performance conditions.

Share Appreciation Rights

In April 2001, 140,000 Rights were granted to employees.  These Rights bear a $4 base price, and vested in equal increments over a five-year period commencing April 2002.  As of December 31, 2008, there are 10,400 outstanding Rights which are all exercisable and expire on April 30, 2011.  During 2008 and 2007, the Company recognized $(128,000) and $(47,000), respectively, of compensation expense in connection with the outstanding Rights.

(10) RETIREMENT AND PROFIT SHARING PLANS

ACPT’s Retirement Plan (the "Retirement Plan") is a defined contribution plan which provides for contributions to be made by ACPT.  The Retirement Plan covers employees of American Rental Management Company and Interstate General Properties Ltd. Partnership SE and is qualified under both the United States Internal Revenue Code and the Puerto Rico Internal Revenue Code.  Employees are eligible to participate in the Retirement Plan when they have completed a minimum employment period of 1,000 hours and shall become a participant on either January 1st or July 1st following the date of hire.  ACPT contributes to the accounts of eligible employees in amounts equal to 5.7% of base salaries and wages not in excess of the U.S. Social Security taxable wage base, and 11.4% of salaries (limited to $230,000 for 2008) that exceed that wage base.  Eligible employees also may make voluntary contributions to their accounts and self direct the investment of their account balances in various investment funds offered under the plan.  The Retirement Plan also contains a profit sharing provision that allows the Company to make cash awards to selected employees, a portion of which is contributed to the Retirement Plan. Contributions made by the Company based on wages to the Retirement Plan were $597,000 and $615,000, in 2008 and 2007, respectively.

(11) INCOME TAXES

ACPT’s subsidiaries, ARMC, ALD and ARPT, are subject to federal and state income tax.  ACPT is subject to Puerto Rico income tax on its Puerto Rico source income.  The reconciliation below for the provision for income taxes includes income from ARMC, ALD, ARPT and Puerto Rico source income.  The 2008 permanent differences reflect special tax exempt income, tax rate differences between jurisdictions for land investment, a valuation on the net deferred tax asset, certain non-deductible expenses passed through to shareholders, non-deductible equity compensation, foreign tax credits, and certain losses for which no benefit can be recognized.  The 2007 permanent differences reflect special tax exempt income and certain non-deductible expenses passed through to shareholders.

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

	December 31,
	2008						2007
				% of						% of
	Amount			Income			Amount			Income
Taxes at statutory U.S. federal
income tax rate	$	(3,676	)		35.0	%	$	(297	)		35.0	%
State income taxes, net of
federal tax benefit		(213	)		2.0	%		(128	)		15.1	%
Income only subject to foreign tax		384			(3.7	)%		(118	)		14.0	%
Permanent differences		(8	)		0.1	%		112			(13.2	)%
Net change in uncertain tax positions		44			(0.4	)%		231			27.3	%
Losses not recognized		2,042			(19.4	)%		-			-
Investment basis adjustment		(1,725	)		16.4	%		-			-
Equity compensation		226			(2.1	)%		-			-
Foreign tax credit		345			(3.3	)%		-			-
Net change in valuation allowance		3,403			(32.4	)%		-			-
Other		31			(0.3	)%		(107	)		12.6	%
Income tax provision (benefit)	$	853			(8.1	)%	$	(307	)		36.2	%

-59-

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

	Years Ended December 31,
	2008			2007
Current:
United States	$	(419	)	$	4,439
Puerto Rico		(4	)		376
		(423	)		4,815
Deferred:
United States		1,628			(5,664	)
Puerto Rico		(352	)		542
		1,276			(5,122	)
Income tax provision (benefit)	$	853		$	(307	)

  The income tax expense associated with the vesting of trustee stock grants increased income taxes on the Consolidated Balance Sheet by $9,000 as of December 31, 2008 and decreased income taxes by $10,000 as of December 31, 2007.  Additional paid in capital was credited and debited for the years ended December 31, 2008 and 2007, respectively, to reflect these income tax effects.

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

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

	At December 31,
	2008			2007
Deferred income related to long-term receivables from partnerships  operating in Puerto Rico	$	282		$	282
Receivables from partnerships operating in United States		1,189			1,189
Tax benefit on equity in earnings of partnerships operating in Puerto Rico		(6,935	)		(6,875	)
Tax benefit on equity in earnings of partnerships operating in United States		(8,882	)		(9,428	)
Tax on deferred income		(1,020	)		(1,217	)
Tax on land development costs capitalized for book purposes but deducted currently for tax purposes		(15,132	)		(12,804	)
Tax on differences in basis related to joint venture in United States		-			(705	)
Tax on differences in basis related to land in United States		(2,538	)		(2,574	)
Tax on differences in basis related to land in Puerto Rico		(19	)		(66	)
Tax on basis difference for Puerto Rico commercial venture		1,188			1,337
Allowance for doubtful accounts		(300	)		(294	)
Accrued expenses		(2,946	)		(2,395	)
Net operating losses		(612	)		-
Alternative minimum tax credits		(197	)		(150	)
Other		(280	)		(375	)
Net deferred tax asset before valuation allowance		(36,202	)		(34,075	)
Valuation allowance		3,403			-
Net deferred tax asset	$	(32,799	)	$	(34,075	)

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

Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The Company records the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities based on differences in how these events are treated for tax purposes. Management bases the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. The Company provides a valuation allowance against the net deferred tax assets when it is more likely than not that sufficient taxable income will not be generated to utilize the net deferred tax assets.

At December 31, 2008, the Company recorded a valuation allowance of $3,403,000 against its net deferred tax asset for components for which the Company concluded it was more likely than not that the deferred tax asset could not be realized.  Realization of future benefits related to a net deferred tax asset is dependent on many factors, such as the ability to generate future taxable income, capital or ordinary, in the near future.  Since future earnings for one or more of the Company’s subsidiaries are uncertain, management cannot predict whether certain net deferred tax assets will be realized; and therefore, management provided valuation allowances for certain net deferred tax assets.  Included in this valuation was an amount related to NOL carryforwards of $1,523,000, $613,000 tax effected, which begin to expire in 2027.  Additionally, it is likely the Company may generate future capital losses related to tax benefits recorded as deferred tax assets at December 31, 2008.  However, the Company cannot reasonably predict future capital gains in the near term to offset all of the tax benefit currently recorded.  Accordingly, the Company recorded as part of the overall deferred tax asset valuation allowance $198,000 related to projected future capital losses of $493,000.  Another component of the deferred tax valuation allowance relates to alternative minimum tax (“AMT”) credit carryforwards recorded as deferred tax assets at December 31, 2008.  The Company has concluded that the realization of these benefits is not more likely than not and accordingly, a valuation allowance of $197,000 was provided. The balance of the deferred tax valuation allowance, $2,395,000 relates to certain other subsidiary deferred tax benefits for which it is uncertain that sufficient future earnings will be generated and therefore, the Company concluded that realization of those certain subsidiary deferred tax assets was not more likely than not.

The alternative minimum tax (“AMT”) credit carryforwards at December 31, 2008 and 2007 were $197,000 and $150,000, respectively.  Since the Company cannot predict future use of the AMT credits, a full valuation allowance for these deferred benefits has been provided. 

Uncertain Tax Positions

The Company adopted the provisions of FIN 48 on January 1, 2007.  As a result of the implementation of FIN 48, the Company recorded a $1,458,000 increase in the net liability for unrecognized tax positions, which was recorded as a cumulative effect of a change in accounting principle, reducing the opening balance of retained earnings on January 1, 2007.

The total amount of unrecognized tax benefits as of December 31, 2008, was $15,543,000.  Included in the balance at December 31, 2008, were $39,000 of tax positions that, if recognized, would affect the effective tax rate.  A reconciliation of the beginning and ending amount of unrecognized tax benefit (in thousands) is as follows:

Unrecognized tax benefit at beginning of period (December 31, 2007)	$	14,869
Change attributable to tax positions taken during a prior period		1,277
Change attributable to tax positions taken during the current period		-
Decrease attributable to settlements with taxing authorities		(577	)
Decrease attributable to lapse of statute of limitations		(26	)
Unrecognized tax benefit at end of period (December 31, 2008)	$	15,543

In accordance with our accounting policy, the Company presents accrued interest related to uncertain tax positions as a component of interest expense and accrued penalties as a component of income tax expense on the Consolidated Statement of Income.  The Company's Consolidated Statements of Income for the year ended December 31, 2008 and 2007 included interest expense of $1,403,000 and $1,233,000, respectively and penalties of $28,511 and $200,000, respectively.  Our Consolidated Balance Sheets as of December 31, 2008 and December 31, 2007, included accrued interest of $4,216,000 and $2,814,000, respectively and accrued penalties of $1,113,821 and $1,085,000, respectively.

The Company currently does not have any tax returns under audit by the United States federal or state taxing authorities or the Puerto Rico Treasury Department.  However, the tax returns filed in the United States for the years ended December 31, 2005 through 2008 remain subject to examination.  For Puerto Rico, the tax returns for the years ended December 31, 2004 through 2008 remain subject to examination.  For tax purposes, the Company applied for a change in method of accounting for certain contracts, and during the quarter ended December 31, 2008, the IRS approved the change in method.  Therefore, there was a decrease in the unrecognized tax benefit of $577,000.  Within the next twelve months, the Company does not anticipate any payments related to settlement of any tax examinations.  There is a reasonable possibility within the next twelve months the amount of unrecognized tax benefits will decrease by $578,000 when the related statutes of limitations expire and certain payments are recognized as taxable income.

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

     Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157) for financial assets and liabilities.  SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements.  The adoption of SFAS No. 157 did not have a material impact on our fair value measurements.

    The balance sheet carrying amounts of cash and cash equivalents, receivables and other current assets approximate fair value due to the short-term nature of these items and represent Level 1 under the fair value hierarchy in SFAS No. 157.

    We measure long term debt at fair value on a recurring basis.  As of December 31, 2008, the book value of long-term fixed rate debt was $294,721,000, and the fair value of total debt was $343,076,000.  As of December 31, 2007 the book value of long-term fixed rate debt was $296,735,000, and the fair value of total debt was $311,988,000.  Fair value was determined by discounting future cash flows using borrowing rates currently available to the Company for debt with similar terms and maturities.  The significant unrealized gains resulted from a decline in the 10 Year Treasury Rate from 4.10% at December 31, 2007 to 2.24% at December 31, 2008.  This represents Level 3 under the fair value hierarchy in SFAS No. 157.

Reconciliation for the year ended December 31, 2008
(in thousands)
Fair value as of January 1, 2008	$	311,988
Purchases, issuances, and
settlements		(3	)
Unrealized gains		31,091
Fair value as of December 31, 2008	$	343,076

(13) SEGMENT INFORMATION

ACPT operated in two principal lines of business in 2008: Operating Real Estate and Land Development.  The Operating Real Estate segment is comprised of ACPT’s investments in rental properties and property management services; whereas, the Land Development segment is comprised of ACPT’s community development and homebuilding services. This represents a change from ACPT’s historical financial reporting practice of evaluating the company solely based on geographical location.  During the fourth quarter of 2008, the Company had a change in senior management.   The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss.  Segment net operating income is generally defined as segment revenues less direct segment operating expenses. Management is now evaluating the Company based on its operating lines of business, Operating Real Estate and Land Development.  While ACPT continues to report operating results on a consolidated basis, it also now reports separately the operating results of its two lines of business.  The Company has reclassified its financial statements for 2007 to include the results of these segments.   The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

-60-

Operating Real Estate

The Operating Real Estate segments in the U.S. and Puerto Rico are comprised of investments in rental properties and property management services.  The Operations are managed through American Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC"), and Interstate General Properties Limited Partnership S.E. ("IGP"), a wholly owned subsidiary of IGP Group Corp., which is a wholly owned subsidiary of ACPT.  ARPT and its subsidiaries hold the general and limited partnership interests in our U.S. Operating Real Estate apartment property portfolio.  The apartment properties are individually organized into separate entities.  ARPT's ownership in these entities ranges from 0.1% to 100%.  The U.S. Operating Real Estate operations also include the management of apartment properties in which we have an ownership interest and one apartment property owned by a third party in 2008.  Effective March 1, 2009, ARMC will no longer manage the rental community not owned by ACPT.

	For the years ended
U.S. Operating Real Estate:	December 31, 2008			December 31, 2007
Operating revenues	$	39,515		$	38,416
Operating expenses		18,189			19,235
Net operating income		21,326			19,181
Management and other fees, substantially all from related entities		157			194
General, administrative, selling and marketing		(1,441	)		(2,252	)
Impairment charges		(1,256	)		-
Depreciation and amortization		(6,082	)		(5,592	)
Operating income		12,704			11,531
Other expense		(10,405	)		(9,998	)
Income before provision (benefit) for income taxes		2,299			1,533
Provision (benefit) for income taxes		1,624			(463	)
Net income	$	675		$	1,996

	As of			As of
U.S. Operating Real Estate Balance Sheet:	December 31, 2008			December 31, 2007
ASSETS
Investments in real estate, net	$	110,412		$	115,479
Cash and cash equivalents		7,008			12,139
Restricted cash and escrow deposits		7,763			8,359
Deferred tax assets		7,807			10,131
Deferred charges and other assets, net of amortization		54,256			49,872
Total Assets	$	187,246		$	195,980
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Non-recourse debt	$	189,951		$	192,274
Recourse debt		257			152
Other liabilities		7,770			9,160
Accrued income tax liability-current		(1,047	)		(474	)
Total Liabilities		196,931			201,112
Total Shareholders' Equity		(9,685	)		(5,132	)
Total Liabilities and Shareholders' Equity	$	187,246		$	195,980

-61-

The Puerto Rican Operating Real Estate operations, via IGP, provides property management services to multifamily rental properties in Puerto Rico in which we have an ownership interest, apartment properties owned by third parties, our commercial properties, and home-owner associations related to our planned communities.  IGP also provides management services for our homebuilding and community development operations. IGP holds the ownership interests in the Puerto Rico Apartments and two commercial properties.  The Puerto Rico apartments are organized into separate partnerships and receive HUD subsidies.  IGP's ownership in these partnerships ranges from 1% to 52.5%.  IGP's ownership in the commercial properties ranges from 28% to 100%.

	For the years ended
Puerto Rican Operating Real Estate:		December 31, 2008			December 31, 2007
Operating revenues		$	22,728		$	22,306
Operating expenses			11,512			11,433
Net operating income			11,216			10,873
Management and other fees, substantially all from related entities			624			635
General, administrative, selling and marketing			(3,631	)		(3,159	)
Depreciation and amortization			(3,769	)		(3,694	)
Operating income			4,440			4,655
Other expense			(5,837	)		(4,536	)
(Loss ) income before provision for income taxes			(1,397	)		119
Provision for income taxes			37			373
Net loss		$	(1,434	)	$	(254	)

	As of			As of
Puerto Rican Operating Real Estate Balance Sheet:	December 31, 2008			December 31, 2007
ASSETS
Investments in real estate	$	48,042		$	50,601
Cash and cash equivalents		6,825			5,120
Restricted cash and escrow deposits		10,434			10,771
Investments in unconsolidated real estate entities		6,819			13,583
Deferred charges and other assets, net of amortization		19,632			21,683
Total Assets	$	91,752		$	101,758
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Non-recourse debt	$	86,170		$	87,707
Recourse debt		5,215			6,455
Other liabilities		5,291			5,402
Accrued income tax liability-current		(1	)		3
Total Liabilities		96,675			99,567
Total Shareholders' Equity		(4,923	)		2,191
Total Liabilities and Shareholders' Equity	$	91,752		$	101,758

-62-

Land Development

The Land Development Operation involves community development and homebuilding services in the U.S. and Puerto Rico.  The Operations are managed through American Land Development, Inc. ("ALD") and Land Development Associates, S.E. ("LDA").  ALD and its subsidiary comprise the U.S. Land Development operations and own and develop our land holdings in St. Charles, Maryland. St. Charles is a 9,000 acre planned community consisting of residential, commercial, recreational and open space land.  We also remain open to construction and acquisition of additional properties that will add value to our existing investment assets. ALD also had a 50% interest in a land development joint venture formed to develop land for an active adult community in St. Charles until we sold our interest in the venture in November 2008.  In October 2008, the Company entered into an agreement with Surrey Homes, LLC to contribute $2,000,000 over the next year in exchange for a 50% ownership interest of the Series A Units.  Surrey Homes was created to be a lot option, low overhead homebuilder servicing communities in central Florida.

Revenues from Lennar include residential land sales as well as certain management fees.  Total revenues from Lennar within our U.S. Land Development Operation were $12,438,000 for the year ended December 31, 2008 which represents 84% of the Operation’s revenue and 15% of our total year-to-date consolidated revenue.  No other customers accounted for more than 10% of our consolidated revenue for the year ended December 31, 2008.

