10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

	(Mark One)
	þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2005.
or
	o	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 001-31678

AMERICAN FINANCIAL REALTY TRUST

(Exact name of registrant as specified in its charter)

Maryland	02-0604479
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
610 Old York Road, Jenkintown, PA (Address of principal executive offices)	19046 (Zip code)

(215) 887-2280

(Registrant’s telephone number, including area code)

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

Title of Each Class	Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, par value $0.001 per share	New York Stock Exchange, Inc.

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 Act.    Yes þ         No o

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

      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 þ         No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

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

Large accelerated filer þ         Accelerated filer o         Non-accelerated filer o

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

      The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2005, was approximately $1,901,834,494. Such aggregate market value was computed by reference to the closing price of the common shares of beneficial interest as reported on the New York Stock Exchange on June 30, 2005. For purposes of making this calculation only, the registrant has defined affiliates as including all directors and executive officers.

      The number of shares outstanding of the Registrant’s common shares of beneficial interest, $0.001 par value were 129,353,905 as of March 15, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement for its 2006 annual meeting of shareholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

AMERICAN FINANCIAL REALTY TRUST

INDEX TO FORM 10-K

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	36
Item 2.	Properties	36
Item 3.	Legal Proceedings	39
Item 4.	Submission of Matters to a Vote of Security Holders	39
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	40
Item 6.	Selected Financial Data	42
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
Item 9A.	Controls and Procedures	69
Item 9B.	Other Information	70
PART III
Item 10.	Directors and Executive Officers of the Registrant	73
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	73
Item 13.	Certain Relationships and Related Transactions	73
Item 14.	Principal Accounting Fees and Services	73
PART IV
Item 15.	Exhibits, Financial Statement Schedules	73
Contribution Agreement, effective as of October 26, 2005
Subsidiaries of the Registrant
Consent of KPMG LLP (independent auditors of the Registrant)
Certificate of Chief Executive Officer Required by Rule 13a-14(a)
Certificate of Chief Financial Officer Required by Rule 13a-14(a)
Certificate of Chief Executive Officer Required by Rule 13a-14(b)
Certificate of Chief Financial Officer Required by Rule 13a-14(b)

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Part I

Item 1. Business

      We are a self-administered, self-managed Maryland real estate investment trust, or REIT. We are focused primarily on acquiring and operating properties leased to regulated financial institutions. We believe banks will divest of their corporate real estate, in order to enhance operating performance. We also believe that our contractual relationships, with large national banks, our growing visibility within the banking industry and the flexible acquisition and lease structures we can offer financial institutions positions us for continued growth. We seek to lease our properties to banks and financial institutions, generally using long-term triple net or bond net leases, resulting in stable risk-adjusted returns on our capital. We lease space not occupied by financial institutions to other third party tenants at market terms.

      We believe that our competitive advantage over traditional real estate companies is our ability to provide banks and other financial institutions with operational flexibility and the benefits of reduced real estate exposure. We seek to become the preferred landlord of leading banks and other financial institutions through the development of mutually beneficial relationships and by offering flexible acquisition structures and lease terms. We believe that financial institutions enjoy our long-term relationship oriented business strategy rather than undergoing a competitive, selective bidding process with various real estate companies. Recent transactions involving Bank of America, N.A., Wachovia Bank, N.A., Citizens Financial Group, Inc. and Regions Financial Corporation demonstrate our ability to cultivate and maintain mutually beneficial relationships with leading financial institutions.

      Our interest in our properties is held through our Operating Partnership, First States Group, L.P. Through its wholly owned subsidiary, First States Group, LLC, American Financial Realty Trust is the sole general partner of the Operating Partnership and holds a 97.4% interest in the Operating Partnership as of December 31, 2005.

Our Formation

      On May 23, 2002, we were formed as a Maryland REIT. We commenced operations on September 10, 2002 and sold 40,263,441 common shares in a private placement. On October 7, 2002, we completed the sale of an additional 501,800 common shares. These sales resulted in aggregate net proceeds of approximately $378.9 million. On September 10, 2002, as part of our formation transactions, we acquired, for an aggregate purchase price of $217.0 million, including assumption of indebtedness, a portfolio of 87 bank branches and six office buildings containing approximately 1.5 million rentable square feet from:

• several individuals, including Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of our board of trustees, and others affiliated or associated with us, including Shelley D. Schorsch, our former Senior Vice President — Corporate Affairs and the wife of Mr. Schorsch, and Jeffrey C. Kahn, our former Senior Vice President — Acquisitions and Dispositions; and

• several entities in which the persons mentioned above were equity holders.

      We also acquired American Financial Resources Group, Inc., or AFRG, from Mr. Schorsch, Strategic Alliance Realty Group, LLC, or Strategic Alliance, from Mr. Schorsch and several other affiliated entities that now provide our properties with asset management, leasing, property management and accounting and finance services. We paid a purchase price of approximately $13.5 million for these entities.

      We refer to the entities from whom we acquired our initial properties, together with the entities we acquired at the same time, collectively as our predecessor entities.

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Our Initial Public Offering

      On June 30, 2003, we completed an initial public offering of 64,342,500 common shares priced at $12.50 per share. Of these shares, 200,000 were sold by a selling shareholder from our private placement, and 64,142,500 common shares were issued and sold by us, inclusive of 8,392,500 common shares issued in connection with the underwriters’ exercise of their over-allotment option. We raised net proceeds of approximately $740.9 million pursuant to the offering, after deducting underwriters’ discounts, commissions and offering expenses.

Our Second Public Offering

      On May 9, 2005, we completed a second public offering of 16,750,000 common shares of beneficial interest at $14.60 per share. The aggregate net proceeds from this offering, net of underwriters discounts, commissions and offering expenses) were approximately $242.8 million. The Company used the aggregate net proceeds for acquisitions and general corporate purposes.

Market Opportunity

      According to the FDIC, commercial banks and savings institutions in the U.S. that are FDIC-insured owned approximately $106.5 billion in operating real estate as of December 31, 2005.

      We have identified two major trends that we believe will continue to generate significant opportunities to acquire core, surplus and underutilized real estate from banks and other financial institutions.

• Disposition of real estate. We believe that banks and other financial institutions will sell real estate assets and enter into long-term leases with the acquirer, reinvesting the proceeds from these sales into their primary operating businesses.

• Consolidation within the banking industry. We anticipate that consolidation within the banking industry will create an environment in which larger banks will sell surplus bank branches that will either be leased to other banks, which want to expand their market presence, or create value when the real estate is used for alternative purposes.

      Through the sale of office buildings, bank branches and other real estate to us, we believe financial institutions may be able to:

• improve their liquidity;

• eliminate depreciation expense associated with owning real estate;

• avoid regulatory concerns;

• redeploy the proceeds from these sales into their primary business; and/or

• increase earnings and key financial ratios.

Office Buildings and Other Core Real Estate

      We believe that the sale and leaseback of office buildings and other core real estate by financial institutions reflects a general trend among these institutions to focus on their primary businesses and reduce their ownership and management of real estate. We believe that financial institutions would generally prefer to control real estate through long-term leases with a preferred landlord, rather than through direct ownership. This parallels trends that have occurred in other industries, such as retail, where location and quality of real estate are key elements of the business, but direct ownership of such real estate is costly and tends to reduce operational flexibility.

      Many banks and other financial institutions have only recently begun to enter into sale leaseback transactions with real estate owners relating to their office buildings and other core real estate. In addition to providing an efficient means for such companies to divest their real estate, we are able to effectively meet their occupancy needs. In our experience, many of the office buildings that we acquire from financial

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institutions have not been managed so as to realize the property’s full potential and may contain vacant space that we can lease either to other financial institutions or other high credit quality businesses.

Bank Branches

      We acquire bank branches from banks and other sellers. At the time of acquisition, some of these bank branches are vacant and some are leased. Our strategy of acquiring surplus bank branches and leasing them to other banks (or selling them for alternative uses) is driven primarily by two main factors:

• consolidation in the banking industry, which often results in the surviving entity disposing of duplicative bank branches that have overlapping service areas; and

• ongoing sale of lower deposit level branches from the portfolios of, and relocation of existing branches by, larger banks.

      Additionally, we acquire portfolios of leased bank branches from banks that seek to complete sale leaseback transactions in order to reduce their ownership of real estate and the associated costs.