	For the years ended
U.S. Land Development Operations:		December 31, 2008			December 31, 2007
Operating revenues
Community development - land sales		$	14,726		$	14,486
Management and other fees, substantially all from related entities			-			142
Total revenues			14,726			14,628
Operating expenses
Cost of land sales			9,572			11,169
General, administrative, selling and marketing			3,558			2,734
Depreciation and amortization			5			5
Total expenses			13,135			13,908
Operating income			1,591			720
Other expense			(2,584	)		(2,056	)
(Loss) income before benefit for income taxes			(993	)		(1,336	)
Benefit for income taxes			(406	)		(654	)
Net loss		$	(587	)	$	(682	)

	As of			As of
U.S. Land Development Balance Sheet:	December 31, 2008			December 31, 2007
ASSETS
Investments in real estate	$	81,821		$	64,236
Cash and cash equivalents		10,140			7,416
Restricted cash and escrow deposits		2,399			1,087
Deferred tax assets		19,151			18,493
Deferred charges and other assets, net of amortization		(37,176	)		(22,178	)
Total Assets	$	76,335		$	69,054
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Non-recourse debt	$	-		$	-
Recourse debt		37,542			27,556
Other liabilities		13,383			17,331
Accrued income tax liability-current		15,803			15,013
Total Liabilities		66,728			59,900
Total Shareholders' Equity		9,607			9,154
Total Liabilities and Shareholders' Equity	$	76,335		$	69,054

-63-

Puerto Rican Land Development operations hold our community development assets in Puerto Rico, consisting of two planned communities, owned by LDA.  The first planned community, Parque Escorial, is currently under development and consists of residential, commercial and recreation land similar to our U.S. operations but on a smaller scale.  Our second planned community, Parque El Commandante is currently in the planning stages.  Our homebuilding operation builds condominiums for sale on land located in its planned communities.  Each homebuilding project is organized into separate entities, all wholly owned by IGP and LDA.  LDA also retained a limited partner interest in two commercial buildings in Parque Escorial opened in 2001 and 2005 which were built on land contributed by LDA.

	For the years ended
Puerto Rican Land Development Operations:		December 31, 2008			December 31, 2007
Operating revenues
Homebuilding – home sales		$	3,730		$	7,580
Operating expenses
Cost of home sales			2,898			5,549
General, administrative, selling and marketing			341			503
Impairment charges			6,200			-
Total expenses			9,439			6,052
Operating (loss) income			(5,709	)		1,528
Other income			698			1,085
(Loss) income before provision for income taxes			(5,011	)		2,613
Provision for income taxes			-			-
Net income		$	(5,011	)	$	2,613

Puerto Rican Land Development Balance Sheet:	December 31, 2008			December 31, 2007
ASSETS
Investments in real estate	$	20,310		$	25,741
Cash and cash equivalents		61			236
Restricted cash and escrow deposits		3			6
Investments in unconsolidated real estate entities		14,234			15,983
Deferred charges and other assets, net of amortization		(1,556	)		(1,498	)
Total Assets	$	33,052		$	40,468
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Recourse debt	$	4,327		$	1,725
Accounts payable and accrued liabilities		9,348			10,915
Total Liabilities		13,675			12,640
Total Shareholders' Equity		19,377			27,828
Total Liabilities and Shareholders' Equity	$	33,052		$	40,468

Corporate

The Company’s Corporate segment consists of the general and administrative expenses necessary to operate as a public company.  These costs have not been allocated to the apartment rental and land development divisions.

     The following tables reconcile the segment reporting to the financial statements.

For the year ended December 31, 2008:

	Revenues			Expenses			Operating Income			Other Income/ (Expense)			Income Before Provision (Benefit) for Income Taxes			Provision (Benefit) for Income Taxes			Net Income (Loss)
Operating Real Estate
U.S.	$	40,164		$	27,460		$	12,704		$	(10,405	)	$	2,299		$	1,624		$	675
P.R.		24,321			19,881			4,440			(5,837	)		(1,397	)		37			(1,434	)
Total Operating Real Estate		64,485			47,341			17,144			(16,242	)		902			1,661			(759	)
Land Development
U.S.		14,726			13,135			1,591			(2,584	)		(993	)		(406	)		(587	)
P.R.		3,730			9,439			(5,709	)		698			(5,011	)		-			(5,011	)
Total Land Development		18,456			22,574			(4,118	)		(1,886	)		(6,004	)		(406	)		(5,598	)
Corporate		-			6,941			(6,941	)		(574	)		(7,515	)		(413	)		(7,102	)
Intersegment		(27	)		(1,298	)		1,271			843			2,114			11			2,103
	$	82,914		$	75,558		$	7,356		$	(17,859	)	$	(10,503	)	$	853		$	(11,356	)

For the year ended December 31, 2007:

	Revenues			Expenses			Operating Income			Other Income/ (Expense)			Income Before Provision (Benefit) for Income Taxes			Provision (Benefit) for Income Taxes			Net Income (Loss)
Operating Real Estate
U.S.	$	39,250		$	27,719		$	11,531		$	(9,998	)	$	1,533		$	(463	)	$	1,996
P.R.		23,948			19,293			4,655			(4,536	)		119			373			(254	)
Total Operating Real Estate		63,198			47,012			16,186			(14,534	)		1,652			(90	)		1,742
Land Development
U.S.		14,628			13,908			720			(2,056	)		(1,336	)		(654	)		(682	)
P.R.		7,580			6,052			1,528			1,085			2,613			-			2,613
Total Land Development		22,208			19,960			2,248			(971	)		1,277			(654	)		1,931
Corporate		-			3,712			(3,712	)		2,122			(1,590	)		453			(2,043	)
Intersegment		(30	)		(1,390	)		1,360			(3,547	)		(2,187	)		(16	)		(2,171	)
	$	85,376		$	69,294		$	16,082		$	(16,930	)	$	(848	)	$	(307	)	$	(541	)

As of December 31, 2008:

	Investment in Real Estate			Total Assets			Recourse Debt			Non-recourse Debt		Total Liabilities
Operating Real Estate
U.S.	$	110,412		$	187,246		$	257		$	189,950	$	196,931
P.R.		48,042			91,752			5,215			86,170		96,675
Total Operating Real Estate		158,454			278,998			5,472			276,120		293,606
Land Development
U.S.		81,821			76,335			37,542			-		66,728
P.R.		20,310			33,052			4,327			-		13,675
Total Land Development		102,131			109,387			41,869			-		80,403
Corporate		-			12,663			-			-		-
Intersegment		(1,282	)		(45,855	)		(7,925	)		-		(20,157	)
	$	259,303		$	355,193		$	39,416		$	276,120	$	353,852

As of December 31, 2007:

	Investment in Real Estate			Total Assets			Recourse Debt			Non-recourse Debt		Total Liabilities
Operating Real Estate
U.S.	$	115,479		$	195,980		$	152		$	192,274	$	201,112
P.R.		50,601			102,324			6,455			87,707		99,567
Total Operating Real Estate		166,080			298,304			6,607			279,981		300,679
Land Development
U.S.		64,236			69,054			27,556			-		59,900
P.R.		25,741			40,468			1,725			-		12,640
Total Land Development		89,977			109,522			29,281			-		72,540
Corporate		-			12,924			-			-		77
Intersegment		(1,481	)		(60,026	)		(10,299	)		-		(25,018	)
	$	254,576		$	360,724		$	25,589		$	279,981	$	348,278

(14) SUPPLEMENTAL CASH FLOW INFORMATION

Interest and income taxes paid were as follows for the years ended December 31 (in thousands):

	2008		2007
Interest paid	$	17,400	$	18,124
Income taxes paid	$	1,267	$	3,901

-64-

(15) SUBSEQUENT EVENTS

Gleneagles Apartment Financing

On January 28, 2009, the Company completed the initial closing of a 6.9 percent, $25,045,000 non-recourse construction loan to fund the construction costs for a new apartment property in St. Charles’ Fairway Village.  The construction loan will convert to a 6.9 percent, 40 year permanent mortgage not later than December 1, 2010.

Sale of Baltimore Properties

During the first quarter of 2009, the Company executed purchase agreements for the sale of three of the five U.S. Apartment Properties in Baltimore, Maryland for $29,200,000.  The Company has received non-binding offers of $6,598,000 and is negotiating agreements for the remaining two properties.  The primary factor driving the decision to sell was the strategic disposition of underperforming assets.  Based on those offers, the Company has recorded an impairment charge of $1,256,000 during the fourth quarter of 2008 to reduce the carrying value of the properties to their estimated fair market value less costs to sell as of December 31, 2008 of $35,400,000.  The offers are subject to certain customary closing conditions, including lender consent to allow the purchaser to assume the loans.  We anticipate closing on the sale of these properties in the second quarter of 2009.  The assets, liabilities, and results of operations for these properties and the corresponding impairment charge are included in the U.S. Real Estate Operating segment.  These properties represent $35,292,000 of the Company’s Operating Real Estate balance and $30,129,000 of the Company’s non-recourse debt balance as of December 31, 2008.

Sale of Puerto Rican Apartment Properties

During the first quarter of 2009, the Company executed a non-binding letter of intent to sell the Puerto Rico Apartment Properties.  The letter of intent is subject to customary closing conditions, including the ability of the purchaser to obtain financing, and we anticipate closing on the sale of these properties in the second quarter of 2009.  The assets, liabilities, and results of operations comprise the Puerto Rican Real Estate Operating segment.  This segment represents $48,042,000 of the Company’s Operating Real Estate balance and $86,170,000 of the Company’s non-recourse debt balance as of December 31, 2008.

-65-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008
(In thousands)
	Initial and Subsequent Costs and Encumbrances									Total Capitalized Costs and Accumulated Depreciation
																		Date
					Bldgs. &		Subsequent					Bldgs. &				Accumulated		Constructed	Depreciable
Description	Encumbrances		Land		Improvements		Costs			Land		Improvements		Total		Depreciation		or Acquired	Life
Consolidated Partnerships
U.S. Partnerships
Bannister Apartments	$	12,301	$	410	$	4,180	$	4,391		$	410	$	8,571	$	8,981	$	5,683	11/30/1976	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Brookmont Apartments		7,180		162		2,677		2,733			162		5,410		5,572		3,911	5/18/1979	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Coachman's		10,740		572		6,421		1,012			572		7,433		8,005		3,326	9/5/1989	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Crossland Apartments		4,034		350		2,697		436			350		3,133		3,483		2,302	1/13/1978	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Essex Village Apts.		13,766		2,667		21,381		(2,828	)		2,667		18,553		21,220		16,782	1/31/1982	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
Richmond, VA
Fox Chase Apartments		12,685		745		7,014		1,231			745		8,245		8,990		4,117	3/31/1987	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Headen House		6,828		205		4,765		3,640			205		8,405		8,610		6,001	10/30/1980	Bldg-40 Yrs
Garden Apartments																		Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD

-66-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008
(In thousands)
	Initial and Subsequent Costs and Encumbrances				Total Capitalized Costs and Accumulated Depreciation
									Date
			Bldgs. &	Subsequent		Bldgs. &		Accumulated	Constructed
Description	Encumbrances	Land	Improvements	Costs	Land	Improvements	Total	Depreciation	or Acquired	Depreciable Life
Huntington Apartments	9,104	350	8,513	1,271	350	9,784	10,134	6,166	10/7/1980	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Lancaster Apartments	8,355	484	4,292	1,266	484	5,558	6,042	3,355	12/31/1985	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Milford Station I	10,491	2,659	9,878	734	2,659	10,612	13,271	995	5/1/2006	Bldg-40 Yrs
Garden Apartments									Acquired	Bldg Equip-5/7 Yrs
Baltimore, MD
Milford Station II	1,345	455	1,350	74	455	1,424	1,879	1284	5/1/2006	Bldg-40 Yrs
Garden Apartments									Acquired	Bldg Equip-5/7 Yrs
Baltimore, MD
New Forest Apartments	22,445	1,229	12,102	2,182	1,229	14,284	15,513	7,047	6/28/1988	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Nottingham South	2,543	359	2,586	125	359	2,711	3,070	653	5/23/2005	Bldg-40 Yrs
Garden Apartments									Acquired	Bldg Equip-5/7 Yrs
Baltimore, MD
Owings Chase	12,208	1,691	13,428	803	1,691	14,231	15,922	1,226	10/29/2004	Bldg-40 Yrs
Garden Apartments									Acquired	Bldg Equip-5/7 Yrs
Baltimore, MD

-67-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008
(In thousands)
	Initial and Subsequent Costs and Encumbrances				Total Capitalized Costs and Accumulated Depreciation
									Date
			Bldgs. &	Subsequent		Bldgs. &		Accumulated	Constructed
Description	Encumbrances	Land	Improvements	Costs	Land	Improvements	Total	Depreciation	or Acquired	Depreciable Life
Palmer Apartments	6,649	471	4,788	3,926	471	8,714	9,185	6,175	3/31/1980	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Prescott Square	3,541	470	3,867	451	470	4,318	4,788	744	10/29/2004	Bldg-40 Yrs
Garden Apartments									Acquired	Bldg Equip-5/7 Yrs
Baltimore, MD
Sheffield Greens	26,749	3,562	22,292	145	3,562	22,437	25,999	1,255	1/31/2007	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Terrace Apartments	9,897	497	5,377	5,427	497	10,804	11,301	7,495	11/1/1979	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Village Lake	9,088	824	6,858	312	824	7,170	7,994	2,764	10/1/1993	Bldg-40 Yrs
Garden Apartments									Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Puerto Rico Partnerships
Alturas Del Senorial	3,450	345	4,185	661	345	4,846	5,191	3,592	11/17/1979	Bldg-40 Yrs
Highrise Apts.									Constructed	Bldg Equip-5/7 Yrs
Rio Piedras, PR
Bayamon Garden	9,151	1,153	12,050	1,108	1,153	13,158	14,311	9,250	7/6/1981	Bldg-40 Yrs
Walk-up Apts.									Constructed	Bldg Equip-5/7 Yrs
Bayamon, PR

-68-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008
(In thousands)
	Initial and Subsequent Costs and Encumbrances				Total Capitalized Costs and Accumulated Depreciation
									Date
			Bldgs. &	Subsequent		Bldgs. &		Accumulated	Constructed
Description	Encumbrances	Land	Improvements	Costs	Land	Improvements	Total	Depreciation	or Acquired	Depreciable Life
Colinas De San Juan	9,380	900	10,742	1,060	900	11,802	12,702	8,433	3/20/1981	Bldg-40 Yrs
Walk-up Apts.									Constructed	Bldg Equip-5/7 Yrs
San Juan, PR
De Diego	5,457	601	6,718	903	601	7,621	8,222	5,412	3/20/1980	Bldg-40 Yrs
Highrise Apts.									Constructed	Bldg Equip-5/7 Yrs
Rio Piedras, PR
Escorial Office	8,400	1,596	8,202	478	1,596	8,680	10,276	750	9/1/2005	Bldg-40 Yrs
Building I, Inc.									Constructed	Bldg Equip-5/7 Yrs
Puerto Rico
Jardines De Caparra	6,233	546	5,719	1,892	546	7,611	8,157	5,410	4/1/1980	Bldg-40 Yrs
Highrise Apartments									Constructed	Bldg Equip-5/7 Yrs
Bayamon, PR
Monserrate I	6,816	543	10,436	1,965	543	12,401	12,944	9,159	5/1/1979	Bldg-40 Yrs
Highrise Apts.									Constructed	Bldg Equip-5/7 Yrs
Carolina, PR
Monserrate II	9,862	731	11,172	1,763	731	12,935	13,666	9,261	1/30/1980	Bldg-40 Yrs
Highrise Apts.									Constructed	Bldg Equip-5/7 Yrs
Carolina, PR
San Anton	4,091	313	3,525	1,805	313	5,330	5,643	4,151	12/10/1974	Bldg-40 Yrs
Highrise Apts.									Acquired	Bldg Equip-5/7 Yrs
Carolina, PR

-69-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008
(In thousands)
	Initial and Subsequent Costs and Encumbrances					Total Capitalized Costs and Accumulated Depreciation
				Bldgs. &	Subsequent		Bldgs. &		Accumulated	Date Constructed
Description	Encumbrances		Land	Improvements	Costs	Land	Improvements	Total	Depreciation	or Acquired	Depreciable Life
Santa Juana		7,036	487	6,748	995	487	7,743	8,230	5,544	2/8/1980	Bldg-40 Yrs
Highrise Apts.										Constructed	Bldg Equip-5/7 Yrs
Caguas, PR
Torre De Las Cumbres		5,067	466	5,954	735	466	6,689	7,155	4,930	12/6/1979	Bldg-40 Yrs
Highrise Apts.										Constructed	Bldg Equip-5/7 Yrs
Rio Piedras, PR
Valle Del Sol		10,430	992	14,017	876	992	14,893	15,885	9,899	3/15/1983	Bldg-40 Yrs
Highrise and Walk-up Apts.										Constructed	Bldg Equip-5/7 Yrs
Bayamon, PR
Vistas Del Turabo		798	354	2,508	727	354	3,235	3,589	2,130	12/30/1983	Bldg-40 Yrs
Walk-up Apts.										Acquired	Bldg Equip-5/7 Yrs
Caguas, PR
Total Consolidated Properties		276,120	27,189	246,442	42,299	27,189	288,741	315,930	159,202
Unconsolidated Partnerships
Brookside Gardens Apartments		1,241	156	2,487	53	156	2,540	2,696	1,296	11/10/1994	Bldg-40 Yrs
Garden Shared Housing										Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Lakeside Apartments		1,952	440	3,649	42	440	3,691	4,131	1,138	7/1/1996	Bldg-40 Yrs
Garden Apartments										Constructed	Bldg Equip-5/7 Yrs
St. Charles, MD
Total Unconsolidated Properties		3,193	596	6,136	95	596	6,231	6,827	2,434
Total Properties	$	279,313	27,785	252,578	42,394	27,785	294,972	322,757	161,636
(1) Operating real estate shown on the Consolidated Balance Sheets includes real estate assets of $164,352 net of accumulated depreciation of $150,292.
The aggregate cost, net of depreciation and amortization, for federal income tax purposes for U.S. and P.R. properties is $128,693. (Unaudited)

-70-

AMERICAN COMMUNITY PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2008 AND 2007
(In thousands)
	Consolidated		Unconsolidated
	Partnerships		Partnerships		Total
Real Estate at January 1, 2007	$	284,504	$	6,824	$	291,328
Additions for 2007:
Improvements		31,430		22		31,452
Deductions for 2007:
Dispositions		1,290		22		1,312
Real Estate at December 31, 2007		314,644		6,824		321,468
Additions for 2008:
Improvements		3,337		28		3,365
Deductions for 2008:
Dispositions		2,051		25		2,076
Real Estate at December 31, 2008	$	315,930	$	6,827	$	322,757
Accumulated depreciation at January 1, 2007	$	142,458	$	2,070	$	144,528
Additions for 2007:
Depreciation expense		9,124		206		9,330
Deductions for 2007:
Dispositions		1,290		22		1,312
Accumulated depreciation at December 31, 2007		150,292		2,254		152,546
Additions for 2008:
Depreciation expense		9,705		205		9,910
Impairment		1,256		-		1,256
Deductions for 2008:
Dispositions		2,051		25		2,076
Accumulated depreciation at December 31, 2008	$	159,202	$	2,434	$	161,636

-71-

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

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Form 10-K, as of December 31, 2008, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.  In performing this evaluation, management reviewed the selection, application and monitoring of our historical accounting policies.  Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed with the SEC is recorded, processed, summarized and reported on a timely basis.

The Company had previously reported a significant deficiency that resulted in the conclusion that the Company’s disclosure controls and procedures were not effective.  Since that time, the Company has been taking steps to begin remediation of the significant deficiency.  The Company has appointed a new CEO and CFO in accordance with appropriate policies and has worked to improve communication between senior management and the Board of Trustees.  In addition, the Company has revised its Delegation of Authority policy as part of the implementation of the recommended controls and procedures noted in the June 30, 2008 Form 10-Q.  As part of this process, no new matters have come to our attention that would require additional remediation and we believe that the significant deficiency was fully remediated as of December 31, 2008.

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

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 is not subject to attestation pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report and therefore has not been audited by Ernst & Young LLP.

Changes in Internal Control Over Financial Reporting

Except as discussed above, there have been no other changes during the Company's quarter ended December 31, 2008, in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financing reporting.

ITEM 9B. OTHER INFORMATION

None.

-72-

PART III

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

ITEM 10. TRUSTEES, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

The information required by this Item with respect to Trustees is incorporated by reference to the Company's Proxy Statement under the caption "Election of Trustees" to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

The information required by this Item with respect to the Company’s Audit Committee Financial Expert is incorporated by reference to the Company's Proxy Statement under the caption "Audit Committee Financial Expert" to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

Section 16(A) Beneficial Ownership Reporting Compliance

The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

Code of Ethics

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

American Community Properties Trust

222 Smallwood Village Center

St. Charles, MD  20602

Attention:  Director of Investor Relations

(301) 843-8600

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

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

The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND TRUSTEE INDEPENDENCE

The information required by this Item is incorporated by reference to the Company's Proxy Statement to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

-73-

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to the Company’s Proxy Statement to be filed with the Commission for its Annual Shareholders' Meeting to be held in June 2009.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)           1.           Financial Statements

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

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Income for the years ended December 31, 2008 and 2007

Consolidated Balance Sheets as of December 31, 2008 and 2007

Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2008 and 2007

Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007

Notes to Consolidated Financial Statements for the years ended December 31, 2008 and 2007

2.           Financial Statement Schedules

The following financial statement schedule is contained herein:

Schedule III -- Real Estate and Accumulated Depreciation as of December 31, 2008

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are

not required under the related instructions or are not applicable and therefore have been omitted.

                3.           Exhibits

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

Exhibit No.	Description of Exhibit	Reference
3.1	Form of Restated Declaration of Trust of the Company	Exhibit 3.1 to Form S-11
3.2	Amended and Restated Bylaws of the Company	Filed herewith
4.1	Form of Common Share Certificate	Exhibit 4.1 to Form S-11

-74-

10.1	Employment Agreement, dated May 12, 2004, between Interstate General Properties Limited Partnership S.E. and Jorge Garcia Massuet*	Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2004
10.2	Form of Consulting Agreement, dated August 24, 1998, between the Company and James J. Wilson*	Exhibit 10.4 to Form S-11
10.3	Employment and Consulting Agreement for Carlos R. Rodriguez *	Exhibit 10.1 to Form 10-Q for quarter ended June 30, 2006
10.4	Consulting Agreement between St. Charles Community, LLC and Thomas J. Shafer dated January 1, 1998*	Exhibit 10.14 to 1998 Form 10-K
10.5	Amendment to Consulting Agreement between St. Charles Community, LLC and Thomas J. Shafer dated January 28, 2002*	Exhibit 10.15 to 2001 Form 10-K
10.6	Indemnification Agreement between American Community Properties Trust and Antonio Ginorio dated August 30, 2006*	Exhibit 10.1 to Form 8-K filed on August 31, 2006
10.7	Indemnification Agreement between American Community Properties Trust and  Thomas S. Condit dated August 30, 2006*	Exhibit 10.2 to Form 8-K filed on August 31, 2006
10.8	Indemnification Agreement between American Community Properties Trust and T. Michael Scott dated August 30, 2006*	Exhibit 10.3 to Form 8-K filed on August 31, 2006
10.9	Indemnification Agreement between American Community Properties Trust and  Thomas J. Shafer dated August 30, 2006 *	Exhibit 10.4 to Form 8-K filed on August 31, 2006
10.10	Settlement Agreement dated July 22, 2002 between the County Commissioners of Charles County, Maryland and St. Charles Associates Limited Partnership, Interstate General Company, St. Charles Community LLC	Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2002
10.11	Consent Judgment dated July 22, 2002	Exhibit 10.2 to Form 10-Q for the quarter ended June 30, 2002
10.12	Indenture dated July 22, 2002 between St. Charles Associates Limited Partnership, Interstate General Company, St. Charles Community LLC and the County Commissioners of Charles County	Exhibit 10.3 to Form 10-Q for the quarter ended June 30, 2002
10.13	Amended Order to Docket #90 dated July 22, 2002	Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 2002

-75-

10.14	Certificate of Limited Partnership of Village Lake Apartments Limited Partnership dated May 17, 1991	Exhibit 10.37 to 2002 Form 10-K
10.15	First Amendment to Certificate of Limited Partnership of Village Lake Apartments Limited Partnership dated May 13, 1992	Exhibit 10.38 to 2002 Form 10-K
10.16	Second Amendment to Certificate and Agreement of Limited Partnership of  Village Lake Apartments Limited Partnership dated January 23, 2003	Exhibit 10.39 to 2002 Form 10-K
10.17	Limited Partnership Agreement and Amended and Restated Limited Partnership Certificate of Coachman's Limited Partnership dated June 2, 1988	Exhibit 10.40 to 2002 Form 10-K
10.18	Assignment of Partnership Interest and Amendment to the Certificate of Limited Partnership of Coachman's Limited Partnership dated June 30, 1997	Exhibit 10.41 to 2002 Form 10-K
10.19	Assignment of Partnership Interest and Amendment to the Certificate of Limited Partnership of Coachman's Limited Partnership dated September 28, 2001	Exhibit 10.42 to 2002 Form 10-K
10.20	Third Amendment to Limited Partnership Agreement and Amended and Restated Limited Partnership Certificate of Coachman's Limited Partnership dated January 23, 2003	Exhibit 10.43 to 2002 Form 10-K
10.21	Purchase Agreement between St. Charles Community, LLC and Lennar Corporation dated March 4, 2004	Exhibit 10.1 to Form 8-K filed on January 4, 2008
10.22	Development Agreement between St. Charles Community, LLC and Lennar Corporation dated March 4, 2004	Exhibit 10. 2 to Form 8-K filed on January 4, 2008
10.23	First Amendment to Purchase Agreement between St. Charles Community, LLC and Lennar Corporation dated June 20, 2006	Exhibit 10.3 to Form 8-K filed on January 4, 2008
10.24	Second Amendment to Purchase Agreement between St. Charles Community, LLC and Lennar Corporation dated December 31, 2007	Exhibit 10.4 to Form 8-K filed on January 4, 2008
10.25	Third Amendment to Purchase Agreement between St. Charles Community, LLC and Lennar Corporation dated November 19, 2008	Exhibit 10.1 to Form 8-K filed on November 25, 2008
10.26	Multifamily Note dated October 29, 2004 in the amount of $3,640,000 from Prescott Square, LLC to Prudential Multifamily Mortgage, Inc.	Exhibit 10.47 to Form 10-K for fiscal year ended December 31, 2004
10.27	Multifamily Note dated October 29, 2004 in the amount of $12,550,000 from Owings Chase, LLC to Prudential Multifamily Mortgage, Inc.	Exhibit 10.48 to Form 10-K for fiscal year ended December 31, 2004
10.28	Deed of Trust Note for Sheffield Greens Apartments, LLC payable to GMAC Commercial Mortgage Bank for principal sum of $27,008,400 dated August 11, 2005	Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2005
10.29	Deed of Trust for Sheffield Greens Apartments, LLC payable to GMAC Commercial Mortgage Bank for principal sum of $27,008,400 dated August 11, 2005	Exhibit 10.2 to Form 10-Q for quarter ended September 30, 2005
10.30	Security Agreement signed on August 11, 2005 between Sheffield Greens Apartment, LLC and GMAC Commercial Mortgage Bank	Exhibit 10.3 to Form 10-Q for quarter ended September 30, 2005
10.31	Legal Description attached to the survey entitled “Plat of Survey, Sheffield Greens Apartments” dated August 10, 2005	Exhibit 10.4 to Form 10-Q for quarter ended September 30, 2005
10.32	Lease, dated as of September 1, 2006, by and between the Company and Caribe Waste Technologies, Inc.	Exhibit 10.1 to Form 10-Q for quarter ended September 30, 2006
10.33	Deed of Trust Note for New Forest Apartments, LLC Payable to Wells Fargo Bank, N.A. for principal sum of $23,000,000 dated November 1, 2007	Exhibit 10.33 to 2006 Form 10-K
10.34	Employment Agreement, dated September 26, 2008, between the Company and Steve Griessel*	Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2008
10.35	Consulting Agreement, dated December 2, 2008, between the Company and Edwin L. Kelly*	Filed herewith
10.36	Deed of Trust for Gleneagles Apartments, LLC Payable to Capmark Finance, Inc. for principal sum of $25,045,200 dated January 28, 2009	Filed herewith
10.37	Security Agreement signed on January 28, 2009 between Gleneagles Apartments, LLC and Capmark Finance, Inc.	Filed herewith
21	List of Subsidiaries of American Community Properties Trust	Filed herewith
23	Consent of Independent Registered Public Accounting Firm 233	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	Filed herewith
32.1	Section 1350 Certification of Chief Executive Officer	Filed herewith
32.2	Section 1350 Certification of Chief Financial Officer	Filed herewith
*Denotes management agreement or compensatory plan or arrangement.

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

-76-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN COMMUNITY PROPERTIES TRUST
	(Registrant)
Dated:  March 31, 2009	By: /s/ Stephen K. Griessel
	Stephen K. Griessel Chief Executive Officer (Principal Executive Officer)
Dated:  March 31, 2009	By: /s/ Matthew M. Martin
	Martin M. Martin Chief Financial Officer (Principal Financial and Accounting Officer)

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

Signature	Title	Date
/s/ J. Michael Wilson J. Michael Wilson	Chairman and Trustee	March 31, 2009
/s/ Stephen K. Griessel Stephen K. Griessel	Chief Executive Officer and Trustee	March 31, 2009
/s/ Matthew M. Martin Matthew M. Martin	Chief Financial Officer	March 31, 2009
/s/ Thomas J. Shafer Thomas J. Shafer	Trustee	March 31, 2009
/s/Michael Williamson Michael Williamson	Trustee	March 31, 2009
/s/ Antonio Ginorio Antonio Ginorio	Trustee	March 31, 2009
/s/ Donald J. Halldin Donald J. Halldin	Trustee	March 31, 2009
/s/ Thomas E. Green Thomas E. Green	Trustee	March 31, 2009
/s/ Ross B. Levin Ross B. Levin	Trustee	March 31, 2009

EX-3.2

AMERICAN COMMUNITY PROPERTIES TRUST

AMENDED AND RESTATED BYLAWS

These Amended and Restated Bylaws of American Community Properties Trust are effective this 1st day of January 2009.

ARTICLE I

OFFICES

                Section 1. Principal Office. The principal office of the Trust shall be located in St. Charles, Maryland.

                Section 2. Additional Offices. The Trust may have additional offices at such places as the Trustees may from time to time determine or the business of the Trust may require.

                Section 3. Fiscal and Taxable Years. The fiscal and taxable years of the Trust shall begin on January 1 and end on December 31.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. Place. All meetings of shareholders shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the Notice of the meeting.

Section 2. Meetings of Shareholders. Time and Place. The annual meeting of shareholders as provided in Article VII, Section 1 of the Declaration of Trust shall be held between March 1 and June 30 each year. The hour and location of each meeting shall be fixed by the Trustees and included in the Notice of the meeting. If for any reason the annual meeting is not held on the date herein provided, a subsequent meeting may be held in place thereof, and any business transacted or elections held at such meeting shall be as valid as if transacted or held at the annual meetings.

Section 3. Special Meetings. The Chairman of the Board or the President or one-third of the Trustees may call special meetings of the shareholders. Special meetings of shareholders shall also be called by the Secretary upon the written request of the holders of shares entitled to cast not less than twenty-five percent (25%) of all the votes entitled to be cast at such meeting. Such request shall state the purpose of such meeting and the matters proposed to be acted on at such meting. The Secretary shall inform such shareholders of the reasonably estimated cost of preparing and mailing Notice of the meeting and, upon payment by such shareholders to the Trust of such costs, the Secretary shall give notice to each shareholder entitled to notice of the meeting.  Unless requested by shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any meeting of the shareholders held during the preceding twelve months.

Section 4. Notice. Not less than ten nor more than 90 days before each meeting of shareholders, the Secretary shall give to each shareholder entitled to vote at such meeting and to each shareholder not entitled to vote who is entitled to notice of the meeting written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail or by presenting it to such shareholder personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his post office address as it appears on the records of the Trust, with postage thereon prepaid.

Section 5. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of shareholders except as specifically designated in the notice.

Section 6. Organization. At every meeting of the shareholders, the Chairman of the Board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board, one of the following officers present shall conduct the meeting in the order stated: the Vice Chairman of the Board, if there be one, the President, the Vice Presidents in their order of rank and seniority, or a Chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast, shall act as Chairman, and the Secretary, or, in his absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretary a person appointed by the Chairman shall act as Secretary.

Section 7. Quorum. At any meeting of shareholders, the presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this Section shall not affect any requirement under any statute or the Declaration of Trust for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the shareholders, the shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

Section 8. Voting. A plurality of all the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to elect a Trustee.  A majority of the votes cast at a meeting of shareholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting unless more than a majority of the votes cast is required herein or by statute or by the Declaration of Trust. Unless otherwise provided in the Declaration, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders.

Section 9. Proxies. A shareholder may cast the votes entitled to be cast by the shares owned of record by him, either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Trust before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

Section 10. Voting of Shares by Certain Holders. Shares of the Trust registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing board of such corporation or other entity or agreement of the partners of the partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy.

Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

Section 11. Inspectors. At any meeting of shareholders, the Chairman of the meeting may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders.

Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 12. Reports to Shareholders. The Trustees shall submit to the shareholders at or before the annual meeting of shareholders a report of the business and operations of the Trust during such fiscal year, containing a balance sheet and a statement of income and surplus of the Trust, accompanied by the certification of an independent certified public accountant, and such further information as the Trustees may determine is required pursuant to any law or regulation to which the Trust is subject. Within the earlier of 20 days after the annual meeting of shareholders or 120 days after the end of the fiscal year of the Trust, the Trustees shall place the annual report on file at the principal office of the Trust and with any governmental agencies as may be required by law and as the Trustees may deem appropriate.

Section 13. Nominations and Shareholder Business.

(a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Trustees and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i)pursuant to the Trust’s notice of meeting, (ii) by or at the direction of the Trustees or (iii) by any shareholder of the Trust who was a shareholder of record at the time of giving of notice provided for in this Section 13(a), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(a).

(2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 13, the shareholder must have given timely notice thereof in writing to the Secretary of the Trust. To be timely, a shareholder’s notice shall be delivered to the Secretary at the principal executive offices of the Trust not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such shareholder’s notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Trustee all information relating to such person that is required to be disclosed in solicitations of proxies for election of Trustees, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such shareholder, as they appear on the Trust’s books, and of such beneficial owner and (y) the number of each class of shares of the Trust which are owned beneficially and of record by such shareholder and such beneficial owner.