      Although the number of commercial banks and savings institutions has been declining due to consolidation, the number of bank branches in the U.S. has grown by over 10% as banks have been expanding their branch networks. According to the FDIC, the number of commercial banks and savings institutions that are FDIC-insured declined from 9,904 as of December 31, 2000 to 8,855 as of September 30, 2005 (most recent date that data is available). However, the FDIC reported that, during the same period, the number of FDIC-insured bank branches increased from 76,256 to 82,928. The following chart shows the total number of commercial banks and other financial institutions that are FDIC-insured and the total number of bank branches operating in the United States from 2000 through September 30, 2005 as reported by the FDIC:

	12/31/2000		12/31/2001		12/31/2002		12/31/2003		12/31/2004		9/30/2005
Commercial Banks and Savings Institutions		9,904		9,613		9,354		9,182		8,988		8,855
Bank Branches		76,256		77,270		77,872		79,141		81,947		82,928

      Banks typically require minimum deposit levels at branches to support their cost structure and to operate profitably, and often will close branches that do not meet these minimum levels. In addition, consolidation within the banking industry, results in the closure of branches when there is redundancy within a given market. Branch closings create two primary dynamics. The first dynamic involves the fact that other national banks often seek to lease these vacant bank branches to expand their market presence. The second dynamic relates to smaller community banks which are typically able to operate profitably on lower deposit levels than larger banks. In our experience, significant demand exists among smaller banks for leasing well-located branches vacated by larger banks. We believe that smaller banks are attracted to locations formerly occupied by larger banks because a main impediment to the expansion of smaller banks is the high cost associated with constructing new branches and the time required to build a deposit base at those branches. Bank branches vacated by larger financial institutions already contain customary bank layouts, fixtures and security features that are required by bank regulators. Further, a smaller bank that leases space that has been vacated by a larger bank can often attract deposits from a portion of the vacating bank’s customer base, thereby reducing the time required to build its deposit base.

      In addition, although bank branches are typically considered specialty-use assets, they are generally well located properties in high traffic areas and therefore are attractive for use by restaurants, professional service providers, accounting firms, drug stores and other commercial tenants. As a result, if we are unable to lease a bank branch to a bank, we will sell the property to non-bank tenants. In some cases, we may, pending such a sale, lease the property for non-bank use. In either case, when we sell a bank branch to a business other than a bank, the costs associated with refitting the property for another use are generally paid by the acquiror or taken into consideration in the purchase price.

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Our Strategy

      We seek to be the preferred landlord of banks and other financial institutions through the development of mutually beneficial relationships and by offering flexible acquisition structures and lease terms. We believe that this strategy gives us a competitive advantage over more traditional real estate companies both in acquiring properties from and leasing properties to banks and other financial institutions. Our strategy is designed to provide us with both external and internal growth opportunities.

External Growth

      Our primary means of growth has been and continues to be through acquisitions. We have been successful in acquiring properties in our banking niche because we use a variety of innovative acquisition and lease structures designed to meet the occupancy needs of our tenants, while also allowing them to improve their financial condition and operating results. We are able to tailor our acquisition structures to meet the specific needs of the seller. In addition, unlike many other potential acquirors, we are willing to purchase a range of real estate from financial institutions, including core operating properties, underutilized office buildings and surplus bank branches.

      As of December 31, 2005, our portfolio consisted of properties acquired from financial institutions using our four acquisition structures: sale leaseback transactions, formulated price contracts, specifically tailored transactions and landlord of choice transactions. These acquisition structures are described below.

      Sale Leaseback Transactions. Under a sale leaseback transaction, we acquire office buildings, bank branches and other core operating properties and lease the properties back to the seller typically pursuant to a triple net or bond net lease, under which the agreed rental rate is based principally upon the purchase price of the property, the credit of the tenant and prevailing market rental rates. Sale leaseback transactions may also include instances where we acquire properties from a third party who has previously leased the property to a bank or other financial institution, typically on a triple net or bond net basis. Sale leasebacks offer financial institutions the opportunity to sell us their corporate real estate while continuing to occupy buildings and locations they value highly. Our leases under sale leaseback transactions are typically for initial terms of 10 to 20 years, with an option on the part of the tenant to renew for extended periods.

      Sale leaseback transactions provide significant benefits to us, including:

• allowing us to acquire a financial institution’s valued real estate, such as a headquarters building;

• retaining the existing financial institution as a primary, long-term tenant; and

• enabling us to generate predictable, consistent returns and attractive financing alternatives as a result of the long-term nature of the leases, the high credit quality of the tenants and an absence of rental set-off rights under net leases.

      Formulated Price Contracts. Formulated price contracts offer financial institutions a method to sell us their surplus bank branches in an efficient manner based upon a formulated price. Pursuant to these agreements, we acquire, or assume leasehold interests in, the surplus bank branches of an institution at a formulated price established by independent appraisals using a valuation methodology that values each property based on its highest and best use and its alternative use, and then applies a negotiated discount. If either party believes that the independent appraisal of a specific property does not represent actual fair market value, then we typically will negotiate a price for the property. If we are unable to negotiate a price, then either party may request a valuation of the property from another independent appraiser, which then will be averaged with the value from the first independent appraisal.

      The bank branches we acquire through formulated price contracts are typically occupied at the time we receive notice of their availability and are typically vacant at the time we acquire them. Bank regulations require banks to notify the account holders at a branch at least 90 days before closing that branch. As a result, we generally receive more than three months notice before we are required to close on the acquisition of a property under a formulated price contract. Because we know that the property will be

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vacant at the time of acquisition (or soon thereafter), we typically begin marketing the property for lease or sublease prior to acquisition. We have enjoyed frequent success in pre-leasing properties for occupancy upon completion of the acquisition.

      Our formulated price contracts do not obligate us to acquire properties with structural or environmental defects unless we are compensated for the cost of repairing or remediating the defects.

      While our formulated price contracts require that we assume the obligations of the financial institutions with respect to surplus bank branches that the financial institutions lease, although we are not obligated to assume lease obligations from financial institutions where the leases have a duration, including renewal periods at the tenant’s discretion, of less than seven years. At times, when we assume the lease obligations of a financial institution at a vacant property owned by a third party, we receive a payment equal to a fixed percentage of the remaining lease liability for that property. In addition, our assumption of these leases is sometimes conditioned on obtaining the consent of the landlord. If the financial institution from which we acquire the leasehold interest is not released from liability under the lease at the time we acquire it, we are required to provide security, typically through a letter of credit, for our obligations under the lease. Where a transaction requires a landlord’s consent, we frequently will obtain the consent of the landlord not only to assume the lease on the property, but also to sublease the property to other financial institutions in the future, thereby providing us with the opportunity to sublease these properties at a later date.

      When purchasing bank branches, either by acquiring title or assuming the financial institution’s rights and obligations under a lease, we are sometimes restricted from leasing or subleasing the property to a financial institution other than the seller, for a period typically not more than six months.

      When leasing properties which we acquire under our formulated price contracts, we seek to lease to local, regional and national banks. If we are unable to lease a property which we acquire under a formulated price contract to a financial institution, or if a property otherwise does not meet our investment criteria, we will typically seek to lease the property for an alternative use and then to dispose of the property.

      Formulated price contracts provide significant benefits to us, including:

• the ability to acquire fully outfitted bank branch properties on favorable terms;

• the ability to actively market for lease such properties prior to acquiring them; and

• efficient and attractive tenanting options due to the appeal of the prime locations and the intrinsic value of pre-existing improvements.

      Specifically Tailored Transactions. Specifically tailored transactions involve the purchase of office buildings, operation centers, bank branches or a combination thereof, in which we apply leasing and pricing structures specifically designed to meet the seller’s needs. In such transactions, we may acquire fee or leasehold interests in property, or a combination of both. Specifically tailored transactions often involve the acquisition of occupied, partially occupied and vacant real estate and may thus include a partial sale leaseback to the seller. In the case of a partial sale leaseback of an office building, we will seek to lease the balance of the available occupancy to other tenants, which may include financial institutions and other commercial tenants. We believe that our ability to consummate specifically tailored transactions represents a competitive advantage for us, in that we are willing to purchase all, rather than selected, properties available from a seller and to design the transaction and leaseback arrangements, if any, in a manner benefiting both parties.

      Specifically tailored transactions provide significant benefits to us, including:

• the opportunity to acquire properties through our relationships with financial institutions that otherwise would not be available for purchase and that have not been publicly marketed;

• the ability to acquire properties in bulk from single sellers;

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• the ability to structure transactions to provide economically advantageous terms for all parties;

• the opportunity to acquire properties with the potential for stable, long-term operating profit; and

• the ability to increase property values by leasing vacant space under long-term leases or to renegotiate existing leases at market rates, providing increased cash flow.

      Landlord of Choice Transactions. Our “landlord of choice” program provides our tenants the opportunity to develop properties, directly or with their chosen development partners, assume the right to acquire properties, and then sell them to, and lease them back from, us. The program allows our tenants to design office buildings and bank branches to their unique specifications, knowing that we will serve as the ultimate owner/landlord for the property. From our perspective, the “landlord of choice” program provides us with newly constructed properties which are leased on a long term basis to core customers.