(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 13 to the contrary, in the event that the number of Trustees to be elected to the Board of Trustees is increased and there is no public announcement naming all of the nominees for Trustee or specifying the size of the increased Board of Trustees made by the Trust at least 70 days prior to the first anniversary of the preceding year’s annual meeting, a shareholder’s notice required by this Section 13(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust.

(b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Trust’s notice of meeting. Nominations of persons for election to the Board of Trustees may be made at a special meeting of shareholders at which Trustees are to be elected (i) pursuant to the Trust’s notice of meeting (ii) by or at the direction of the Board of Trustees or (iii) provided that the Board of Trustees has determined that Trustees shall be elected at such special meeting, by any shareholder of the Trust who was a shareholder of record at the time of giving of notice provided for in this Section 13(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(b). In the event the Trust calls a special meeting of shareholders for the purpose of electing one or more Trustees to the Board of Trustees, any such shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust’s notice of meeting, if the shareholder’s notice containing the information required by paragraph (a)(2) of this Section 13 shall be delivered to the Secretary at the principal executive offices of the Trust not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Trustees to be elected at such meeting.

(c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 13. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 13 and, if any proposed nomination or business is not in compliance with this Section 13, to declare that such defective nomination or proposal be disregarded.

(2)  For purposes of this Section 13, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Sections 12, 14 or 15(d) of the Exchange Act.

(3)  Notwithstanding the foregoing provisions of this Section 13, a shareholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 13. Nothing in this Section 13 shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Trust’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

Section 14. Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting if a consent in writing, setting forth such action, is signed by each shareholder entitled to vote on the matter and any other shareholder entitled to notice of a meeting of shareholders (but not to vote thereat) has waived in writing any right to dissent from such action, and such consent and waiver are filed with the minutes of proceedings of the shareholders.

Section 15. Voting by Ballot. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any shareholder shall demand that voting be by ballot.

Section 16. Control Share Acquisition Act.  Effective October 8, 2007, the Trust elects not to be bound by Subtitle 7 of Title of the Corporations and Associations Article of the Annotated Code of Maryland.

ARTICLE III

TRUSTEES

Section 1. General Powers: Qualifications: Trustees Holding Over. The business and affairs of the Trust shall be managed under the direction of its Board of Trustees. A Trustee shall be an individual at least 21 years of age who is not under legal disability. In case of failure to elect Trustees at an annual meeting of the shareholders, the Trustees holding over shall continue to direct the management of the business and affairs of the Trust until their successors are elected and qualify.

Section 2. Annual and Regular Meetings. An annual meeting of the Trustees shall be held immediately after and at the same place as the annual meeting of shareholders, no notice other than this Bylaw being necessary. The Trustees may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Trustees without other notice than such resolution.

Section 3. Special Meetings. Special meetings of the Trustees may be called by or at the request of the Chairman of the Board or the President or by a majority of the Trustees then in office. The person or persons authorized to call special meetings of the Trustees may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Trustees called by them.

Section 4. Notice. Notice of any special meeting shall be given by written notice delivered personally, telegraphed or mailed to each Trustee at his business or residence address. Personally delivered or telegraphed notices shall be given at least two days prior to the meeting. Notice by mail shall be given at least five days prior to the meeting. Telephone or facsimile ­transmission notice shall be given at least 24 hours prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Telephone notice shall be deemed given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile-transmission notice shall be deemed given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed answer-back indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Trustees need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 5. Quorum. A majority of the entire Board of Trustees shall constitute a quorum for transaction of business at any meeting of the Trustees, provided that, if less than a majority of such Trustees are present at said meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the

Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group.

The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum.

Section 6. Voting. (a) Except as provided in subsection (b) of this Section 6, the action of the majority of the Trustees present at a meeting at which a quorum is present shall be the action of the Trustees, unless the concurrence of a greater proportion is required for such action by applicable statute.

(b) Notwithstanding anything in these Bylaws to the contrary, any action pertaining to any transaction involving the Trust, including the purchase, sale, lease, or mortgage of any real estate asset or any other transaction, in which a Trustee or officer of the Trust, or any Affiliate (as defined in the Declaration of Trust of the Trust) of any of the foregoing persons, has any direct or indirect interest other than solely as a result of his status as a Trustee, officer, or shareholder of the Trust, must be approved by a majority of the Independent Trustees (as defined in the Declaration of Trust), even if the Independent Trustees constitute less than a quorum.

Section 7. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 8. Informal Action by Trustees. Any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting, if a consent to such action is given in writing or by electronic transmission and signed by each Trustee (by electronic means or otherwise), and such written consent is filed in paper or electronic form with the minutes of proceedings of the Trustees.

Section 9. Vacancies. If for any reason any or all the Trustees cease to be Trustees, such event shall not terminate the Trust or affect these Bylaws or the powers of the remaining Trustees hereunder (even if fewer than two Trustees remain). Any vacancy (excluding a vacancy created by the removal of a Trustee by shareholder vote) shall be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining Trustees. Any individual so elected as Trustee shall hold office for the unexpired term of the Trustee he is replacing.

   Section 10. Compensation. Trustees that are not employees of the Trust or any of its affiliates shall each receive a fee of $10,000 per quarter. Additionally, the Chairman of the Audit Committee shall receive an additional $2,500 per quarter; the Chairman of the Compensation Committee shall receive an additional $750 per quarter; and the Chairman of the Nominating Committee shall receive an additional $750 per quarter. All such quarterly fees shall be paid in arrears on the last business day of the quarter. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Trustees or of any committee thereof, and for their expenses, if any, in connection with each property visit and any other service or activity performed or engaged in as Trustees, but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. Trustees are eligible to participate in any share incentive plan adopted for such purpose by the Trust, and shall each receive, immediately following each annual meeting of shareholders, an annual grant of restricted shares valued at $30,000 based on the terms of the Company's share incentive plan, which shall entitle the holder to any dividends declared on the Trust's common shares and shall become fully vested on the first anniversary of the grant date.

Section 11. Resignation and Removal of Trustees. (a) Any Trustee may resign by providing written notice to that effect to the Secretary, the President or the Board of Trustees.

(b) The shareholders may, at any time, remove any Trustee in the manner provided in the Declaration of Trust.

Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or shares have been deposited.

Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties.

Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel or upon reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Trustees or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee.

Section 15. Number and Qualifications. The number of Trustees of the Trust shall not be less than three (3) nor more than nine (9). The Trustees shall be classified, with respect to the terms for which they severally hold office, into separate classes, in the manner prescribed in the Trust’s Declaration of Trust. At any regular meeting or at any special meeting called for that purpose, at least two thirds of the members of the Board of Trustees shall establish, increase or decrease the number of Trustees, provided that the number thereof shall never be less than required by Maryland law and further provided that the tenure of office of a Trustee shall not be affected by any decrease in the number of Trustees. Trustees need not be shareholders of the Trust.

Section 16. Interested Trustee Transactions. Section 2-419 of the Maryland General Corporation Law (the "MGCL") shall be available for and apply to any contract or other transaction between the Trust and any of its Trustees or between the Trust and any other trust, corporation, firm or other entity in which any of its Trustees is a trustee or director or has a material financial interest.

ARTICLE IV

COMMITTEES

Section 1. Number. Tenure and Qualifications: Vacancies. The Board of Trustees may appoint from among its members an Audit Committee, Compensation Committee and other committees comprised of two or more Trustees. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Trustees.

Subject to the provisions hereof, the Board of Trustees shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternative members to replace any absent or disqualified member, or to dissolve any such committee.

Section 2. Powers. The Trustees may delegate to committees appointed under Section 1 of this Article any of the powers of the Trustees, except as prohibited by law.

Section 3. Meetings. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member.

One-third, but not less than two, of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee. The Board of Trustees may designate a chairman of any committee, and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any such committee, the members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another Trustee to act at the meeting in the place of such absent or disqualified members; provided, however, that in the event of the absence or disqualification of an Independent Trustee, such appointee shall be an Independent Trustee.

Each committee shall keep minutes of its proceedings and shall report the same to the Board of Trustees at the meeting next succeeding, and any action by the committees shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration.

Section 4. Telephone Meetings. Members of a committee of the Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 5. Informal Action by Committees. Any action required or permitted to be taken at any meeting of a committee of the Trustees may be taken without a meeting, if a consent to such action is given in writing or by electronic transmission and signed by each member of the committee (by electronic means or otherwise), and such written consent is filed in paper or electronic form with the minutes of proceedings of such committee.

ARTICLE V

OFFICERS

Section 1. General Provisions. The officers of the Trust (who may be employed by any affiliate thereof) shall consist of a Chairman of the Board (who shall be a Trustee), one or more Chief Operating Officers, a President, one or more Vice Presidents, a Treasurer, one or more Assistant Treasurers, a Secretary, and one or more Assistant Secretaries. In addition, the Trustees may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Trust shall be elected annually by the Trustees at the first meeting of the Trustees held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualified or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices except President and Vice President may be held by the same person. In their discretion, the Trustees may leave unfilled any office except that of President and Secretary. Election of an officer or agent shall not of itself create contract rights between the Trust and such officer or agent.

Section 2. Removal and Resignation. Any officer or agent of the Trust may be removed by the Trustees if in their judgment the best interests of the Trust would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Trust may resign at any time by giving written notice of his resignation to the Trustees, the Chairman of the Board, the President, or the Secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust.

Section 3. Vacancies. A vacancy in any office may be filled by the Trustees for the balance of the term.

Section 4. Chief Executive Officer. The Trustees may designate a Chief Executive Officer from among the elected officers. The Chief Executive Officer shall have responsibility for implementation of the policies of the trust, as determined by the Trustees, and for the administration of the business affairs of the Trust. In the absence of the Chairman the Chief Executive Officer shall preside over the meetings of the Trustees and of the shareholders at which he shall be present.

Section 5. Chief Operating Officer. The Trustees may designate one or more Chief Operating Officers from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Trustees.

Section 6. Chief Financial Officer. The Trustees may designate a Chief Financial Officer from among the elected officers. Said officer will have the responsibilities and duties as set forth by the Trustees or the Chief Executive Officer.

Section 7. Chairman of the Board. The Chairman of the Board shall preside over the meetings of the Trustees and of the shareholders at which he shall be present and shall in general oversee all of the business and affairs of the Trust. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at such meetings at which he shall be present. The Chairman may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed. The Chairman of the Board shall perform such other duties as may be assigned to him or them by the Trustees.

Section 8. President. In the absence of the Chairman and the Chief Executive Officer, the President shall preside over the meetings of the Trustees and of the shareholders at which he shall be present. In the absence of a designation of a Chief Executive Officer by the Trustees, the President shall be the Chief Executive Officer and shall be ex officio a member of all committees that may, from time to time, be constituted by the Trustees. The President may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Trustees or by these Bylaws to some other officer or agent of the Trust or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Trustees from time to time.

Section 9. Vice President. In the absence of the President or in the event of a vacancy in such office, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the President and when so acting shall have all the powers and be subject to all the restrictions upon the President; and shall perform such other duties as from time to time may be assigned to him by the President or by the Trustees. The Trustees may designate one or more Vice Presidents as Executive Vice President or as Vice President for particular areas of responsibility.

Section 10. Secretary. The Secretary shall (i) keep the minutes of the proceedings of the shareholders, the Trustees and committees of the Trustees in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) be custodian of the trust records and of the seal of the Trust; (iv) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (v) have general charge of the share transfer books of the Trust; and (vi) in general perform such other duties as from time to time may be assigned to him by the Chief Executive Officer, the President or by the Trustees.

Section 11. Treasurer. The Treasurer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Trustees.

He shall disburse the funds of the Trust as may be ordered by the Trustees, taking proper vouchers for such disbursements, and shall render to the President and Trustees, at the regular meetings of the Trustees or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Trust.

If required by the Trustees, he shall give the Trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Trustees for the faithful performance of the duties of his office and for the restoration to the Trust, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Trust.

Section 12. Salaries. The salaries of the officers shall be fixed from time to time by the Trustees and no officer shall be prevented from receiving such salary by reason of the fact that he is also a Trustee.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. Contracts. The Trustees may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding upon the Trustees and upon the Trust when authorized or ratified by action of the Trustees.

Section 2. Checks and Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or officers, agent or agents of the Trust in such manner as shall from time to time be determined by the Trustees.

Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Trustees may designate.

ARTICLE VII

SHARES

   Section 1.  Certificated and Uncertificated Shares. Shares of beneficial interest in the Trust may be certificated or uncertificated, as provided under Maryland law. All certificates of beneficial interest of the Trust shall be numbered and shall be entered in the books of the Trust as they are issued.  They shall exhibit the holder’s name and number of shares and shall be signed by the Chief Executive Officer, the President or the Vice President, countersigned by the Secretary or an Assistant Secretary, the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of the Trust.  Any or all of the signatures on the certificate may be manual or facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Trust with the same effect as if he were such officer, transfer agent or registrar.  Each certificate representing shares which are restricted as to their beneficial ownership or transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate.  In lieu of such statement or summary, the Trust may set forth upon the face or back of the certificate a statement that the Trust will furnish to any shareholder, upon request and without charge, a full statement of such information.  At the time of issue or transfer of shares without certificates, the Trust shall send the shareholder a written statement of information required on the certificates by Section 8-203 of the Maryland REIT Law.

       Section 2.  Transfers. Each certificate for shares of beneficial interest which are subject to any restriction on transfer pursuant to the Declaration of Trust, these Bylaws, applicable securities laws or any agreement among any number of shareholders or among such holders and the Trust shall have conspicuously noted on the face or back the certificate either the full text of the restriction or a statement of the existence of such a restriction.

    Except as otherwise established by rules and regulations established by the Board of Trustees, and subject to applicable law, transfers of shares of beneficial interest shall be made on the books of the Trust by the surrender to the Trust or its transfer agent of a share certificate representing such shares, in the case of shares of beneficial interest represented by a certificate, or uncertificated security, in either case, properly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the Trust or its transfer agent may reasonably require.  Except as may be otherwise required by law, the Declaration of Trust or these Bylaws, the Trust shall be entitled to treat the record holder of beneficial interest as shown on its books as the owner of such beneficial interest for all purposes, including the payment of dividends and the right to vote with respect to such beneficial interest, regardless of any transfer, pledge or other disposition of such beneficial interest, until the shares have been transferred on the books of the Trust in accordance with the requirements of these Bylaws.

                  Section 3. Replacement Certificate. Any officer designated by the Trustees may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the officer designated by the Trustees may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

                  Section 4. Closing of Transfer Books or Fixing of Record Date. The Trustees may set, in advance, a record date for the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or determining shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of shareholders for any other purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of shareholders not less than ten days, before the date on which the meeting or particular action requiring such determination of shareholders of record is to be held or taken.

In lieu of fixing a record date, the Trustees may provide that the share transfer books shall be closed for a stated period but not longer than 20 days. If the share transfer books are closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days before the date of such meeting.

If no record date is fixed and the share transfer books are not closed for the determination of shareholders, (i) the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (ii) the record date for the determination of shareholders entitled

to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Trustees, declaring the dividend or allotment of rights, is adopted.

                   When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein.

                   Section 5. Stock Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each shareholder and the number of shares of each class held by such shareholder.

                  Section 6. Fractional Shares: Issuance of Units. The Trustees may issue fractional shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws, the Trustees may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Trustees may provide that for a specified period securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit.

ARTICLE VIII

SEAL

Section 1. Seal. The Trustees may authorize the adoption of a seal by the Trust. The seal shall have inscribed thereon the name of the Trust and the year of its formation. The Trustees may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. Affixing Seal. Whenever the Trust is required to place its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Trust.

ARTICLE IX

INDEMNIFICATION AND ADVANCE FOR EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Trust, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify (i) any Trustee, officer or shareholder or any former Trustee, officer or shareholder (including among the foregoing, for all purposes of this Article X and without limitation, any individual who, while a Trustee, officer or shareholder and at the express request of the Trust, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, shareholder, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) who has been successful, on the merits or otherwise, in the defense of a proceeding to which he was made a party by reason of service in such capacity, against reasonable expenses incurred by him in connection with the proceeding, (ii) any Trustee or officer or any former Trustee or officer against any claim or liability to which he may become subject by reason of such status unless it is established that (a) his act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (b) he actually received an improper personal benefit in money, property or services or (c) in the case of a criminal proceeding, he had reasonable cause to believe that his act or omission was unlawful and (iii) each shareholder or former shareholder against any claim or liability to which he may become subject by reason of such status. In addition, the Trust shall pay or reimburse, in advance of final disposition of a proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or former Trustee, officer or shareholder made a party to a proceeding by reason such status, provided that, in the case of a Trustee or officer, the Trust shall have received (a) a written affirmation by the Trustee or officer of his good faith belief that he has met the applicable standard of conduct necessary for indemnification by the Trust as authorized by these Bylaws and (b) a written undertaking by or on its behalf to repay the amount paid or reimbursed by the Trust if it shall ultimately be determined that the applicable standard of conduct was not met. The Trust may, with the approval of its Trustees, provide such indemnification or payment or reimbursement of expenses to any Trustee, officer or shareholder or any former Trustee, officer or shareholder who served a predecessor of the Trust and to any employee or agent of the Trust or a predecessor of the Trust. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Declaration of Trust or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of this Article with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

Any indemnification or payment or reimbursement of the expenses permitted by these Bylaws shall be furnished in accordance with the procedures provided for indemnification or payment or reimbursement of expenses, as the case may be, under Section 2-418 of the MGCL for directors of Maryland corporations. The Trust may provide to Trustees, officers and shareholders such other and further indemnification or payment or reimbursement of expenses, as the case may be, to the fullest extent permitted by the MCCL, as in effect from time to time, for directors of Maryland corporations.