      Fostering Relationships. We believe that our business depends on developing and maintaining strong relationships throughout the banking and financial services industries. We currently have contractual relationships with 14 financial institutions relating to the purchase and repositioning of surplus bank branches. We have also had discussions with other major financial institutions, as well as many smaller institutions, which we believe will generate significant opportunities to expand our business. During the year ended December 31, 2005, we acquired 127 bank branches under these arrangements. As of December 31, 2005 we leased properties to over 100 different financial institutions.

      Our strong position in this market serves as a key strength in the leasing of new properties, as financial institutions often contact us to determine product availability in areas in which they are looking to open a new bank branch or lease office space. Unlike other real estate owners who do not specialize in financial institutions, we are able to provide existing and prospective tenants with fully equipped, well located bank branches in markets where their real estate selection would otherwise be limited, as well as opportunities to efficiently dispose of underperforming or redundant real estate. As we grow our network of relationships with financial institutions, we expect that our ability to leverage these relationships into mutually beneficially arrangements will continue to increase.

Internal Growth

      We believe that our business strategy provides significant opportunities for internal growth, including:

• Underutilized Real Estate. Through our specifically tailored transactions, we are often able to acquire properties with underutilized space at prices primarily reflecting their in-place occupancy. We acquire vacant bank branches under our formulated price contracts based on independent appraisals using a valuation methodology that values each property based on its highest and best use and its alternative use, and then applies a negotiated discount. Leasing these properties to quality tenants under long-term leases provides us with the opportunity to increase cash flow from our portfolio.

• Market Rate Leases. Many of the leases in place on properties we acquire are below current market rates. We seek to renegotiate short-term and below market leases to achieve longer lease terms at market rates, and we also actively manage our portfolio to achieve higher lease rates when leases on our properties expire or come up for renewal.

• Scheduled Rent Increases. We strive to include scheduled rent increases in our leases, which provide us with contractual growth in cash flow and protection from inflation.

Investment Criteria

      In analyzing proposed acquisitions, we consider various factors including, among others, the following:

• the ability to increase rent and maximize cash flow from the properties under consideration;

• the terms of existing or proposed leases, including a comparison of current or proposed rents and market rents;

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• the creditworthiness of the tenants;

• local demographics and the occupancy of and demand for similar properties in the market area;

• the ability to efficiently lease or sublease any vacant space;

• the ability of the properties to achieve long-term capital appreciation;

• the ability of the properties to produce free cash flow for distribution to our shareholders;

• whether the properties are accretive to our per share financial measures;

• the projected residual value of the properties; and

• the opportunity to expand our network of relationships with financial institutions.

      Our existing formulated price contracts may require us to purchase, or as part of a larger portfolio transaction we may purchase, certain properties that do not meet our investment criteria. Subject to maintaining our qualification as a REIT, we intend to dispose of such properties where we determine that a sale of a property would be in our best interests and holding the property would be inconsistent with the investment parameters for our portfolio. For example, we typically dispose of bank branches that we are unable to lease to financial institutions and our board of trustees has approved a policy to dispose of such non-core properties. Pursuant to that policy, we generally commence our efforts to dispose of a non-core property within 30 days of acquiring that property and to dispose of each non-core property within 12 months of its acquisition. However, in some instances we maintain vacant properties due to potential redevelopment opportunities. On a continuous basis, we evaluate our portfolio and determine the best use for a property depending on the then current market conditions. If we wish to dispose of a non-core property or we believe that a disposition of a property might be subject to the prohibited transactions tax, we generally will dispose of the property through a taxable REIT subsidiary. In some cases, we purchase or hold properties that we identify as candidates for sale in our taxable REIT subsidiary. The disposition policy adopted by our board of trustees may be changed at any time without the consent of our shareholders.

Financing Strategy

      We use a variety of financing methods to accomplish our goal of maintaining indebtedness at an average targeted leverage ratio in the range of 60% to 70% of total assets, although the leverage ratio of certain properties may fall below or above this targeted range. We generally choose a financing method based upon the most attractive interest rate, repayment terms and maturity dates available in the marketplace at the time, and customize our financing strategy for each type of transaction. We focus principally on fixed rate financing and generally seek to match the maturity of the debt (exclusive of scheduled amortization payments) to the lease term on the property securing the debt. Our financing strategies include:

• Sale Leaseback Financing. Sale leaseback properties provide unique financing opportunities as a result of the credit tenant or net lease nature of the underlying lease obligations and the rated or ratable credit of the tenants supporting those obligations. Unlike financings that rely heavily on the quality of the underlying real estate for property valuation and loan terms, our sale leaseback financings focus principally on the quality of the tenant’s credit and on the completeness of the underlying lease obligations to provide an uninterrupted source of funds for loan repayment. Sale leaseback financings frequently permit an attractive loan-to-value ratio depending on the needs and desires of the borrower. Similar to securitized mortgage financings, sale leaseback financings usually prohibit prepayment entirely or require the payment of make-whole premiums or the posting of defeasance collateral.

• Formulated Price Contract Financing. As previously described, under our formulated price contracts we acquire vacant surplus bank branches from financial institutions at a formulated price established by independent appraisals using a valuation methodology that values each property

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	based on its highest and best use and its alternative use, and then applies a negotiated discount. Subsequent to executing a long-term lease with a new tenant, we may finance the property by adding it to the collateral asset pool of our $400.0 million secured credit facility. The leased-up value of the property is much greater than the established book value, which was determined when purchased vacant, using a discounted appraised value. The leased-up value is the basis in determining the amount to finance. Therefore, this may cause the leverage ratio on these leased-up bank branches to be higher than our average targeted leverage ratio.
•	Specifically Tailored Transaction Financing. We usually finance office buildings and other properties that we acquire in specifically tailored transactions with mortgages that will be securitized individually or contributed to multiple loan securitizations, using collateralized mortgage-backed securities underwriting criteria and documentation. This financing structure typically contains provisions that provide for lock-out periods on prepayments, make-whole premiums or defeasance provisions, and reserves for capital expenditures and tenant improvement costs. By incorporating these restrictions in the financing structure, lenders are able to provide more advantageous loan-to-value ratios and interest rates. Mortgage financing loans that are contributed to securitizations are usually written on a non-recourse basis to the borrower, with carve-outs for fraud, misapplication of funds and other bad acts by the borrower or persons under the borrower’s control. In some cases, we use traditional non-securitized mortgage financing.
•	Short-Term Financing Facilities. In 2005, we obtained a short-term bridge facility in anticipation of completing a pooled securitization financing. This facility is secured by three office buildings and expires on June 30, 2006, at which time this $90.0 million facility must be renewed or repaid. We anticipate the completion of a pooled securitization financing before the short-term bridge facility expires, in order to refinance the three office buildings as well as a multitude of other assets.

      We consider a number of factors when evaluating our level of indebtedness and making financing decisions, including, among others, the following:

• the interest rate of the proposed financing;

• the extent to which the financing impacts the flexibility with which we manage our properties;

• prepayment penalties and restrictions on refinancing;

• the purchase price of properties to be acquired with the financing;

• our long-term objectives with respect to the properties securing the financing;

• our target investment return;

• the terms of any existing leases;

• the credit of tenants leasing the properties;

• the estimated market value of the properties upon refinancing; and

• the ability of particular properties, and our company as a whole, to generate cash flow to cover expected debt service.

      We will also consider the impact of individual financings on our corporate financial structure and unsecured debt covenants. Among the factors we consider are:

• our overall level of consolidated indebtedness;

• the timing of debt and lease maturities;

• provisions that require recourse and cross-collateralization;

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• corporate credit ratios including debt service coverage, debt as a percentage of total market capitalization and debt as a percentage of real estate assets; and

• the overall ratio of fixed- and variable-rate debt.

      We intend to continue to employ our current financing methods as well as additional methods, including obtaining from banks, institutional investors or other lenders financing through lines of credit, bridge loans, and other arrangements, any of which may be unsecured or may be secured by mortgages or other interests in our properties. In addition, we may incur debt in the form of publicly or privately placed debt instruments. When possible, we seek to replace short-term sources of capital with long-term financing in which we match the maturity of the debt (exclusive of scheduled amortization payments) to the lease term on the property securing the debt.

      Our indebtedness may be recourse, non-recourse or cross-collateralized. If the indebtedness is recourse, our general assets may be included in the collateral. If the indebtedness is non-recourse, the collateral will be limited to the particular property to which the indebtedness relates. In addition, we may invest in properties subject to existing loans secured by mortgages or similar liens on the properties, or may refinance properties acquired on a leveraged basis. We may use the proceeds from any borrowings to refinance existing indebtedness, to finance acquisitions, for the redevelopment of existing properties, for general working capital purposes or to purchase additional interests in partnerships or joint ventures. If necessary, we may also borrow funds to satisfy the requirement that we distribute to shareholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. We may also incur indebtedness for other purposes when, in our opinion, it is advisable.

Our Strengths

      We believe that our business strategy and operating model distinguish us from developers and other owners, operators and acquirors of real estate in a number of ways, including:

• Banking Industry Focus. The extensive real estate holdings of the banking industry present us with the opportunity to continue to grow our portfolio in the future. We believe that consolidation activity, the sale of underutilized real estate, regulatory restrictions affecting banks’ ability to hold real estate for investment purposes and other trends in the banking industry are likely to continue to result in acquisition opportunities for us.

• Limited Competition. We believe that we are the only real estate company that acquires the full range of real estate assets from banks and other financial institutions through sale leaseback and specifically tailored transactions, as well as by utilizing our unique formulated price contract structure, exclusive of market limitations. Most of our acquisitions have been privately negotiated and have not resulted from a competitive bidding process.

• High Credit Quality Tenants. Our tenant base consists principally of banks and other financial institutions that are highly regulated. As of December 31, 2005, 86.7% of base revenue from our portfolio was derived from financial institutions in the aggregate and 84.2% was derived from entities with current credit ratings of “A” or better as reported by Standard & Poor’s. Base revenue is the contractual rent required to be paid by a tenant under a lease during the ensuing 12 month period, taking into account all scheduled rental increases and decreases, but excluding reimbursable expenses and the effect of straightlining. Our bank tenants are subject to regulatory oversight by government agencies that is intended to ensure ongoing financial viability. As of December 31, 2005, 13.3% of the base revenue from our portfolio was derived from non-financial institution tenants. While our non-financial institution tenants typically do not have credit ratings by Standard & Poor’s or other similar credit-reporting agencies, and are not required to have any minimum credit rating, we typically assess such prospective tenants by performing background analysis consistent with industry practices evaluating both the general desirability of the tenants as well as their ability to comply with the financial and other terms of our leases.

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• Diversified within Industry Niche. Our portfolio is diversified geographically and by asset type within the banking industry. As of December 31, 2005, our portfolio included both small and large office buildings, as well as bank branches, located in 39 states and Washington D.C.

• External Growth Opportunities. We believe that our focus on the banking industry, existing relationships with financial institutions, growing visibility in the banking industry and flexible acquisition structures will continue to provide us with opportunities to acquire properties that meet our portfolio criteria.

• Internal Growth Opportunities. Through our specifically tailored transactions, we often acquire partially occupied properties at prices based on rental income being generated at the time of the acquisition. We also acquire vacant bank branches under our formulated price contracts based on independent appraisals using a valuation methodology that values the property based on its highest and best use and its alternative use, and then applies a negotiated discount. Through our active management and leasing efforts, we believe that we are well-positioned to maximize the value of the underutilized or vacant real estate we acquire. In addition, we strive to increase cash flow by negotiating leases with scheduled rent increases.

• Stable Risk-Adjusted Returns. We typically enter into long-term triple net or bond net leases with our tenants, many of which are the sellers of the properties. As of December 31, 2005, the weighted average term of our leases was 13.4 years. In addition, as of December 31, 2005, approximately 85.1% of our base revenue was derived from triple net and bond net leases under which we are not responsible for operating expenses or from other similar leases where our exposure to operating expenses is limited by a cap which has been or, we expect, will be reached in the near future. We believe that these types of leases generate consistent and predictable returns, protecting us from market fluctuations and increases in operating expenses.

Dependence on Certain Tenants

      As of December 31, 2005, Bank of America, N.A., State Street Corporation and Wachovia Bank, N.A. represented approximately 32.2%, 18.9% and 14.6%, respectively, of our portfolio’s base revenue and occupied approximately 38.3%, 2.8% and 18.6%, respectively, of our total rentable square feet. The default, financial distress or insolvency of Bank of America, State Street Corporation or Wachovia Bank, or the failure of any of these parties to renew their leases with us upon expiration, could cause interruptions in the receipt of lease revenue from these tenants and/or result in vacancies, which would reduce our revenue and increase operating costs until the affected properties are leased, and could decrease the ultimate value of the affected properties upon sale.

Real Estate Operations

      We perform asset management, leasing, property management, and accounting and finance services relating to our properties, directly and by outsourcing functions to third party service providers.

      Asset Management. We focus our asset management activities on maximizing the value of our portfolio, monitoring property performance and operating costs, managing our investment opportunities and, where applicable, pursuing the disposition of non-core properties.

      Leasing. Our leasing team is a key component of our success. Members of our leasing team have developed relationships with large financial institutions and community banks and also have significant experience in leasing to other types of tenants.

      Our marketing process generally begins prior to acquisition of a property, when our leasing agents visit the site to determine how to most effectively market the property for leasing. For our bank branches, we regularly contact community banks and other financial institutions in our markets to determine their property needs, and we attempt to match the properties in our portfolio and acquisition pipeline with the needs of these prospective tenants. For our office buildings, we will visit the location and seek to

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renegotiate and extend existing leases and identify new tenants for vacant space. We also engage experienced local brokers to market vacancies within our portfolio.

      Property Management. Our property management functions include the coordination and oversight of tenant improvements and building services. For our office buildings and vacant bank branches, we currently outsource a significant portion of day-to-day property management functions. For our properties leased to tenants under triple net and bond net leases, the tenant is responsible for expenses related to all such functions.

      Accounting and Finance. We perform accounting and finance services relating to the management of our real estate. Our accounting and finance personnel perform management of accounts payable, collection of receivables and budgeting of operating expenses through consultation with our asset management group.

Property Improvements

      Most of our bank branches and many of our office buildings are leased on a triple net or bond net basis. For these properties, the tenants are responsible for all improvements and are contractually obligated to perform all routine maintenance on the properties as well or, alternatively, to reimburse us for all of the expenses relating to these functions. For non-financial institution tenants in our office buildings, we typically provide a tenant improvement allocation in accordance with prevailing market conditions. In our office buildings, maintenance and improvements to common areas are incorporated into operating expenses for the buildings, which are passed through to net lease tenants on market terms. All of our tenant improvements are coordinated by our property management group and are performed by local outside contractors.

Environmental Matters

      Under various federal, state and local environmental laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases or threats of releases at such property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by such parties in connection with the actual or threatened contamination. Such laws typically impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination. The liability under such laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs. These costs may be substantial, and can exceed the value of the property. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using such property as collateral, and may adversely impact our investment on that property.

      Federal regulations require building owners and those exercising control over a building’s management to identify and warn, via signs and labels, of potential hazards posed by workplace exposure to installed asbestos-containing materials and potentially asbestos-containing materials in the building. The regulations also set forth employee training, record keeping and due diligence requirements pertaining to asbestos-containing materials and potentially asbestos-containing materials. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to asbestos-containing materials and potentially asbestos-containing materials as a result of these regulations. The regulations may affect the value of a building containing asbestos-containing materials and potentially asbestos-containing materials in which we have invested. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potentially asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. Such laws may impose liability for

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improper handling or a release into the environment of asbestos-containing materials and potentially asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potentially asbestos-containing materials.

      Prior to closing any property acquisition, we obtain environmental assessments in a manner we believe prudent in order to attempt to identify potential environmental concerns at such properties. These assessments are carried out in accordance with an appropriate level of due diligence and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property’s chain of title and review of historic aerial photographs and other information on past uses of the property. We may also conduct limited subsurface investigations and test for substances of concern where the results of the first phase of the environmental assessments or other information indicates possible contamination or where our consultants recommend such procedures.

      While we purchase many of our properties on an “as is” basis, our purchase contracts for such properties contain an environmental contingency clause, which permits us to reject a property because of any environmental hazard at such property. However, we do acquire properties which may have asbestos abatement requirements, for which we set aside appropriate reserves.

      We believe that our portfolio is in compliance in all material respects with all federal and state regulations regarding hazardous or toxic substances and other environmental matters.

Competition

      While we believe that our strategy and market focus represent an innovative approach, we nevertheless compete in acquiring properties with financial institutions, institutional pension funds, real estate developers, other REITs, other public and private real estate companies and private real estate investors.

      Among the positive factors relating to our ability to compete to acquire properties are our existing relationships with financial institutions, our growing visibility within the banking industry, our flexible acquisition structures and our ability to purchase the range of real estate assets owned by financial institutions.

      Among the negative factors relating to our ability to compete are the following:

• we may have less knowledge than our competitors of certain markets in which we seek to purchase properties;

• many of our competitors have greater financial and operational resources than we have; and

• our competitors or other entities may determine to pursue a strategy similar to ours.