ARTICLE X

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the Declaration of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XI

AMENDMENT OF BYLAWS

The Trustees shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

ARTICLE XII

MISCELLANEOUS

All references to the Declaration of Trust shall include any amendments thereto.

EX-10.35

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (“Agreement”) is made and entered into this 2nd day of December 2008, by and between American Rental Management Company, a Delaware corporation (the “Company”), and Edwin L. Kelly (the “Consultant”).

RECITALS

WHEREAS, the Company is a wholly-owned subsidiary of American Community Properties Trust (“ACPT”) and provides management and other services to ACPT;

WHEREAS, the Consultant has been an executive officer of the Company for numerous years and therefore possesses unique and valuable experience and expertise relating to the Company;

WHEREAS, in order to provide continuity of management and to take advantage of the Consultant’s expertise, ACPT, through the Company, wishes to secure the services of the Consultant, and the Consultant wishes to provide such services, in accordance with the terms and subject to the conditions provided herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties agree to be bound by the following terms and conditions:

I.POSITION

A.           The Company hereby engages the Consultant, and the Consultant hereby agrees, to serve as principal business consultant to ACPT and the Company, and shall be available to provide consulting services as requested from time to time by the Board of Trustees of ACPT (the “Board”) or the Chief Executive Officer.  The Consultant shall report directly to the Chief Executive Officer and shall render such services to ACPT as are customarily rendered by a consultant, including, but not limited to, advising ACPT on general business strategies, strategic opportunities, and other matters related to the business of ACPT and its affiliates.

B.           The Consultant shall not be required to provide more than 250 hours of services during each year that this Agreement is in effect.

II.TERM

The term of this Agreement (the “Term”) shall commence on the date hereof, shall continue for a term of one year (“Term”), and shall renew automatically on a year to year basis unless Consultant or the Company gives the other notice of his/its intent not to renew this Agreement at least thirty (30) days prior to the date on which employment would otherwise renew for a successive one year period under this Agreement.  Notwithstanding the preceding, the Agreement may be terminated as set forth herein:

A.If the Consultant dies, the Consultant’s engagement and this Agreement shall terminate automatically upon such date of death and the Company shall have no further obligations hereunder, subject to Section IV.B.

B.In the event that the Consultant becomes Disabled during the Term, the Company at its option may terminate Consultant’s engagement and this Agreement, in which case the Company shall have no further obligations hereunder.  For purposes of this Agreement, the Consultant shall become “Disabled” at such time as the Consultant has a physical or mental condition, verified by a physician designated by the Company, which in the judgment of the Board prevents the Consultant from carrying out one or more of the material aspects of his assigned duties for at least 120 consecutive days or for more than one hundred twenty (120) cumulative days in any 12 month period.  The Consultant agrees, upon request of the Board, at a time convenient to the Consultant during a 30-day period designated by the Board, to submit to any medically reasonable examination by a physician designated by the Company.

C.The Company may, at its election, terminate the Consultant’s engagement and this Agreement for cause.  For purposes of this Agreement, “cause” shall be defined as (1) Consultant’s conviction of, or plea of nolo contendere to, a felony or any crime involving dishonesty, disloyalty, fraud, or moral turpitude; (2) Consultant’s material breach of any material obligation in this Agreement; (3) Consultant’s engaging in conduct constituting a material breach of any fiduciary duty to the Company or ACPT; or (4) any act of dishonesty, fraud, theft, misrepresentation, or embezzlement by Consultant that harms or injures the Company or ACPT;  In the event the Company elects to terminate the Consultant’s engagement for cause, such termination may be made effective immediately, and no advance notice shall be required.  The decision to terminate the Consultant’s engagement for cause must be approved by the Board.

D.Either the Company or the Consultant may elect to terminate this Agreement without cause.  In such a case, advance written notice of termination shall be delivered by the terminating party to the non-terminating party at least thirty (30) days prior to the end of the Term.  In addition, if the Company terminates the engagement without cause or the Consultant terminates the engagement for “Good Reason,” the Company agrees to pay the Consultant the remaining fee payments due hereunder for the balance of the Term.  The decision to terminate the Consultant’s engagement without cause must be approved by the Board.

    For purposes of this Agreement, the Consultant shall have terminated the Agreement for a Good Reason if the Consultant terminates the Agreement within 30 days of prior written notice to the Company following the occurrence of (1) the Company instructing the Consultant, despite his written objection delivered to the Board, to take any action which is in violation of any law, ordinance or regulation or would require any act of dishonesty or moral turpitude; or (2) the Company committing a material breach of any of the provisions of this Agreement, provided that the Company fails to remedy those circumstances within thirty (30) days of its receipt of notice.

E.In the event that ACPT sells all, or substantially all, of its assets, this Agreement shall terminate automatically upon the date of such sale, and neither party shall have any further obligations hereunder, subject to Section IV.B.

III.DUTIES AND RESPONSIBILITIES

A.During the period of his engagement hereunder, the Consultant shall not, without the written consent of the Board or a person authorized by the Board, disclose to any person other than as required by law or court order, or other than to an authorized employee of the Company or its affiliates, or to a person to whom disclosure is necessary or appropriate in connection with the performance by the Consultant of his duties as an Consultant of ACPT and the Company any Confidential Information obtained by him while serving as a consultant to the Company with respect to any of ACPT’s or its affiliates’ products, services, customers, suppliers, marketing techniques, methods or future plans.  For purposes of this Agreement, “Confidential Information” means information that is not generally known or available to the public and which is used, developed or obtained by ACPT and its affiliates, including the Company, relating to its business and the businesses of its clients, vendors, agents, brokers or customers, including, but not limited to: business and marketing strategies; distribution channels; products or services; fees, costs and pricing structures; marketing information; advertising and pricing strategies; analyses; reports; computer software, including operating systems, applications and program listings; flow charts; manuals and documentation; data bases; accounting and business methods; inventions and new developments and methods, whether patentable or unpatentable and whether or not reduced to practice; all copyrightable works; information relating to the Company’s existing and prospective clients, vendors, agents, brokers or customers and their confidential information; existing and prospective client, vendor, agent, broker or customer lists and other data related thereto; information relating to the Company’s employees; all trade secret information protected by the federal Economic Espionage Act of 1996, 18 U.S.C. §1831 et seq.; and all similar and related information in whatever form.  Confidential Information shall not include any information that has been published in a form generally available to the public (through no wrong doing of Executive or anyone else) prior to the date upon which Executive proposes to disclose such information.  The Consultant shall be allowed to disclose Confidential Information to his attorney solely for the purpose of ascertaining whether such information is confidential within the intent of this Agreement; provided, however, that the Consultant (a) discloses to his attorney the provisions of this subsection A and (b) agrees not to waive the attorney-client privilege with respect thereto.

B.Nothing in this Agreement shall be deemed to restrict the Consultant from pursuing or engaging in other business activities provided that such activities do not unreasonably interfere with the performance of his responsibilities hereunder.

C.Consultant agrees that any ideas, inventions and materials created by him in connection with this Agreement will be the property of the Company  All works of authorship prepared by the Consultant under this Agreement will be “works made for hire” for the Company and will be deemed the sole author thereof, automatically upon their creation, as contemplated by Section 101 of the United States Copyright Act of 1976 as amended.  In the event that any such work is not a work made for hire, Consultant hereby irrevocably transfers and assigns to the Company in perpetuity throughout the world and in all media channels of distribution now or hereafter known, any and all rights, title and interests, including but not limited to the copyright and other proprietary rights, effective automatically as of the creation thereof.  In addition, Consultant irrevocably transfers and assigns to the Company in perpetuity throughout the world any and all rights, title and interests, including but not limited to copyrights, patent rights, trade secrets, trademarks and other proprietary rights, in and to all ideas, inventions and materials created by him in connection with or arising out of this Agreement, effective automatically as of the creation thereof.

IV.COMPENSATION

A.The Company shall pay the Consultant an annual fee of One Hundred Twenty Thousand Dollars (US $120,000) for each Term that this Agreement is in place.  In the event that the Consultant is engaged under this Agreement for any portion of a year, the Consultant shall be entitled to receive a pro rata amount of the applicable annual fee.  The Consultant’s fee shall be paid in semi-monthly installments on the fifteenth (15th) day and last day of each calendar month.

B.The Company shall promptly reimburse Consultant for the cost of all expenses reasonably incurred by him in rendering services hereunder; provided, however, that Consultant is expected to use his own equipment, supplies and tools unless specifically agreed otherwise with the Company.  If any costs and expenses are to be paid by the Company, Consultant must present valid receipts satisfactory to the Company.  The compensation provided for herein constitutes full consideration for the services set forth herein.

V.INDEPENDENT CONTRACTOR

A.           Consultant is retained by the Company solely for the purposes set forth herein.  Consultant shall not have the power to bind ACPT or the Company nor shall he make any such representation.  Consultant’s relation to Company shall be that of an independent contractor.

B.           Consultant understands and agrees that in the performance of this Agreement he is acting as an independent contractor and is not, and will not hold himself out to be, an agent or employee of the Company by virtue of this Agreement.  Consultant will perform the services outlined in this Agreement under the general direction of the Company, but Consultant will determine, in his reasonable discretion, the manner and means by which the services are accomplished, subject to the requirement that Consultant shall at all times comply with applicable law and proper business practices and meet accepted professional and industry standards.

C.           As an independent contractor, Consultant has the responsibility and agrees to file all returns required by law and at all times to abide by applicable federal, state, and local law requirements, assuming sole liability for all self-employment and income taxes due on income earned pursuant to this Agreement.  The Company will not treat Consultant as an employee, with respect to performance under this Agreement, for federal, state or local tax purposes or otherwise.  The Company will not be responsible for payment of workers’ compensation insurance or unemployment compensation or disability insurance, or for withholding or paying employment-related taxes based on services Consultant provides under this Agreement.  Consultant acknowledges, pursuant to this Agreement, that he is not entitled to any rights or benefits (including, but not limited to, vacation and insurance) to which the Company employees may be entitled.  Consultant agrees to indemnify and hold the Company harmless from any liabilities, claims or actions relating to employment taxes or benefits

VI.ARBITRATION

A.Any dispute or controversy arising between the Consultant and the Company relating to this Agreement shall be submitted to private, binding arbitration, upon the written request of either the Consultant or the Company, before a panel of three arbitrators, under the administration of and in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), such arbitration to be held in Washington, D.C., or as otherwise determined by the arbitrators.  In the event of such dispute or controversy, the Company and the Consultant shall independently and simultaneously select and identify one arbitrator each, both of whom must have no past or present familial or business relationships with the parties and must possess expertise in the area of compensation of senior management employees in the real estate industry.  In the event that a party has not selected its arbitrator within 60 days of initiation of the arbitration, the AAA shall select such arbitrator.  These two arbitrators shall jointly agree upon and select a third arbitrator who also possesses such credentials.  These three arbitrators shall hear and decide the dispute or controversy by majority vote, and their decision and award shall be final and conclusive upon the parties, and their heirs, administrators, executors, successors, and assigns.  The arbitrators shall have no power or authority to add to, subtract from, or otherwise modify the terms of this Agreement.  Wherever the Commercial Arbitration Rules of the AAA conflict with the procedures set forth in this section, the terms of this section shall govern.  The Consultant and the Company agree that the arbitration must be initiated by personally delivering a statement of claim to the AAA and to the party against whom the claim is asserted no later than ninety (90) days after the basis of the claim becomes known, or reasonably should have been known or discovered, by the party asserting the claim.  In the event arbitration is not initiated within such ninety (90) day period, such claim, dispute, or controversy shall be irrevocably time-barred.  A judgment based upon such arbitration award may be entered in any court having jurisdiction thereof.

B.Notwithstanding the foregoing, any action brought by the Company seeking a temporary restraining order, temporary and/or permanent injunction, and/or a decree of specific performance of the terms of this Agreement may be brought in a court of competent jurisdiction without the obligation to proceed first to arbitration.

VII.ASSIGNABILITY AND BINDING EFFECT

The Consultant may not assign this Agreement, or any obligation or rights hereunder, to any other person or entity without the consent of the Company.  This Agreement shall be binding upon the Consultant and his heirs, executors, administrators, and successors.

VIII.GOVERNING LAW

This Agreement shall be governed by the laws of the State of Delaware (excluding the choice-of-law rules thereof).

IX.CAPTIONS

All captions contained in this Agreement are for convenience only and in no way define or describe the intent of the parties or specific terms hereof

X.SEVERABILITY

If any provision of this Agreement shall to any extent be held invalid or unenforceable, the remaining terms and provisions shall not be affected thereby.

XI.ENTIRE AGREEMENT

This Agreement contains the entire agreement between the parties relating to the subject matter hereof.  All prior negotiations or stipulations concerning any matter which preceded or accompanied the execution hereof are conclusively deemed to be superseded hereby.

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Consultant and such officer or director as may be specifically designated by the Board.  The failure of either party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement.

XII.NOTICES; MISCELLANEOUS

For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be duly given when delivered by hand or facsimile transmission or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Company:

American Rental Management Company

222 Smallwood Village Center

St. Charles, Maryland 20602

Attention:  President

If to the Consultant:

Mr. Edwin I. Kelly

6150 Simms Drive

LaPlata,  Md 20646

or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

XIII.                      RETURN OF RECORDS

Upon expiration or termination of this Agreement, Consultant shall deliver to the Company all records, notes, data, memoranda, models or other materials in any form that relate to the provision of services hereunder, any ideas, inventions, materials and works of authorship created hereunder to which the Company or ACPT has ownership rights and any Confidential Information, including all copies and evidence of the foregoing in any form.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first set forth above.

AMERICAN RENTAL MANAGEMENT COMPANY

 Date: December 2, 2008 By:

President

 Date: December 2, 2008  Edwin L. Kelly

EX-10.36

DEED OF TRUST

THIS DEED OF TRUST (“Deed of Trust”), made and entered into this 22nd day of January, in the year 2009, by and between GLENEAGLES APARTMENTS, LLC, a limited liability company organized and existing under the laws of the State of Delaware, having its principal place of business at 222 Smallwood Village Center, St. Charles, Maryland 20602  hereinafter referred to as the ‘‘Grantor,” and David A. Barsky, Esq.,of Washington, D.C., as Trustee, hereinafter referred to as the “Trustee,” and CAPMARK FINANCE INC., a California corporation, with its principal office in Horsham, Pennsylvania, and hereinafter referred to as the “Beneficiary” (which designations shall include the respective successors and assigns and the successors in the interest of the several parties).

WHEREAS, the Grantor is justly indebted to the Beneficiary in the principal sum of TWENTY-FIVE MILLION FORTY-FIVE THOUSAND TWO HUNDRED AND NO/100THS DOLLARS ($25,045,200.00), evidenced by a note of even date herewith bearing interest at Six and nine tenths per centum (6.90%) per annum, payable in monthly installments with a final maturity of July 1, 2050, which note is identified as being secured hereby by a certificate thereon.

AND WHEREAS, the Grantor desires to secure to the Beneficiary the full and punctual payment of said debt and interest thereon, and the performance of the covenants herein contained, as well as any and all renewals or extension of said note, or of any part thereof, with interest thereon, and also to secure the reimbursement to the holder or holders of said note and to the Trustee or substitute trustee, and any purchaser or purchasers, grantee or grantees under any sale or sales under the provisions of this Trust for all money which may be advanced as herein provided for, and for any and all costs and expenses (including reasonable attorney’s fees) incurred or paid on account of any litigation at law or in equity which may arise in respect to this Trust, or to the indebtedness or to the property herein mentioned, or in obtaining possession of the premises after any sale which may be made as hereinafter provided for.

NOW, THEREFORE, THIS DEED OF TRUST WlTNESSETH: That the said Grantor, in consideration of the premises and of One Dollar ($1), to it in hand paid by the Trustee (the receipt of which, before the sealing and delivery of these presents, is hereby acknowledged), has granted and conveyed, and does hereby grant and convey unto the Trustee, in fee simple, the following-described land and premises with the easements, rights, ways, and appurtenances thereunto belonging, situate, and lying in Charles County, State of Maryland, more particularly described as follows:

PLEASE SEE EXHIBIT “A” LEGAL DESCRIPTION

ATTACHED HERETO AND MADE PART HEREOF

      TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, steam and hot water boilers, stoves, ranges, elevators, and motors, bathtubs, sinks, water closets, basins, pipes, faucets and other plumbing and heating fixtures, mantels, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenances, furniture, shades, awnings, screens, blinds and other furnishings; and

                 TOGETHER with all of the rents, issues, and profits which may arise or be had therefrom, and all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands herein described which are necessary the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all goods and chattels and personal property as are ever used or furnished in operating a building or the activities conducted therein, similar to the one described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner. The parties hereto agree that to the extent permitted by law the foregoing property shall be deemed to be real estate and affixed to the realty; and

TOGETHER with all building materials and equipment now or hereafter delivered to said premises and intended to be installed therein

TO HAVE AND TO HOLD the above granted and bargained premises together with all the appurtenances, unto said Trustee, its successors in this trust and assigns forever, to its and their proper use and behoof.