      We also face competition in leasing or subleasing available properties to prospective tenants. The actual competition for tenants varies depending on the characteristics of each local market.

Insurance

      We carry comprehensive liability, casualty and rental loss insurance covering all of the properties in our portfolio. We believe that the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. We have also obtained terrorism insurance on some of our larger office buildings, which is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants and biological and chemical weapons. We intend to obtain similar terrorism insurance on office buildings that we acquire in the future to the extent required by our lenders. In addition, in certain areas, we pay additional premiums to obtain flood or earthquake insurance. We do not carry insurance for generally uninsured losses such as loss from riots.

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Employees

      We employed 156 full-time employees as of March 15, 2006. We believe that our relations with our employees are good.

Available Information

      Our Internet address is www.afrt.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, 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 Securities and Exchange Commission (SEC). Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC and is intended to be an inactive textual reference only.

      You may request a copy of these filings, at no cost, by contacting, Investor Relations, American Financial Realty Trust, 610 Old York Road, Jenkintown, Pennsylvania 19046, by telephone at 1-215-887-2280, by facsimile at 1-215-572-1596, or by e-mail at ir@afrt.com.

      The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains electronic versions of our reports on its website at www.sec.gov.

Item 1A. Risk Factors

Risks Related to Our Business and Properties

We have recently experienced and expect to continue to experience rapid growth and may not be able to adapt our management and operational systems to respond to the acquisition and integration of additional properties without unanticipated disruption or expense.

      As a result of the rapid growth of our portfolio, we cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems, or hire and retain sufficient operational staff to integrate these properties into our portfolio and manage any future acquisitions of properties without operating disruptions or unanticipated costs. Acquisition of additional properties may generate additional operating expenses that we would be required to pay. As we acquire additional properties, we will be subject to risks associated with managing new properties, including tenant retention and mortgage default. Our failure to successfully integrate any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to shareholders at historical levels or at all.

We commenced operations in September 2002 and completed our initial public offering in June 2003. Our management has a very limited history of operating a REIT and little experience operating a public company, and may therefore have difficulty in successfully and profitably operating our business. This limited experience may impede the ability of our management to execute our business plan successfully.

      We have recently been organized and have a brief operating history. We will be subject to the risks generally associated with the formation of any new business. In addition, we recently completed the initial public offering of our common shares. Our management has limited experience operating a REIT and in managing a publicly owned company. Therefore, you should be especially cautious in drawing conclusions about the ability of our management team to execute our business plan.

If we are unable to acquire additional properties through our relationships with financial institutions or otherwise, our ability to execute our business plan and our operating results could be adversely affected.

      One of our key business strategies is to capitalize on our relationships with financial institutions to acquire additional office buildings and bank branches through formulated price contracts. We currently

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have 14 formulated price contracts with various financial institutions, including contracts with AmSouth Bank, Bank of America, N.A., KeyBank, N.A. and Wachovia Bank, N.A. to acquire surplus bank branches, however these agreements may be terminated without cause upon 90 days notice by AmSouth Bank, Bank of America and KeyBank and by Wachovia Bank immediately upon written notice. Moreover, these agreements only cover surplus bank branches and do not cover each bank’s core office buildings and branches. Therefore, we cannot assure you that we will be able to acquire desirable office buildings and bank branches and execute our business strategy. We may be unable to execute our business plan, which could have a material adverse effect on our operating results and financial condition and our ability to pay dividends to shareholders at historical levels or at all.

If we are unable to acquire additional properties from banks as a result of changes in banking laws and regulations or trends in the banking industry, we may be unable to execute our business plan and our operating results could be adversely affected.

      Changes in current laws and regulations governing banks’ ability to invest in real estate beyond that necessary for the transaction of bank business and changing trends in the banking industry may affect banks’ strategies with respect to the ownership and disposition of real estate. For example, banks may decide, based on these changes or other reasons, to retain much of their real estate, sell their bank branches to another financial institution, redevelop properties or otherwise determine not to sell properties to us. In addition, if our relationships with financial institutions deteriorate or we are unable to maintain these relationships or develop additional relationships, we may be unable to acquire additional properties. We cannot assure you that we will be able to maintain our current rate of growth by acquiring properties acceptable to us in the future. If we are unable to acquire additional properties from financial institutions, we may be unable to execute our business plan, which could have a material adverse effect on our operating results and financial condition and our ability to pay dividends to shareholders at historical levels or at all.

Our agreements with financial institutions require us, with limited exceptions, to purchase surplus bank branch properties on an “as is” basis and, therefore, the value of these properties may decline if we discover problems with the properties after we acquire them.

      Our agreements with financial institutions require us to purchase surplus bank branch properties on an “as is” basis. We may receive limited representations, warranties and indemnities from the sellers and, in certain cases, we may be required to indemnify the sellers for certain matters, including environmental matters, in connection with our acquisition of such properties. Pursuant to our formulated price contracts with various banks, we may be required to purchase properties that have environmental conditions, provided the seller agrees, depending on the terms of the relevant formulated price contract, to either (i) investigate or remediate the environmental conditions, (ii) deduct the mutually agreed cost of remediation from the purchase price or (iii) indemnify us for the costs of investigating or remediating the environmental conditions, which indemnity may be limited. If we discover issues or problems related to the physical condition of a property, zoning, compliance with ordinances and regulations or other significant problems after we acquire the property, we typically have no recourse against the seller and the value of the property may be less than the amount we paid for such property. We may incur substantial costs in remediating or repairing a property that we acquire or in ensuring its compliance with governmental regulations. These capital expenditures would reduce cash available for distribution to our shareholders. In addition, we may be unable to rent these properties on terms favorable to us, or at all.

If we are unable to complete in a timely fashion or at all the prospective acquisitions that we publicly announce from time to time, our operating results could be adversely affected.

      We have publicly announced, and will continue to publicly announce in the future, through our filings with the SEC and through press releases, a number of prospective acquisitions pursuant to which we would acquire additional properties. Our ability to complete these acquisitions is dependent upon many factors, such as satisfaction of due diligence and customary closing conditions and our ability to obtain

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sufficient debt financing. Our inability to complete these acquisitions or any portion thereof within our anticipated time frame or at all could have a material adverse effect on our results and financial condition and our ability to pay dividends to shareholders at historical levels or at all.

Our use of debt financing and our substantial existing debt obligations may decrease our cash flow and put us at a competitive disadvantage.

      We have incurred, and may in the future incur, debt to fund the acquisition of properties. As of December 31, 2005, we had approximately $3,319.5 million of outstanding indebtedness, which includes the aggregate principal amount of our convertible notes of $450.0 million and outstanding advances under our secured credit facility of $171.3 million. Increases in interest rates on our existing variable rate indebtedness would increase our interest expense, which could harm our cash flow and our ability to pay dividends. If we incur additional indebtedness, debt service requirements would increase accordingly, which could further adversely affect our financial condition and results of operations, our cash available for distribution to shareholders and our equity value. In addition, increased leverage could increase the risk of our default on debt obligations, which could ultimately result in loss of properties through foreclosure.

      Since we anticipate that our cash from operations will be insufficient to repay all of our indebtedness prior to maturity we expect that we will be required to repay debt through refinancings, financing of unencumbered properties, sale of properties or the sale of additional equity. As of December 31, 2005, we will have to refinance or repay an aggregate amount of approximately $210.6 million of our existing indebtedness, during the year ended December 31, 2006, including the mezzanine debt of $50.0 million secured by State Street Financial Center, which is prepayable without penalty in October 2006. Such repayments also include the short-term bridge financing of approximately $90.0 million, which expires in June 2006 and includes approximately $16.2 million of recourse to our Operating Partnership. This short-term bridge financing was received in anticipation of completing a pooled securitization financing. We anticipate that the pooled securitization financing will be completed before the short- term bridge financing expires, however we cannot assure you that the timing will not be delayed by unforeseen circumstances and that we will be able to renew or raise the necessary funds to meet our obligations.

      The amount of our existing indebtedness may adversely affect our ability to repay debt through refinancings. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties on unfavorable terms, which might result in losses to us and which might adversely affect cash available for distributions to shareholders. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancing, interest expense would increase, which could have a material adverse effect on our operating results and financial condition and our ability to pay dividends to shareholders at historical levels or at all.

      We also may incur additional debt in connection with future acquisitions of real estate. We may borrow under our credit facilities or otherwise borrow new funds to acquire properties. In addition, we may incur or increase our mortgage debt by obtaining loans secured by a portfolio of some or all of the real estate we acquire. We may also borrow funds if necessary to satisfy the requirement that we distribute to shareholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes.

      Our substantial debt and any increases in our debt may harm our business and our financial results by, among other things:

• requiring us to use a substantial portion of our cash flow from operations to pay interest, which reduces the amount available for operation of our properties or for the payment of dividends;

• resulting in violation of restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations;

• placing us at a competitive disadvantage compared to our competitors that have less debt;

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• making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions;

• requiring us to sell one or more properties, possibly on unfavorable terms; and

• limiting our ability to borrow funds for operations or to finance acquisitions in the future or to refinance our existing indebtedness at maturity on terms as or more favorable than the terms of the original indebtedness.

Our reported earnings per share may be more volatile because of the conversion contingency provision of our senior convertible notes.

      In October 2004, the Emerging Issues Task Force of the Financial Accounting Standards Board ratified the proposed guidance in Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effects on Diluted Earnings per Share” (Issue No. 04-8). Issue No. 04-8 requires the inclusion of convertible shares for contingently convertible debt in the calculation of diluted earnings per share using the if-converted method, regardless of whether the contingency has been met. In response to Issue No. 04-8, we entered into a Second Supplemental Indenture to the original Indenture for our convertible senior notes pursuant to which we irrevocably elected to satisfy our conversion obligation with respect to the principal amount of any notes surrendered for conversion with cash and with respect to any excess over the principal amount of any notes surrendered for conversion with cash or common shares. Therefore, Issue No. 04-8 requires us to include in our calculation of diluted earnings per share only those common shares issuable in satisfaction of the aggregate conversion obligation as defined in the Indenture in excess of the aggregate principal amount of notes outstanding. The inclusion of any such shares would cause a reduction in our diluted earnings per share for any periods in which such shares are included. Volatility in our share price could cause such common shares to be included in our diluted earnings per share calculation in one quarter and not in a subsequent quarter, thereby increasing the volatility of our diluted earnings per share.

Our use of variable rate debt exposes us to interest rate volatility, which may adversely affect our operating results and financial condition.

      We may experience interest rate volatility in connection with borrowings that bear interest at variable rates, such as our secured and unsecured credit facilities and short-term bridge financing. Although we generally seek to place permanent debt financing on our properties on a fixed rate basis, we may seek floating rate financing on our properties when we deem it appropriate. We have a secured credit facility that bears interest at a variable rate. We have also obtained an unsecured credit facility of up to $60 million, which also bears interest at a variable rate. Our use of variable rate debt and volatility in interest rates may adversely affect our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

      We may seek to mitigate our exposure to interest rate volatility by using interest rate hedging arrangements. These arrangements also involve risks, however, and may not be effective in reducing our exposure to interest rate changes.

We may not have sufficient capital to fully perform our obligations to purchase properties under our agreements with financial institutions, which may subject us to liquidated or other damages or result in termination of these agreements.

      Our agreements with financial institutions require us, with limited exceptions, to purchase all bank branches that the financial institutions determine to be surplus properties. If we are unable to accurately forecast the number of properties that we may become obligated to purchase, or if we are unable to secure adequate debt or equity financing to fund the purchase price, we may not have sufficient capital to purchase these properties. If we cannot perform our obligations, we may become subject to liquidated or other damages or impair our relationships with these institutions. The institutions with whom we have such agreements may also have the right to terminate the agreements if we breach our obligations under them.

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Any of these damages could significantly affect our operating results, and if these agreements are terminated, our ability to acquire additional properties and successfully execute our business plan would be significantly impaired. If we are successful in entering into similar agreements with other financial institutions, we may need a significant amount of additional capital to fund additional acquisitions under those agreements. We cannot assure you that we will be able to raise necessary capital on acceptable terms or at all. Our inability to fund required acquisitions would adversely affect our revenues, impair our business plan and reduce cash available for distribution to shareholders.

Failure of our tenants to pay rent could seriously harm our operating results and financial condition.

      We rely on rental payments from our tenants as a source of cash to pay dividends to our shareholders. At any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy, insolvency, or failure to make rental payments when due could result in the termination of the tenant’s lease and material losses to our company. This risk is particularly prominent with respect to our office buildings and our sale leaseback properties, which typically have tenants with larger aggregate lease obligations than our bank branches. A default by a large tenant on one of these properties could have a material adverse effect on our operating results and financial condition, as well as on our ability to pay dividends to shareholders.

      In particular, if any of our significant tenants becomes insolvent, suffers a downturn in its business and decides not to renew its lease or vacates a property and prevents us from leasing that property by continuing to pay base rent for the balance of the term, it may seriously harm our business. Failure on the part of a tenant to comply with the terms of a lease may give us the right to terminate the lease, repossess the applicable property and enforce the payment obligations under the lease; however, we would be required to find another tenant. We cannot assure you that we would be able to find another tenant without incurring substantial costs, or at all, or that, if another tenant was found, we would be able to enter into a new lease on favorable terms.

The bankruptcy or insolvency of our tenants under their leases or delays by our tenants in making rental payments could seriously harm our operating results and financial condition.

      Any bankruptcy filings by or relating to one of our tenants could bar us from collecting prebankruptcy debts from that tenant or its property, unless we receive an order permitting us to do so from the bankruptcy court. A tenant bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover substantially less than the full value of any unsecured claims, which would harm our financial condition.

      Many of our tenants are banks that are not eligible to be debtors under the federal bankruptcy code, but would be subject to the liquidation and insolvency provisions of applicable banking laws and regulations. If the FDIC were appointed as receiver of a banking tenant because of a tenant’s insolvency, we would become an unsecured creditor of the tenant, and be entitled to share with the other unsecured non-depositor creditors in the tenant’s assets on an equal basis after payment to the depositors of their claims. The FDIC has in the past taken the position that it has the same avoidance powers as a trustee in bankruptcy, meaning that the FDIC may try to reject the tenant’s lease with us. As a result, we would be unlikely to have a claim for more than the insolvent tenant’s accrued but unpaid rent owing through the date of the FDIC’s appointment as receiver. In any event, the amount paid on claims in respect of the lease would depend on, among other factors, the amount of assets of the insolvent tenant available for unsecured claims. We may recover substantially less than the full value of any unsecured claims, which

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could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

A significant portion of our properties is leased to banks, making us more economically vulnerable in the event of a downturn in the banking industry.

      As of December 31, 2005, approximately 86.7% of our base revenue was derived from financial institutions, including regulated banks. Individual banks, as well as the banking industry in general, may be adversely affected by negative economic and market conditions throughout the United States or in the local economies in which regional or community banks operate. In addition, changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, may have an adverse impact on banks’ loan portfolios and allowances for loan losses. As a result, we may experience higher rates of lease default or terminations in the event of a downturn in the banking industry than we would if our tenant base was more diversified.

We acquire a substantial number of bank branches, which are specialty-use properties and therefore may be more difficult to lease to non-banks.

      Bank branches are specialty-use properties that are outfitted with vaults, teller counters and other customary installations and equipment that require significant capital expenditures. Our revenue from and the value of the bank branches in our portfolio may be affected by a number of factors, including:

• demand from financial institutions to lease or purchase properties that are configured to operate as bank branches;

• demand from non-banking institutions to make capital expenditures to modify the specialty-use properties to suit their needs; and

• a downturn in the banking industry generally and, in particular, among smaller community banks.

      These factors may have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders, if financial institutions do not increase the number of bank branches they operate, do not find the locations of our bank branches desirable, or elect to make capital expenditures to materially modify other properties rather than pay higher lease or acquisition prices for properties already configured as bank branches. The sale or lease of these properties to entities other than financial institutions may be difficult due to the added cost and time of refitting the properties, which we do not expect to undertake. If we are unable to lease the bank branches we acquire to financial institutions, we may be forced to sell the branches at a loss due to the repositioning expenses likely to be incurred by non-bank purchasers.

We are dependent on certain tenants for a significant portion of our revenues and failure of these tenants to perform their obligations or renew their leases upon expiration may adversely affect our cash flow and ability to pay dividends to shareholders.

      As of December 31, 2005, Bank of America, N.A., State Street Corporation and Wachovia Bank, N.A. represented approximately 32.2%, 18.9% and 14.6%, respectively, of our portfolio’s base revenue and occupied approximately 38.3%, 2.8% and 18.6%, respectively, of our total rentable square feet. The default, financial distress or insolvency of Bank of America N.A., State Street Corporation or Wachovia Bank, N.A., or the failure of any of these parties to renew their leases with us upon expiration, could cause interruptions in the receipt of lease revenue from these tenants and/or result in vacancies, which would reduce our revenue and increase operating costs until the affected properties are leased, and could decrease the ultimate value of the affected properties upon sale. We may be unable to lease the vacant property at a comparable lease rate or at all, which could have a material adverse impact on our operating results and financial condition as well as our ability to pay dividends to shareholders.