IN AND UPON THE USES AND TRUSTS FOLLOWING, that is to say:

FIRST. Until any default in payment of any matter of indebtedness hereby secured as herein provided for, or until breach of any of the covenants herein contained, to permit the said Grantor, its successors and assigns, to possess and enjoy said land and premises and to receive the rents, issues and profits thereof, and on full payment of said note, and of any extensions or renewals thereof, and interest thereon and all sums advanced or expended as herein provided, and all other proper costs, charges, expenses commissions, and half-commissions, at any time before the sale hereinafter provided for, to release and reconvey unto and at the cost of the said Grantor, or the party or parties then claiming under it. the aforesaid land and premises.

SECOND. Upon any default being made in the payment of said note or of any installment of principal or interest thereon, or any renewal or extension thereof or of any note or notes hereafter given for interest covering any extension, with interest thereon from maturity of the same, when and as the same shall become due and payable, or upon any default in payment, when due of any tax, water rate or assessment, general or special now or hereafter assessed against said land and premises, or any past thereof, while this Trust exists, or upon any default in keeping, while this Trust exists, the buildings or other improvements now or hereafter erected on said land insured against loss by fire or other hazard in companies and amounts satisfactory to the Beneficiary, and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner; or upon default in payment of demand of any sum or sums advanced by the holder or holders of said note on account of any costs and expenses of this Trust, or on account of any such tax or assessment, water rate or insurance, or expense of litigation, or on account of any lien, deed of trust, or mortgage on said land and premises prior in lien to this Trust, with interest thereon at the rate specified in the note from date of advance; or upon default in the performance of any of the covenants or agreements herein or in said note contained, then upon any and every such default so made as aforesaid and a continuation thereof for thirty (30) days after written notice as hereinafter provided, the said Trustee, or sub­stitute trustee, shall sell the aforesaid land and premises and improvement at public auction at such time and place, upon such terms and conditions, and after such previous public notice, with such postponement of sale or resale, as the Trustee, or substitute trustee, shall deem best for the interest of all parties concerned; and (the terms of sale be in complied with) shall convey the same in fee to the purchasers at the cost of Grantor or of the purchaser of the land, premises and improvements so sold, such purchaser being hereby discharged from all liability for the application of the purchase money; shall apply the proceeds of sale (after paying all expenses of sale, all taxes, water rates, and assessments thereon due, all sums advanced as herein provided for, with interest as aforesaid, and a trustee’s commission of one per centum (1%) on the gross amount of sales), to the payment of the aforesaid indebtedness or such much thereof as may then remain unpaid, whether then due or not, and the interest thereon to date of payment (it being agreed that the said note shall, upon such sale being made before the maturity of said note, or before the maturity of any renewal or extension thereof, be and become immediately due and payable, at the election of the holder thereof), paying over the surplus, if any, to the said Grantor, its successors or assigns, upon the surrender and delivery to the purchaser, his, her its or their heirs or assigns, of possession of the land, premises, and improvements so sold and conveyed, as aforesaid, less the expense, if any, of obtaining possession thereof.

The Grantor, in order more fully to protect the security hereof, covenants and agrees as follows:

1.           That it will pay the note at the times and in the manner provided therein.

2.           That it will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Deed of Trust was executed.

3.           That the Regulatory Agreement, if any, executed by the Grantor and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, which is being recorded simultaneously herewith, is incorporated in and made a part of this Deed of Trust. Upon default under the Regulatory Agreement and upon the request of the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Beneficiary, at its option, may declare this Deed of Trust in default and may declare the whole of the indebtedness secured hereby to be due and payable.

4.           That all rents, profits and income from the property covered by this Deed of Trust are hereby assigned to the Beneficiary for the purpose of discharging the debt hereby secured. Permission is hereby given to Grantor, so long as no default exists hereunder, to collect such rents, profits and income.

5.           That upon default hereunder Beneficiary shall be entitled to the appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom.

6.           That at the option of the Grantor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, if a partial prepayment results from an award in condemnation in accordance with provisions of paragraph 16 herein, or from an insurance payment made in accordance with provisions of paragraph 11 herein, where there is a resulting loss of project income.

7.           That, in order more fully to protect the security of this Deed of Trust, the Grantor, together with and in addition to, the monthly payments of interest or of principal and interest under the terms of the note secured hereby beginning on the first day of the first month after the date hereof and monthly thereafter until the said note is fully paid, will pay to the Beneficiary the following sums:

(a) An amount sufficient to provide the Beneficiary with funds to pay the next mortgage insurance premium if this instrument and the note secured hereby are insured, or a monthly service charge, if they are held by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, as follows:

(I) If and so long as said note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Beneficiary one (1) month prior to its due date the annual mortgage insurance premium, in order to provide such Beneficiary with funds to pay such premium to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or

(II) Beginning with the first day of the month following an assignment of this instrument and the note secured hereby to the Secretary of Housing and Urban Development, acting by and through the Commissioner, a monthly service charge which shall be an amount equal to one-twelfth (1/12) of one half (1/2) per centum of the average outstanding principal balance due on the note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments.

(b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other property insurance covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Beneficiary) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes, and special assessments.

(c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the note secured hereby shall be added together and the aggregate amount thereof shall be paid each month in a single payment to be applied by Beneficiary to the following items in the order set forth:

(I) premium charges under the Contract of Insurance with the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner or service charge,

(II) ground rents, taxes, special assessments, water rates, property insurance premiums,

(III) interest on the note secured hereby;

(IV) amortization of the principal of said note.

Any deficiency in the amount of any such aggregate monthly payment shall, unless paid prior to the due date of the next such payment, constitute a default under this Deed of Trust.

8.           Any excess funds accumulated under (b) of the preceding paragraph remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor the Grantor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default hereunder.  In case of termination of the Contract of Mortgage Insurance by prepayment of the debt in full, or otherwise (except as hereinafter provided), accumulations under (a) of the preceding paragraph hereof not required to meet payments due under the Contract of Mortgage Insurance, shall be credited so the Grantor. If the property is sold under foreclosure or is otherwise acquired by the Beneficiary after default, any remaining balance of the accumulations under the preceding paragraph shall be credited to the principal of the debt secured hereby as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired, and accumulations under (a) of the preceding paragraph shall be likewise credited unless required to pay sums due the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner under the Contract of Mortgage Insurance.

9.           That the Grantor will pay all ground rents, if any, taxes, assessments, water rates and other governmental or municipal charges or imposi­tions to the extent provision therefor has not been made by monthly payments as hereinbefore provided before the same become delinquent or subject to interest or penalties, and in default thereof the Beneficiary may pay the same. All such sums so paid by the Beneficiary plus any sums which the Beneficiary has advanced to pay mortgage insurance premiums or property and other hazard insurance premiums not provided for by monthly payments hereunder shall be added to the principal sum secured by this Deed of Trust, shall bear interest at the rate specified in the note from the date of the advance and shall be due and payable to the Beneficiary upon demand.

10.           To keep all buildings, fences and other improvements now or hereafter erected on said land and premises in good order and repair and not to do or permit waste.

11.           That the Grantor will keep the improvements now existing or hereafter erected on the mortgaged property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Commissioner upon the insurance of the mortgage and other hazards as may be required from time to time by the Beneficiary, and all such insurance shall be carried in such companies and be for such periods as may be required by the Beneficiary, and be in an amount which will comply with the coinsurance clause percentage applicable to the location and character of the property, but in no event shall the amounts of coverage be less than eighty percent of the insurable values and equipment of the property or less than the unpaid balance of the insured Deed of Trust, whichever is lesser, and in default thereof, the Beneficiary shall have the right to effect insurance. Such policies shall be in the standard form and endorsed with standard mortgagee clause with loss payable to the Beneficiary and shall be deposited with the Beneficiary. The insurance carrier providing the insurance shall be chosen by Grantor subject to the approval of the Beneficiary, which approval shall not be unreasonably withheld.

That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinbefore provided, the amounts paid by any insurance company pursuant to the contract of insurance shall, to the extent of the indebtedness then remaining unpaid, be paid to the Beneficiary, and at its option, may be applied to the debt or released for the repairing or rebuilding of the premises.

12.           To pay all costs and expenses and attorney’s fees (including continuation of abstract) of the Trustee and of the Beneficiary in case of any litigation involving this property or in presenting claim under any administration or other proceeding where proof of claim is required by law to be filed.

13.           The irrevocable power to appoint a substitute trustee is hereby expressly granted to the Beneficiary, its successors and assigns, to be exercised at any time hereafter without notice and without specifying any reason therefor, by filing for record in the office where this instrument is recorded a deed of appointment. The Grantor for itself, its successors and assigns, and the Trustee herein named, or that hereafter may be substituted hereunder, expressly waives notice of the exercise of this power and the giving of bond by any trustee, as well as any requirement for application to any court for the removal, appointment or substitution of any trustee hereunder.

14.           The said Grantor will not assign the rent or any part of the rent of said land and premises or any building now or hereafter erected thereon, nor demolish or remove any building now or hereafter erected on said land and premises, without the written consent of the Beneficiary.  In event of default in the performance of any of the covenants or conditions hereof, upon request of the Beneficiary the Trustee, either in person or by agent, shall be entitled to immediate possession of said land and premises and to receive and collect the rents, issues, and profits thereof, and if the Grantor shall, after default and after demand for possession, remain in possession of said land and premises, the Grantor shall be a tenant at will thereof of the Trustee and shall at once surrender possession on demand of the Trustee, who may thereupon enter and take possession and collect the rents, issues, and profits of said land and premises and apply them, less five per centum (5%) thereof to be reserved for commission, in payment of the expenses incurred in obtaining possession and toward the repairs and insurance of said land and premises, and the payment of taxes and assess­ments thereon, and in redemption from sales therefor and of the indebtedness secured hereby. And it is hereby covenanted, understood, and agreed that the assignment of said rents, and the collection and application of the same as herein made and authorized, shall in no manner be taken or held to interfere with or abridge the power of sale and disposition granted to the Trustee hereunder for any of the defaults mentioned herein, nor shall the said assignment of rents and the collection and application of the same, as herein made and authorized, in any manner at law or in equity, dis­charge or relieve the Grantor, its successors and assigns, from the full payment of the balance of the indebtedness secured by this Deed of Trust in strict accordance with the terms hereof and of the note hereby secured.

15.           The Trustee may act hereunder and may sell and convey said land and premises under the power granted by this instrument, although the Trustee has been, may now be and may hereafter be, attorney or agent of the Beneficiary in respect to the loan made by the Beneficiary evidenced by the note or this Deed of Trust, or in respect to any matter or business whatsoever. The Beneficiary may bid and become the purchaser at any sale under this Deed of Trust. It is further agreed that, if said property be advertised for sale as herein provided and not sold, the Trustee shall be entitled to a reasonable commission not exceeding one-half (1/2) of the commission provided in case of sale, to be computed on the amount of principal then unpaid.

16.           That if the land and premises, or any part thereof, be condemned under any power of eminent domain or acquired for any public use or quasi-public use, the damages, proceeds, and consideration for such acquisition to the extent of the full amount of indebtedness upon this Deed of Trust and the note secured hereby remaining unpaid are hereby assigned by the Grantor to the Beneficiary and shall be paid forthwith to said Beneficiary, to be applied by it on account of the indebtedness hereby secured.

17.           That it, the said Grantor, will not create or permit a lien to exist against said land and premises inferior or superior to the lien of this Deed of Trust..

18.           A breach of any promise in this Deed of Trust or in the note secured hereby shall constitute a default hereunder, and if such default shall continue for thirty (30) days after written notice as provided herein, then at the option of the Beneficiary the entire indebtedness hereby secured shall become due, payable, and collectible then and thereafter as the Beneficiary may elect, regardless of the date of maturity.

19.           Any notice, demand or request required or permitted hereunder to be given to the Grantor shall be sufficiently given if in writing and either (a) sent to the owner of the land and premises last appearing on the records of the Beneficiary by registered first class mail, postage prepaid at the address last appearing on said records; or (b) delivered to or served upon an officer of the owner or at the site of the mortgaged property upon the superintendent or assistant superintendent of the owner, or upon a person performing the functions of superintendent or assistant superintendent.

AND the said Grantor does hereby covenant for itself, its successors and assigns, that it is seized of said land and premises in fee simple and has the right to convey the same to the said Trustee, that the said Trustee shall have quiet possession thereof, free from all encumbrances, and that it, the said Grantor, will execute such further assurances of the said land and premises as may be requisite.

20.           Notwithstanding the agreement and declaration hereinabove, that certain articles of property shall be deemed to be real estate and affixed to the realty covered by this Deed of Trust, to the extent that such agreement and declaration may not be effective and that said articles may constitute Goods (as said term is defined in the Uniform Commercial Code, this instrument in addition to constituting a Deed of Trust covering all the realty shall also con­stitute a security agreement, and Grantor does hereby grant a security interest in such Goods, as collateral, in the holder of the Deed of Trust Note secured by this Deed of Trust. This security interest in the Goods in granted to the secured party in accordance with the Uniform Commercial Code The party hereto of the first part acknowledges that it does execute the within instrument as a Deed of Trust covering the realty described herein and also as a Security Agreement it being the intention of the parties that this instrument also be deemed as a Security Agreement and Financing Statement under the laws of she State of Maryland to provide a security interest in said Goods of the party of the first part.

That this Deed of Trust and the note secured hereby were executed and delivered to secure monies advanced or to be advanced and to be used in the construction of certain improvements on the lands herein described, in accordance with a building loan agreement between the Beneficiary dated as of even date herewith, which building loan agreement (except such part or parts thereof as maybe inconsistent herewith) is incorporated herein by reference to the same extent and effect as if fully set forth and made a part of this Deed of Trust, which said building loan agreement Grantor hereby covenants to perform and if the construction of the improvements to be made pursuant to said building loan agreement shall not be carried on with reasonable diligence, or shall be discontinued at any time for any reason other than strikes or lock-outs, the Trustee, at the request and on behalf of the Beneficiary after due notice to the Grantor or any subsequent owner, is hereby invested with full and complete authority to enter upon the said premises, employ watchmen to protect such improvements from depredation or injury, and to preserve and protect the personal property therein, and to continue any and all outstandingcontracts for the erection and completion of said building or buildings, to make and enter into contracts and obligations wherever necessary, either in its own name or in the name of the Grantor, or other owner; and in the name and for the account of the Beneficiary to pay and discharge all debts, obligations, and liabilities incurred thereby. All such sums so advanced by and for the account of the Beneficiary (exclusive of advances of the principal of the indebtedness secured hereby) shall be added to the principal of the indebtedness secured hereby and shall be secured by this Deed of Trust and shall be due and payable on demand with interest at the rate specified in the note, but no such advances shall be insured unless same are specifically approved by the Federal Housing Commissioner prior to the making thereof. The principal sum, with interest and other charges provided for herein shall, at the option of the Beneficiary or holder of this Deed of Trust and the note secured hereby, become due and payable on the failure of the Grantor, or owner, to keep and perform any of the covenants, conditions, and agreements of said building loan agreement.  This covenant shall be terminated upon the completion on the improvements to the satisfaction of the Beneficiary and the making of the final advance as provided in said building loan agreement.

That the improvements about to be made upon the premises conveyed by this Deed of Trust and all plans and specifications comply with all municipal ordinances and regulations made or promulgated by lawful authority, and that the same will upon completion comply with all such municipal ordinances and regulations and with the rules of the rating or inspection organization, bureau, association or office having jurisdiction. In the event the Grantor shall at any time fail to comply with such rules, regulations, and ordinances which are now or may hereafter become applicable to the said premises, after due notice and demand by the Beneficiary, thereupon the principal sum and all arrears of interest and other charges provided for herein shall, at the option of the Beneficiary become due and payable.

21.           Grantor covenants and agrees that so long as this Deed of Trust and the said note secured hereby are insured, or held under the provisions of the National Housing Act, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed or national origin; sex, familial status or handicapping condition; and Grantor agrees to prohibit any form of discrimination on the basis of race, creed, color, sex, familial status or handicapping condition in connection with the mortgaged property. Upon any violation of this undertaking, the Beneficiary may, at its option declare the unpaid balance of the debt secured hereby immediately due and payable.

    22.            Notwithstanding any other provision contained in this Deed of Trust, it is agreed that the execution of this Deed of Trust shall impose no personal liability on the maker hereof for payment of the indebtedness evidenced hereby and in the event of a default, the holder of this Deed of Trust shall look solely to the property described in the Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the maker hereof except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note, except as set out in this Deed of Trust given to secure this indebtedness.

[SIGNATURE APPEARS ON NEXT PAGE]

IN WITNESS WHEREOF, the said party hereto of the first part has caused these presents to be executed in its name by its Manager and its seal to be hereunto affixed, all as of the day, month and year first hereinabove written.