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Our formulated price contracts with financial institutions may require us to purchase bank branches located in unattractive locations or vacant bank branches that we would not elect to otherwise purchase, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends at historical levels or at all.

      We currently have 14 formulated price contracts with various financial institutions, including contracts with AmSouth Bank, Bank of America, N.A., KeyBank, N.A. and Wachovia Bank, N.A. Under our formulated price contracts, we are required, with limited exceptions, to purchase surplus bank branches that these financial institutions own. We may terminate our agreements with AmSouth Bank, Bank of America and KeyBank without cause upon 90 days written notice, and our agreement with Wachovia Bank immediately upon written notice. Financial institutions may elect to sell us surplus bank branches under our formulated price contracts for any number of reasons, including, among others, that the properties:

• overlap with other bank branches accumulated in connection with mergers and acquisitions with other financial institutions;

• have low deposit levels as compared to other branches in their portfolio;

• are vacant; or

• are located in unattractive areas.

      As a result, we may be required to purchase properties that we otherwise would not elect to purchase outside of our obligations under the formulated price contracts. The purchase of such bank branches may make it more difficult for us to lease these properties or fulfill our obligations to purchase surplus bank branches under other formulated price contracts, and could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

Our formulated price contracts with financial institutions may require us to purchase a large number of bank branches at any given time that we would not elect to otherwise purchase, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends at historical levels or at all.

      Since generally there are no limitations on the number or dollar value of properties that the financial institution may sell to us under our formulated price contracts, we may be required to make significant cash expenditures relating to the purchase of one or a large number of properties at any given time. These expenditures may significantly deplete our available cash holdings and reduce cash available for distribution to our shareholders. In addition, we may be unable to effect the acquisition of the bank branches that we are otherwise obligated to purchase under our formulated price contracts through either equity or debt financing. If we are unable to complete purchases of bank branches under a formulated price contract, we will be deemed to be in default of such contract and may become liable for significant damages as a result of such default. Our inability to fulfill our obligations to purchase surplus bank branches under our formulated price contracts could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

We may be unable to lease properties that we acquire from financial institutions under our formulated price contracts, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

      Substantially all of the bank branches we acquire through our formulated price contracts with financial institutions are vacant when we are notified of our obligation to purchase, or elect to purchase, the properties. Either because the properties we are obligated to acquire may be unattractive or because we are required to process a large number of properties within a short time period, we cannot assure you that we will be able to lease or sublease any properties that we acquire prior to their acquisition, or at all, or that we will be able to lease or sublease properties on terms that are acceptable to us. In addition,

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under our formulated price contracts, we are typically restricted from permitting tenants that compete with the seller from commencing banking operations at a property during the four to six month period after the seller ceases operations at the property. This restriction could limit our ability to generate revenues from these properties in an acceptable time frame. When we enter into a lease with a tenant for a bank branch, the tenant typically has a right to terminate its obligations under the lease if it fails to obtain the necessary approvals to operate the bank branch in the location within 60 days. The tenant’s failure to receive these types of approvals during this period, or at all, may adversely affect our ability to generate revenue from these properties.

      If we fail to lease these properties, they will not generate any revenue for us, which could have a negative effect on our ability to pay dividends to our shareholders. Similarly, our ability to sublease leasehold interests that we assume is sometimes restricted. If we are unable to sublease our leasehold interests on terms that are acceptable to us, or if we cannot obtain the consent of the property owner to enter into a sublease, our operating results, cash flow and ability to pay dividends may be impaired.

We do not know if our tenants will renew their existing leases and, if they do not, we may be unable to lease the properties on as favorable terms, or at all, which would adversely affect our operating results and financial condition.

      We cannot predict whether existing leases of our properties will be renewed at the end of their lease terms. If these leases are not renewed, we would be required to find other tenants for those properties. We cannot assure you that we would be able to enter into leases with new tenants on terms as favorable to us as the current leases or that we would be able to lease those properties at all. Our inability to enter into new leases on acceptable terms or at all could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

If we are unable to lease or sublease properties that are partially or completely vacant, we may be required to recognize an impairment loss with respect to the carrying values of these properties, which may have a material adverse effect on our operating results and financial condition.

      We may acquire properties that are partially or completely vacant upon acquisition, including surplus bank branches that we acquire under our formulated price contracts. In addition, any of our properties may become partially or completely vacant in the future. If we are unable to lease these properties and generate sufficient cash flow to recover the carrying value of these properties, we may be required to recognize an impairment loss, which could have a material adverse effect on our operating results and financial condition.

      As part of our business strategy, we may assume third party lease obligations or sublease properties. If we are unable to enter into subleases with tenants for such space at rates sufficient to cover our contractual lease or sublease obligations, we may suffer operating losses on such transactions and/or be required to reserve against future operating losses, which could have a material adverse effect on our operating results and financial condition.

Our financial covenants may restrict our operating or acquisition activities, which may harm our financial condition and operating results.

      The mortgages on our properties contain customary negative covenants, including provisions that may limit our ability, without the prior consent of the lender, to further mortgage the applicable property or to discontinue insurance coverage. These limitations could restrict our ability to acquire additional properties. In addition, any of our future lines of credit or loans may contain additional financial covenants and other obligations. If we breach covenants or obligations in our debt agreements, the lender can generally declare a default and require us to repay the debt immediately and, if the debt is secured, can immediately take possession of the property securing the loan. In order to meet our debt service obligations, we may have to sell properties, potentially at a loss or at times that prohibit us from achieving attractive returns. Failure to pay our indebtedness when due or failure to cure events of default could result in higher interest rates

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during the period of the loan default and could ultimately result in the loss of properties through lender foreclosure.

We are subject to contractual obligations and covenants that may restrict our ability to dispose of our properties at attractive returns or when we otherwise desire to sell them.

      Under the partnership agreement of 801 Market Street Holdings, L.P., which owns our 801 Market Street property, we are contractually restricted, until April 5, 2008, from selling or refinancing the property without the consent of the holders of a majority of the 11% minority limited partnership interest in 801 Market Street Holdings, L.P. As a result of these restrictions, we could be precluded from disposing of, refinancing or taking other material actions with respect to these properties during the restricted period, even if we are presented with an opportunity to dispose of or refinance these properties on terms that we believe are attractive.

      With respect to the properties we acquired from a wholly owned subsidiary of Dana Commercial Credit Corporation, we are restricted from selling any individual property in the portfolio so long as the existing master lease for the portfolio is in effect.

      Pursuant to a contribution agreement under which Nicholas S. Schorsch and several other individuals and entities, of which several are our affiliates, contributed approximately $217.0 million of properties to our operating partnership in exchange for a combination of cash payments and units of our operating partnership, we are required to pay these contributing parties a tax indemnity in the event of a taxable disposition of a property contributed by them prior to an expiration date defined as the earlier of (i) September 10, 2007 and (ii) the date on which the contributing parties no longer own in the aggregate at least 25% of the units of our operating partnership issued to them in return for their contribution of property. The tax indemnity will equal the amount, if any, by which (i) the amount of the federal and state income tax liability (using an assumed combined federal and state income tax rate of 35%) incurred by the contributing parties with respect to the gain allocated to the contributing parties under Section 704(c) of the Internal Revenue Code exceeds (ii) the present value of the tax liability as of the end of the taxable year in which the disposition occurs, assuming the tax liability is not due until the end of the taxable year in which the expiration date is scheduled to occur. The discount rate to be used in the present value computation is the prime rate as announced by Wachovia Bank, N.A. at such time plus 200 basis points per annum. This tax indemnity could inhibit our disposition of properties that we may otherwise desire to sell and increase the cost of selling those properties, each of which could adversely affect our revenues.

      In the future, we may become subject to additional contractual obligations and covenants that may restrict our ability to dispose of our properties.

We have a credit facility under which the lender will have the right, under certain circumstances, to require that we pledge additional collateral or repay a portion of the outstanding principal on short notice, which could have an adverse effect on our business.

      In July 2003, we completed a financing with Deutsche Bank Securities Inc., acting on behalf of Deutsche Bank AG, Cayman Islands Branch, for a $300.0 million secured credit facility. In September 2005, we executed a renewal of this facility, expanding the maximum available under the facility to $400.0 million. As of December 31, 2005 we had $171.3 million of advances outstanding under this facility. Advances under this facility must be repaid within 18 months. Advances under this facility are made in the aggregate principal amount of up to 80% of the lesser of either (i) the maximum amount of subsequent debt financing that can be secured by the properties we acquire with the borrowings under this facility or (ii) the acquisition cost of those properties. The lender has the right to reassess this ratio from time to time. If the lender determines that this ratio exceeds a ratio that the lender deems appropriate based on then current market conditions, the lender may require us to pledge additional qualifying collateral under the facility or repay a portion of the principal outstanding under the facility. If we do not have additional qualifying collateral or sufficient available liquidity to satisfy the lender’s requirements,

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then we could default on our obligations under the facility and thereby risk foreclosure by the lender on the properties we acquired with the borrowings under this facility or we could incur losses in an effort to raise sufficient liquidity to repay the portion of the principal required by the lender. We may complete additional debt financings with similar obligations in the future.