GRANTOR:

GLENEAGLES APARTMENTS, LLC

a Delaware limited liability company

By: AMERICAN HOUSING MANAGEMENT COMPANY

a Delaware corporation

its Manager

                                                                By: ______________________________

                                                                                       Matthew Martin

                                                                       Chief Financial Officer

STATE OF MARYLAND                                                                     ]

                                                                                                                  ] ss:

COUNTY OF ___________________                                             ]

I hereby certify that on this ____ day of January in the year 2009, before me, a Notary Public in and for the said County and State, personally appeared Matthew Martin, known to me to be the person who, being by me duly sworn, did say that he is the Chief Financial Officer of AMERICAN HOUSING MANAGEMENT COMPANY, a Delaware corporation, the Manager of GLENEAGLES APARTMENTS, LLC, a Delaware limited liability company, executed the foregoing instrument and acknowledged to me that he did so sign said instrument in the name of said limited liability company on behalf of said limited liability company for the purposes therein contained.

[SEAL]                                                        _____________________________________

                                                                                                Notary Public

My commission expires _________________

Pursuant to the requirements of Section 3-104(f)(1) of the Real Property Article of the Annotated Code of Maryland, this is to certify that the within Deed of Trust was prepared by

(or under the supervision of) the undersigned Attorney at law.

_______________________________

David A. Barsky, Esq.

This document was prepared by

and after recording return to:

David A. Barsky, Esquire

Krooth & Altman, LLP

1850 M Street, N.W. , Suite 400

Washington, DC 20036

(202) 293-8200

STATE OF MARYLAND

Loan No. 052-35658

DEED OF TRUST

GLENEAGLES APARTMENTS, LLC

TO

CAPMARK FINANCE INC.

Received for Record     ____________, 2009,

at _____ o’clock __.m.

Same day recorder in Liber __________

No._______________ Folio ___& c.

One of the _____ Records of Harford County  and  examined per _______________________________,

Clerk

Cost of Record $_______________

                                                            HUD-92127-B (1-82)

Previous Editions are Obsolete HUD-94127-B (12-87)

Multifamily

EXHIBIT “A”

LEGAL DESCRIPTION

Metes and Bounds Description

Gleneagles North Apartments

6th Election District

Charles County, Maryland

Being all of the lands conveyed by St. Charles Community, LLC. to St. Charles Community, LLC., by deed dated November 21, 2008 and recorded among the Land Records of Charles County, Maryland, in Liber 6731 Folio 196 and shown as Parcel B on a plat entitled "Plat of Subdivision, Parcel B, Gleneagles Apartments" as recorded in Plat Book 57, Plat 700 and Parcel B-1 on a Plat entitled "Plat of Consolidation Parcel B-1, Billingsley Road" as recorded in Plat Book 57 Plat 689 and being more particularly described as follows:

Beginning at a point on the southerly right-of-way line of Billingsley Road, a variable width right-of-way, recorded among the aforesaid Land Records in Plat Book 48 Page 172 & 173 and by deed Liber 3317 Folio 153, said point being on the easterly right-of-way line of St. Francis Drive, 40 feet from the centerline thereof, as recorded among the aforesaid Land Records in Plat Book 57 Page 186 and by deed Liber 6431 Folio 525, thence leaving St. Francis Drive and running with the southerly right-of-way line of Billingsley Road;

South 74° 33' 47" East 42.77 feet to the point of curvature of a curve deflecting left having a radius of 3472.00 feet, an arc length of 32.12 feet, a chord bearing and distance of

South 30° 31' 52" East 32.12 feet to the point of compound curvature, deflecting left having a radius of 206.44 feet, an arc length of 51.41 feet, a chord bearing and distance of

South 37° 55' 49" East 51.28 feet to the point of reverse curvature of a curve deflecting right, having a radius of 234.36 feet, an arc length of 51.47 feet, a chord bearing and distance of

South 38° 46' 23" East 51.37 feet to the point of curvature of a curve deflecting left, having a radius of 3460.00 feet, an arc length of 459.00 feet, a chord bearing and distance of

South 36° 16' 57" East 458.66 feet to the point of tangency thence,

South 40° 04' 58" East 548.96 feet to the point of curvature of a curve deflecting right, having a radius of 471.75 feet, an arc length of 18.34 feet, to a point on the westerly right-of-way line of St. Marie Drive, a 40 foot right-of-way, as recorded among the aforesaid Land Records in Plat Book 57 Page 192, thence leaving the right-of-way line of Billingsley Road and running with the westerly right-of-way line of St. Marie Drive,

South 04° 55' 02" West 58.89 feet to a point thence,

South 49° 55' 02" West 41.06 feet to the point of curvature of a curve deflecting left, having a radius of 1040.00 feet, an arc length of 110.10 feet, a chord bearing and distance of

South 46° 53' 04" West 110.05 feet to a point of tangency thence,

South 43° 51' 06" West 196.09 feet to a point thence,

South 88° 51' 06" West 34.85 feet to a point on the northerly right-of-way line of St. Matthews Drive, a 60 foot right-of-way, as recorded among the aforesaid Land Records in Plat Book 57 Page 186 and 187 and by deed Liber 6431 Folio 525, thence leaving the right-of-way line of St. Marie Drive and running with the northerly right-of-way line of St. Matthews Drive, along a curve deflecting right, having a radius of 770.00 feet, an arc length of 88.22 feet, a chord bearing and distance of

North 41° 06' 57" West 88.17 feet to a point of tangency thence,

North 37° 50' 01" West 162.59 feet to the point of curvature of a curve deflecting right, having a radius of 970.00 feet, an arc length of 98.75 feet, a chord bearing and distance of

North 34° 55' 01" West 98.71 feet to a point of tangency thence,

North 32° 00' 01" West 214.56 feet to the point of curvature of a curve deflecting left, having a radius of 1030.00 feet, an arc length of 117.08 feet, a chord bearing and distance of

North 35° 15' 24" West 117.01 feet to a point of tangency thence,

North 38° 30' 46" West 326.60 feet to the point of curvature of a curve deflecting left, having a radius of 780.00 feet, an arc length of 225.06 feet, a chord bearing and distance of

North 46° 46' 43" West 224.28 feet to a point on the aforesaid easterly right-of-way line of St. Francis Drive; thence, leaving the right-of-way line of St. Matthews Drive and running with the easterly right-of-way line of St. Francis Drive

North 11° 42' 23" West 42.84 feet to the point of curvature of a curve deflecting right, having a radius of 460.00 feet, an arc length of 210.41 feet, a chord bearing and distance of

North 47° 47' 07" East 208.58 feet to a point of tangency thence,

North 60° 53' 21" East 167.45 feet to the point of beginning, containing 11.2845 Acres or 481,554 Sq. Ft. of land, more or less.

EX-10.37

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Agreement") made the 22nd day of January, 2009, by and between GLENEAGLES APARTMENTS, LLC, a Delaware limited liability company, with offices at 222 Smallwood Village Center, St. Charles, Maryland 20602 (referred to in this Agreement as the "Debtor"), and CAPMARK FINANCE INC., a California corporation, having an office and place of business at 116 Welsh Road, Horsham, Pennsylvania 19044 (referred to in this Agreement as the "Secured Party").

The Debtor is indebted to the Secured Party in the amount of $25,045,200.00 in connection with the construction of a certain multifamily housing rental project known or to be known as “Gleneagles Apartments”, FHA Project No. 052-35658, located in St. Charles, Charles County, Maryland (referred to in this Agreement as the "Project").  The indebtedness (which is referred to in this Agreement as the "Indebtedness") is evidenced by a Deed of Trust Note (referred to in this Agreement as the “Mortgage”) dated of even date herewith, payable to the order of the Secured Party (referred to in this Agreement as the "Note"), and is secured by a Deed of Trust dated of even date herewith, and recorded or to be recorded among the land records of Charles County, Maryland.  The Mortgage securing the indebtedness is insured by the Secretary of Housing and Urban Development (referred to in this agreement as the "Secretary") under Section 221(d)(4) of the National Housing Act, as amended.

To further secure the repayment of the Indebtedness and at the request of the Secured Party and the Secretary, the Debtor wishes to grant to the Secured Party, pursuant to the Uniform Commercial Code as in effect in the State of Maryland (referred to in this agreement as the "State") a security interest in certain property related to the Project.  The parties also intend to set forth in this instrument their agreement with respect to that security interest.

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises set forth below, and in further consideration of the sum of One Dollar ($1.00) and other good and valuable consideration in hand paid by each party to the other, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.           Creation of Security Interest.

(a)           Granting Clause.  The Debtor hereby grants a security interest (referred to in this Agreement as the “Security Interest”) to the Secured Party in all property (referred to in this Agreement as the “Collateral”) which (i) is owned by the Debtor or becomes the property of the Debtor hereafter and is used in the operation of the Project, and/or (ii) is described in Exhibit “B” attached to this Agreement; and/or (iii) is part of, attached to, or located on the land and premises legally described in Exhibit “A” attached to this Agreement.  Exhibits “A” and “B” are hereby incorporated into this Agreement by reference.  The Security Interest is granted for the purpose of securing the Indebtedness.

(b)           Warranty.  The Debtor warrants and represents to the Secured Party that it owns the Collateral free and clear of any lien, security interest, encumbrance, and other claim of any kind, other than the Security Interest created by this Agreement, and has the full power to grant the Security Interest; provided, however that this warranty is subject to: (i) the rights of the lessor with respect to any personal property or equipment leased by the Debtor; (ii) any security deposits, accounts or monies in the custody of the Debtor or under its control which are subject to the rights of third parties; and (iii) any account or deposit which is subject to terms and conditions contained in special purpose escrow agreements and other documents relating to the indebtedness.

(c)           Perfection.  The Debtor agrees to comply with all applicable laws and requirements in order to grant to the Secured Party a valid, perfected first lien in the Collateral, authorizes the Secured Party to file financing statements pursuant to the Uniform Commercial Code which name the Debtor and identify the Collateral in such places as are necessary and appropriate under the Uniform Commercial Code, and upon request of the Secured Party, from time to time execute and deliver to the Secured Party one or more financing statements pursuant to the Uniform Commercial Code then in effect in the State, and any other instruments reasonably required by the Secured Party in connection herewith the filing of which is advisable, in the sole judgment of the Secured Party, to perfect the Secured Party's Security Interest in the Collateral under the laws of the United States, the State, or any other jurisdiction in which the Secured Party shall determine such filings to be advisable.  The Debtor hereby authorizes the Secured Party to execute and file, at any time and from time to time, on behalf of the Debtor one or more financing statements with respect to the Collateral, the filing of which is advisable, in the sole judgment of the Secured Party including, especially, but without limitation, continuation statements and statements reperfecting a security interest in any of the Collateral where the financing statements with respect thereto had lapsed.  The Debtor hereby irrevocably appoints the Secured Party as the Debtor's attorney-in-fact to execute and file, from time to time, on its behalf, one or more financing statements with respect to the Collateral and to execute such other documents and instruments on behalf of the Debtor as the Secured Party, in its sole judgment, shall deem necessary or desirable for the purposes of effectuating this Agreement, such power being coupled with an interest and irrevocable.  The Debtor agrees to notify the Secured Party prior to any change in its mailing address or principal place of business, in order that a prompt filing or refiling of any outstanding financing statements or other public notices may be made, if necessary.  The Debtor further agrees to advise the Secured Party promptly of any new facts which, to the best of its knowledge, would adversely affect the priority of the Security Interest granted to the Secured Party by this Agreement.

(d)           Proceeds, etc.  The Security Interest shall extend to and include the proceeds of any Collateral and any property which the Debtor may receive on account of any Collateral.

(e)           Costs and Expenses of Secured Party.  The Debtor agrees to pay any and all fees, costs and expenses, of whatever kind and nature, which the Secured Party may incur in filing any financing statements or other public notices, and the charges of any attorneys whom the Secured Party may engage in preparing and filing such documents, making title examinations and rendering opinion letters, as well as all costs and expenses incurred by the Secured Party, including reasonable attorney's fees and court costs in protecting, maintaining, preserving, enforcing or foreclosing the Security Interest granted to the Secured Party hereunder, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions or proceedings arising out of or relating to this transaction, promptly after the Debtor shall have been notified by the Secured Party of the amount of such fees, costs or expenses, together with interest thereon at the rate of ten percent (10%) per annum until paid.

2.           Care of Collateral.  Unless specifically otherwise agreed by the Secured Party in writing, the Debtor shall at its sole cost and expense:

(a)           Maintain possession of the Collateral on the Project premises (which are described in Exhibit “A”) and not remove the Collateral from that location.

(b)           Keep the Collateral separate and identifiable.

(c)           Maintain the Collateral in good repair and condition as the same is as of the date hereof, as the same is when acquired, reasonable wear and tear excepted, making replacements when and where necessary, and otherwise deal with the Collateral in all such ways as are considered good practice by owners of such property.

(d)           Use the Collateral lawfully and only as permitted by insurance policies.

(e)           Permit the Secured Party to inspect the Collateral and any records relating to the Collateral upon reasonable request and notice during normal business hours.

(f)           Insure the Collateral for its full replacement value, subject to a deductible of not more than the lesser of (i) $10,000 or (ii) one percent (1%) of the Mortgage Loan (unless the Secured Party has given written approval of a larger deductible) in the name of and with loss or damage payable to the Secured Party, the Federal Housing Administration and the Debtor as their interests may appear.  All such policies shall provide for not less than thirty (30) days minimum written notice to the Secured Party of cancellation or material change.

(g)           Keep the Collateral free and clear of all liens and security interests of others.

(h)           Pay, when due, all taxes, assessments and other charges lawfully and validly levied or assessed upon the Collateral.

3.           Defense of Collateral.  The Debtor will promptly defend any proceeding which may affect the Security Interest or the title to the Collateral, and will reimburse the Secured Party for all costs and expenses incurred by the Secured Party in connection with such defense.

4.           Charges, Liens and Encumbrances Affecting Collateral.  The Debtor will pay when due all existing or future charges, liens, or encumbrances on and all taxes and assessments now or hereafter imposed on or affecting the Collateral.

5.           Remedies on Default.  In the event of a default, as defined in Section 6:

(a)           The Secured Party may, at its option, declare the full principal amount of the Indebtedness, and any interest accrued on that amount, to be immediately due and payable; and

(b)           The Secured Party shall have all of the rights and remedies of a Secured Party against the Collateral under the Uniform Commercial Code as in effect in the State.

Without limitation of those rights and remedies, the Secured Party may, upon written notice to the Debtor, take, and publicly or privately sell or convey full right, title and interest in and to, the Collateral, or any part of it, in the name of the Secured Party and/or its designees.  The Debtor hereby constitutes and appoints the Secured Party as its true and lawful attorney-in-fact, such power being coupled with an interest and irrevocable, to assign and transfer its interest in any or all of the Collateral in the event of a default.

(c)           The Debtor further specifically agrees that, in any exercise of the rights of the Secured Party under this or any other instruments, any combination or all of the property, rights or security given to secure the Debtor’s indebtedness to the Secured Party may be offered for sale for one total price, and the proceeds of any such sale accounted for in one account without distinction between the items of security or without assigning to them any proportion of such proceeds, the Debtor hereby waiving the application of any doctrine of marshalling.

6.           Defaults.  For purposes of this Agreement, the Debtor shall be deemed to be in default if:

(a)           The Debtor violates any provision of (i) the Note (which evidences the Indebtedness); (ii) the Mortgage (which also secures the Indebtedness); (iii) this Security Agreement; or (iv) any other instrument related to the Indebtedness (which Note, Mortgage, Security Agreement and other instruments related to the Indebtedness are hereinafter sometimes collectively referred to as the “Security Documents”); provided, however, that an event of default shall not occur unless such violations are not cured within applicable cure periods, if any, as may be provided in said Security Documents or Regulatory Agreement;

(b)           There occurs any actual or threatened demolition of or injury or waste to the Project premises, not covered by insurance, or not replaced or restored by the Debtor, which may impair the value of the Collateral; or

(c)           A receiver is appointed for or a petition in bankruptcy is filed by or against the Debtor, its successors or its assigns, which receiver or involuntary bankruptcy petition is not removed, vacated or stayed within sixty (60) days from the first date of appointment or filing thereof; or

(d)           The Debtor is dissolved and liquidation of the Debtor is commenced in accordance with the Debtor's organizational documents and/or the law of the State.

(e)           The Debtor changes its name or the jurisdiction in which it is organized without the prior written consent of the Secured Party.

7.           No Waiver.  No failure on the part of the Secured Party to exercise, and no delay on the part of the Secured Party in exercising, any right or remedy under this Agreement shall operate as a waiver of that right or remedy.  A single or partial exercise by the Secured Party of any right or remedy under this Agreement shall not constitute an election of remedies by the Secured Party or preclude any other or further exercise of that right or remedy or the exercise of any other right or remedy.  The remedies provided in this Agreement are not exclusive of any remedies provided by law.

8.           Priority of Remedies; Renewals and Extensions.  Neither the Debtor nor any other persons interested in the Collateral or the proceeds of the Collateral shall have any right to require the Secured Party first to resort to or proceed personally against any other person or to proceed against any other collateral security, or to give priority or preference to any item of Collateral, or to proceed upon any guaranty prior to exercising its rights hereunder.  No renewal or extension of the Indebtedness, no release or surrender of any Collateral given as security for the Indebtedness, no release of any obligor with respect to the Indebtedness, and no delay by the Secured Party in enforcing the Indebtedness or exercising any right or power with respect to the Indebtedness shall affect the Secured Party's rights with respect to the Collateral.

9.           Termination.  This Agreement, and each of the rights and remedies afforded to the Secured Party hereunder shall automatically terminate upon payment of the Indebtedness in full in compliance with the provisions of the Note.  Upon termination hereunder, the Secured Party hereby agrees to execute a Termination Statement and any other documents reasonably necessary to terminate this Agreement and release the Collateral from the Security Interest.

10.           Non-Recourse Obligation.  Notwithstanding any other provision contained herein or in the Note, it is agreed that the execution of the Note shall impose no personal liability upon the Debtor for payment of the indebtedness evidenced thereby, and in the event of a default the Secured Party shall look solely to the property subject to the Mortgage and this Security Agreement and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Debtor except such judgment as may be necessary to foreclose or bar its interest in the property subject to the Mortgage and this Security Agreement and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Debtor under that certain Regulatory Agreement of even date herewith between the Debtor and the Secretary.

11.           Terms.  Unless otherwise defined, all words used in this Agreement shall have the meanings given them in the Uniform Commercial Code as in effect in the State.

12.           Notices.  All notices, demands and communications between the parties concerning this Agreement shall be in writing and shall be delivered, or mailed by registered or certified mail with postage prepaid, or telegraphed, addressed in each case as follows, and shall be deemed to have been given or made when so delivered, deposited in the mail, or telegraphed:

If to the Debtor, to:

Gleneagles Apartments, LLC

Smallwood Village Center

St. Charles, Maryland 20602

Attention:    Matthew Martin, Chief Financial Officer

If to the Secured Party, to:

Capmark Finance Inc.

116 Welsh Road

Horsham, Pennsylvania 19044

Attention:   Senior Vice President, Agency Servicing

Either party, at any time, by written notice given to the other in accordance with this Section, may designate a different address to which such communications shall thereafter be directed.

13.           Rights of Secretary as Secured Party.

(a)           Contemporaneously herewith the Secretary and the Debtor have executed the Regulatory Agreement, which Regulatory Agreement is hereby incorporated by reference herein.

(b)           The Regulatory Agreement is incorporated in the Mortgage by reference.  Under the terms of the Regulatory Agreement, the Secretary may exercise certain rights in and to the Collateral prior to the assignment of the Note, Mortgage, this Security Agreement and any other collateral documents which have been executed and delivered to the Secretary as a condition precedent to the Secretary's endorsement of the Note for mortgage insurance.

(c)           The Debtor and the Secured Party hereby agree that the Secretary shall be an additional secured party under this Security Agreement together with the Secured Party, as their interests may appear, and that the Secretary shall be listed on the Uniform Commercial Code Financing Statements to be filed contemporaneously herewith; provided, however, that nothing herein or in the Uniform Commercial Code Financing Statements shall require the execution, now or at any future time, of any amendment, extension, or other document by the Secretary.

(d)           To the extent any party herein is required or desires to give notice to the Secretary hereunder, such notice shall be delivered in accordance with the provisions of Paragraph 12 hereof, as follows:

U.S. Department of Housing and Urban Development

Maryland State Office

City Crescent Building

10 South Howard Street, Fifth Floor

Baltimore, Maryland 21201-2505

Attention:  Office of Chief Counsel

14.           Miscellaneous.

(a)           This Agreement is intended to be supplemental to and not in substitution or in derogation of any security agreement contained in the Mortgage.  In the event of any conflict between this Agreement and the Mortgage, the Mortgage shall be controlling.

(b)           In any instance where the consent or approval of the Secured Party may be given or is required or any determination is to be rendered by the Secured Party hereunder, the granting, withholding or denial of such consent or approval and the rendering of such determination shall be made or exercised by the Secured Party at its sole and exclusive option and in its reasonable discretion.

(c)           It is understood and agreed that no judgment or decree which may be entered on any debt secured or intended to be secured by the Mortgage shall operate to abrogate or lessen the effect of this Agreement, but that this Agreement shall continue in full force and effect until the payment and discharge of the Indebtedness due under the Security Documents.

(d)           It is understood and agreed that the remedies granted to the Secured Party herein shall not be deemed exclusive of any other remedies possessed by the Secured Party under the Note, the Mortgage, any other of the Security Documents or at law or in equity, but shall be deemed additional and cumulative thereto.

(e)           This Agreement shall be governed by and construed in accordance with the laws of the State.

(f)           All captions in this Agreement are for convenience only, and shall not be considered in construing this Agreement.

(g)           Any reference in this Agreement to a “Section” shall be construed as referring to a Section of this Agreement.

(h)           This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

(i)           The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the remaining provisions, which shall remain in full force and effect.

(j)           This instrument contains the entire agreement between the parties as to the rights granted and the obligations assumed in this instrument.  This Agreement may be amended only by a subsequent written instrument signed by both parties.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year hereinabove first written.

SECURED PARTY:

CAPMARK FINANCE INC.

a California corporation

By:           ____________________________________

                                                                                                 Eric M. Keifer

 Senior Vice President

--  --

EXHIBIT “B” TO SECURITY AGREEMENT

AND FINANCING STATEMENTS

This Exhibit “B” is attached to, incorporated by reference in, and forms a part of that certain Security Agreement and Financing Statements (collectively, the “Security Documents”), executed and delivered by the Debtor in connection with the financing of the Project (as hereinafter defined) in favor of CAPMARK FINANCE INC., a California corporation (the “Secured Party”).

This Exhibit “B” refers to the following collateral, which may be now or hereafter located on the premises of, relate to, or be used in connection with, the construction, financing, repair, ownership, management, and operation of a certain multifamily housing rental apartment project known as “Gleneagles Apartments” (the “Project”), located in St. Charles, Charles County, Maryland and owned by GLENEAGLES APARTMENTS, LLC, a Delaware limited liability company (the “Debtor”):

1.           All income, rents, profits, receipts and charges from the Project.

2.           All accounts including without limitation the following: Reserve Fund for Replacement, residual receipts, and special funds; ground rents, taxes, water rents, assessments and fire and other hazard-insurance premiums; accounts receivable; operating revenue; initial operating escrow; and escrow for latent defects.

3.           All insurance and condemnation proceeds; and all inventories.

4.           All materials now owned or hereafter acquired by the Debtor and intended for the construction, reconstruction, alteration and repair of any building, structure or improvement now or hereafter erected or placed on the property described in Exhibit "A" attached hereto (the "Property"), all of which materials shall be deemed to be included within the Project immediately upon the delivery thereof to the Project.

5.           All of the walks, fences, shrubbery, driveways, fixtures, machinery, apparatus, equipment, fittings, and other goods and other personal property of every kind and description whatsoever, now owned or hereafter acquired by the Debtor and attached to or contained in and used or usable in connection with any present or future operation of the Project, including, by way of example rather than of limitation, all lighting, laundry, incinerating and power equipment; all engines, boilers, machines, motors, furnaces, compressors and transformers; all generating equipment; all pumps, tanks, ducts, conduits, wire, switches, electrical equipment and fixtures, fans and switchboards; all telephone equipment; all piping, tubing, plumbing equipment and fixtures; all heating, refrigeration, air conditioning, cooling, ventilating, sprinkling, water, power and communications equipment, systems and apparatus; all water coolers and water heaters; all fire prevention, alarm and extinguishing systems and apparatus; all cleaning equipment; all lift, elevator and escalator equipment and apparatus; all partitions, shades, blinds, awnings, screens, screen doors, storm doors, exterior and interior signs, gas fixtures, stoves, ovens, refrigerators, garbage disposals, dishwashers, cabinets, mirrors, mantles, floor coverings, carpets, rugs, draperies and other furnishings and furniture installed or to be installed or used or usable in the operation of any part of the Project or facilities erected or to be erected in or upon the Property; and every renewal or replacement thereof or articles in substitution therefor, whether or not the same are now or hereafter attached to the Property in any manner; all except for any right, title or interest therein owned by any tenant (it being agreed that all personal property owned by the Debtor and placed by it on the Property shall, so far as permitted by law, be deemed to be affixed to the Property, appropriated to its use, and covered by each of the Security Documents to which this Exhibit is attached).

6.           All of the Debtor's right, title and interest in and to any and all judgments, awards of damages (including but not limited to severance and consequential damages), payments, proceeds, settlements or other compensation (collectively, the "Awards") heretofore or hereafter made, including interest thereon, and the right to receive the same, as a result of, in connection with, or in lieu of (i) any taking of the Property or any part thereof by the exercise of the power of condemnation or eminent domain, or the police power, (ii) any change or alteration of the grade of any street, or (iii) any other injury or decrease in the value of the Property or any part thereof (including but not limited to destruction or decrease in value by fire or other casualty), all of which Awards, rights thereto and shares therein are hereby assigned to the Secured Party, who is hereby authorized to collect and receive the proceeds thereof and to give proper receipts and acquittances therefor and to apply, at its option, the net proceeds thereof, after deducting expenses of collection, as a credit upon any portion, as selected by the Secured Party, of the indebtedness secured by the Security Documents.

7.           All of the Debtor's right, title and interest in and to any and all payments, proceeds, settlements or other compensation heretofore or hereafter made, including any interest thereon, and the right to receive the same from any and all insurance policies covering the Property or any portion thereof, or any of the other property described herein.

8.           The interest of the Debtor in and to all of the rents, royalties, issues, profits, revenues, income and other benefits of the Property, or arising from the use or enjoyment of all or any portion thereof, or from any lease or agreement pertaining thereto, and all right, title and interest of the Debtor in and to, and remedies under, all contract rights, accounts receivable and general intangibles arising out of or in connection with any and all leases and subleases of the Property, or any part thereof, and of the other property described herein, or any part thereof, both now in existence or hereafter entered into, together with all proceeds (cash and non-cash) thereof; and including, without limitation, all cash or securities deposited thereunder to secure performance by the lessees of their obligations thereunder.

9.           All of the Debtor's rights, options, powers and privileges in and to (but not the Debtor's obligations and burdens under) any construction contract, architectural and engineering agreements and management contract pertaining to the construction, development, repair, operation, ownership, equipping and management of the Property and all of the Debtor's right, title and interest in and to (but not the Debtor's obligations and burdens under) all architectural, engineering and similar plans, specifications, drawings, reports, surveys, plats, permits and the like, contracts for construction, development, repair, operation, management and maintenance of, or provision of services to, the Property or any of the other property described herein, and all sewer taps and allocations, agree­ments for utilities, bonds and the like, all relating to the Property.

10.           All intangible personal property, accounts, licenses, permits, instruments, contract rights, chattel paper and general intangibles of the Debtor, including but not limited to cash; accounts receivable; bank accounts; certificates of deposit; securities; promissory notes; rents; rights (if any) to amounts held in escrow; insurance proceeds; condemnation rights; deposits; judgments, liens and causes of action; warranties and guarantees.

11.           The interest of the Debtor in any cash escrow fund and in any and all funds, securities, instruments, documents and other property which are at any time paid to, deposited with, under the control of, or in the possession of the Secured Party, or any of its agents, branches, affiliates, correspondents or others acting on its behalf, which rights shall be in addition to any right of set-off or right of lien that the Secured Party may otherwise enjoy under applicable law, regardless of whether the same arose out of or relates in any way, whether directly or indirectly, to the Project located upon the Property.

12.           The interest of the Debtor in and to any and all funds created or established and held by the Trustee pursuant to any indenture of trust or similar instrument authorizing the issuance of bonds or notes for the purpose of financing the Project located upon the Property.

13.           All inventory, including raw materials, components, work-in-process, finished merchandise and packing and shipping materials.

14.           Any and all of the above arising or acquired by the Debtor or to which the Debtor may have a legal or beneficial interest in on the date hereof and at any time in the future.

15.           Any and all of the above which may become fixtures by virtue of attachment to Property.

16.           The interest of the Debtor, as lessee, in any and all of the above which may be leased by the Debtor from others.

17.           All of the records and books of account now or hereafter maintained by or on behalf of the Debtor and/or its agents and employees in connection with the Project.

18.           All names now or hereafter used in connection with the Project and the goodwill associated therewith.

19.           Any and all other Collateral of the Debtor as defined in the Uniform Commercial Code adopted in the State.

20.           Proceeds, products, returns, additions, accessions and substitutions of and to any and all of the above.

DEBTOR:

GLENEAGLES APARTMENTS, LLC

a Delaware limited liability company

By: AMERICAN HOUSING MANAGEMENT COMPANY

a Delaware corporation

its Manager

By: _____________________________

                Matthew Martin

Chief Financial Officer

Attachments:

Exhibit “A”  [Legal Description]

Exhibit “B”  [Description of Collateral]

EX-21

AMERICAN COMMUNITY PROPERTIES TRUST

CONSOLIDATED ENTITES AND SUBSIDIARIES OF THE REGISTRANT

DECEMBER 31, 2008

At December 31, 2008, the financial statements of the following entities were consolidated with those of the Registrant in the Consolidated Financial Statements incorporated herein:

· Alturas del Senorial Associates Limited Partnership, a Maryland limited partnership

· American Community Properties Trust, a Maryland business trust

· American Housing Management Company, a Delaware corporation

· American Housing Properties L.P., a Delaware limited partnership

· American Land Development U.S., Inc., a Maryland corporation

· American Rental Management Company, a Delaware corporation

· American Rental Properties Trust, a Maryland real estate investment trust

· Bannister Associates Limited Partnership, a Maryland limited partnership

· Bayamon Garden Associates Limited Partnership, a Maryland limited partnership

· Carolina Associates Limited Partnership S. E., a Maryland limited partnership

· Coachman's Apartments LLC, a Maryland liability company

· Colinas de San Juan Associates Limited Partnership, a Maryland limited partnership

· Crossland Associates Limited Partnership, a Maryland limited partnership

· Escorial Office Building I, Inc., a Puerto Rico corporation

· Essex Apartments Associates, a Virginia limited partnership

· Fox Chase Apartments, LLC, a Maryland limited liability company

· Gleneagles Apartments, LLC, a Delaware limited liability company

· Headen House Associates Limited Partnership, a Maryland limited partnership

· Huntington Associates Limited Partnership, a Maryland limited partnership

· IGP Group Corp., a Puerto Rico corporation

· Interstate Commercial Properties, Inc., a Puerto Rico corporation

· Interstate General Properties Limited Partnership S.E., a Maryland limited partnership

· Jardines de Caparra Associates Limited Partnership, a Maryland limited partnership

· Lancaster Apartments Limited Partnership, a Maryland limited partnership

· LDA Group, a Delaware limited liability company

· Land Development Associates S.E., a Puerto Rico partnership

· Milford Station I, LLC, a Delaware limited liability company

· Milford Station II, LLC, a Delaware limited liability company

· Monserrate Associates Limited Partnership, a Maryland limited partnership

· New Forest Apartments LLC, a Maryland limited liability company

· Nothingham South, LLC, a Delaware limited liability company

· Owings Chase, LLC, a Delaware limited liability company

· Palmer Apartments Associates Limited Partnership, a Maryland limited partnership

· Prescott Square, LLC, a  Delaware limited liability company

· San Anton Associates, a Massachusetts limited partnership

· St. Charles Community, LLC, a Delaware limited liability company

· Sheffield Greens Apartments, LLC, a Delaware limited liability company

· Torres del Escorial, Inc., a Puerto Rico corporation

· Turabo Limited Dividend Partnership, a Massachusetts limited partnership

· Valle del Sol Associates Limited Partnership, a Maryland limited partnership

· Village Lake Apartments LLC, a Maryland liability company

· Wakefield Terrace Associates Limited Partnership, a Maryland limited partnership

· Wakefield Third Age Associates Limited Partnership, a Maryland limited partnership

At December 31, 2008, the Registrant and its consolidated entities had the following significant unconsolidated subsidiaries:

· Brookside Gardens Limited Partnership, a Maryland limited partnership

· ELI GP, Inc., a Puerto Rico corporation

· ELI S.E., a Puerto Rico special partnership

· Lakeside Apartments Limited Partnership, a Maryland limited partnership

· Surrey Homes, LLC, a Florida limited liability company

EX-23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-136638) pertaining to the American Community Properties Trust Employees' share incentive plan and to American Community Properties Trust Trustees’ share incentive plan, of our report dated March 30, 2009, with respect to the consolidated financial statements and schedules of American Community Properties Trust, incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 2008.

                                                        /s/ Ernst & Young LLP

McLean, Virginia

March 30, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Stephen K. Griessel, certify that:

1. I have reviewed this Annual Report on Form 10-K of American Community Properties Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 31, 2009	By:/s/Stephen K. Griessel
	Stephen K. Griessel
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Matthew M. Martin, certify that:

1. I have reviewed this Annual Report on Form 10-K of American Community Properties Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 31, 2009	By:/s/Matthew M. Martin
	Matthew M. Martin
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Community Properties Trust (the “Company”) on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen K. Griessel, Chief Executive Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:/s/ Stephen K. Griessel

Stephen K. Griessel

Chief Executive Officer

March 31, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of American Community Properties Trust (the “Company”) on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew M. Martin, Chief Financial Officer of the Company, certify to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:/s/ Matthew M. Martin

Matthew M. Martin

Chief Financial Officer

March 31, 2009