Increasing competition for the acquisition of real estate may impede our ability to make future acquisitions or may increase the cost of these acquisitions, which could adversely affect our operating results and financial condition.

      We compete with many other entities engaged in real estate investment activities, including the acquisition of properties from financial institutions. Such entities include institutional pension funds, other REITs, other public and private real estate companies and private real estate investors. These competitors may prevent us from acquiring desirable properties or increase the price we must pay for real estate. Our competitors may have greater resources than we do, and may be willing to pay more or may have a more compatible operating philosophy with our acquisition targets. In particular, larger REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for such properties. If we pay higher prices for properties, our profitability may decrease and we may experience a lower return on our investments. Increased competition for properties may also preclude us from acquiring those properties that would generate the most attractive returns to us.

The consideration paid for our properties may exceed fair market value, which may harm our financial condition and operating results.

      Under our formulated price contracts, we are obligated to purchase properties at a formulated price based on independent appraisals using a valuation methodology that values the properties based on their highest and best use and their alternative uses, and then applies a negotiated discount. Therefore, where we ultimately lease or sell a property to a non-bank, the fair market value of the property measured with respect to the lease or sale may be less than the purchase price that we paid for the property. In addition, the consideration that we pay for our properties not acquired under a formulated price contract will be based upon numerous factors and such properties will often be purchased in negotiated transactions rather than through a competitive bidding process. We cannot assure you that the purchase prices we pay for our properties or their appraised values will be a fair price for these properties, that we will be able to generate an acceptable return on these properties, or that the location, lease terms or other relevant economic and financial data of any properties that we acquire, including our existing portfolio, will meet risk profiles acceptable to our investors. We may also be unable to lease vacant space or renegotiate existing leases at market rates, which would adversely affect our returns on the affected properties. As a result, our investments in these properties may fail to perform in accordance with our expectations, which may substantially harm our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

We structure many of our acquisitions using complex structures often based on forecasted results for the acquisitions, and if the acquired properties underperform forecasted results, our financial condition and operating results may be harmed.

      We acquire many of our properties under complex structures that we tailor to meet the specific needs of the tenants and/or sellers. For instance, we may enter into transactions under which a portion of the properties are vacant or will be vacant following the completion of the acquisition. If we fail to accurately forecast the leasing of such properties following our acquisition, our operating results and financial condition, as well as our ability to pay dividends to shareholders, may be adversely impacted.

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Our acquisitions of real estate may result in disruptions to our business as a result of the burden placed on management.

      Our growth strategy is primarily based on the acquisition of real estate. Such acquisitions may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees. In addition, if we were to acquire real estate indirectly by acquiring another entity, we may be unable to integrate effectively the operations and personnel of the acquired business or to train, retain and motivate any key personnel from the acquired business. The inability of our management to effectively implement our acquisition strategy may cause disruptions to our business and may have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

As a result of the limited time during which we have to perform due diligence on many of our acquired properties, we may become subject to significant unexpected liabilities and our properties may not meet projections.

      When we enter into an agreement to acquire a property or portfolio of properties, we often have limited time to complete our due diligence prior to acquiring the property. Because our internal resources are limited, we may rely on third parties to conduct a portion of our due diligence. To the extent we or these third parties underestimate or fail to identify risks and liabilities associated with the properties we acquire, we may incur unexpected liabilities and/or the acquired properties may fail to perform in accordance with our projections. If we do not accurately assess during the due diligence phase the value of, and liabilities associated with, properties prior to their acquisition, we may pay a purchase price that exceeds the current fair value of the net identifiable assets of the acquired businesses. As a result, material goodwill and other intangible assets would be required to be recorded, which could result in significant charges in future periods. These charges, in addition to the financial impact of significant liabilities that we may assume, could have a material adverse effect on our financial condition and operating results, as well as our ability to pay dividends to shareholders at historical levels or at all.

If third party managers providing property management services for our office buildings or their personnel are negligent in their performance of, or default on, their management obligations, our tenants may not renew their leases or we may become subject to unforeseen liabilities. If this occurs, our financial condition and operating results, as well as our ability to pay dividends to shareholders at historical levels or at all, could be substantially harmed.

      We have entered into agreements with third party management companies to provide property management services for a significant number of our office buildings, and we expect to enter into similar third party management agreements with respect to office buildings we acquire in the future. We do not supervise these third party managers and their personnel on a day-to-day basis and we cannot assure you that they will manage our properties in a manner that is consistent with their obligations under our agreements, that they will not be negligent in their performance or engage in other criminal or fraudulent activity, or that these managers will not otherwise default on their management obligations to us. If any of the foregoing occurs, our relationships with our tenants could be damaged, which may prevent the tenants from renewing their leases, and we could incur liabilities resulting from loss or injury to our properties or to persons at our properties. If we are unable to lease our properties or we become subject to significant liabilities as a result of third party management performance issues, our operating results and financial condition, as well as our ability to pay dividends to shareholders, could be substantially harmed.

Rising operating expenses could reduce our cash flow and funds available for future dividends.

      Our properties are subject to operating risks common to real estate in general, any or all of which may negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds for that property’s operating expenses. Our properties are also subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses.

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      While many of our properties are leased on a triple net basis or under leases that require that tenants pay a portion of the expenses associated with maintaining the properties, renewals of leases or future leases may not be negotiated on that basis, in which event we will have to pay those costs. In addition, real estate taxes on our properties and any other properties that we develop or acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities. Many U.S. states and localities are considering increases in their income and/or property tax rates (or increases in the assessments of real estate) to cover revenue shortfalls. If we are unable to lease properties on a triple net basis or on a basis requiring the tenants to pay all or some of the expenses associated with maintaining the properties, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our shareholders at historical levels or at all.

      We intend to distribute to our shareholders all or substantially all of our REIT taxable income each year so as to avoid paying corporate income tax and excise tax on our earnings and to qualify for the tax benefits accorded to REITs under the Internal Revenue Code. We have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected by the risk factors described herein. Since inception, dividends and Operating Partnership distributions have exceeded the minimum amounts required to satisfy the Internal Revenue Code distribution requirements. As such, any distribution amount in excess of our taxable income is designated as a return of capital. All distributions will be made at the discretion of our board of trustees and will depend on our earnings, our financial condition, maintenance of our REIT status and other factors that our board of trustees may deem relevant from time to time. We cannot assure you that we will be able to pay dividends in the future.

      Our ability to pay dividends is based on many factors, including:

• our ability to make additional acquisitions;

• our ability to borrow capital;

• our success in negotiating favorable lease terms;

• our ability to dispose of non-core properties at favorable terms;

• our tenants’ ability to perform under their leases; and

• our anticipated operating expense levels may not prove accurate, as actual results may vary substantially from estimates.

      Elements of each of these factors may be beyond our control and a change in any one or all of these factors could affect our ability to pay future dividends. We also cannot assure you that the level of our dividends will increase over time or that contractual increases in rent under the leases of our properties or the receipt of rental revenue in connection with future acquisitions of properties will increase our cash available for distribution to shareholders. In the event of defaults or lease terminations by our tenants, rental payments could decrease or cease, which would result in a reduction in cash available for distribution.

We may be unable to continue the implementation of our new information system without some interruption of our operating processes and controls.

      Effective January 1, 2006, we went “live” with our new information system, the implementation of which began in August 2005. As a result, a number of our operational processes and internal control procedures have been changed to conform to the work-flow of the new information system. We are also still in the process of verifying data that has been entered into the system, customizing system software and training personnel. We anticipate that the new information system and internal control procedures will

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enhance our current processes and financial reporting structure. We cannot assure you this implementation will continue without some interruption of our operating processes and controls.

Risks Related to Our Organization and Structure

We depend on key personnel with long-standing business relationships, the loss of whom could threaten our ability to operate our business successfully.

      Our future success depends, to a significant extent, upon the continued services of Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of our board of trustees, and of our management team. In particular, the extent and nature of the relationships that Mr. Schorsch and the other members of our management team have developed with financial institutions and existing and prospective tenants is critically important to the success of our business. Although we have an employment agreement with Mr. Schorsch and other key executives, there is no guarantee that Mr. Schorsch or the other executives will remain employed with us. We do not maintain key person life insurance on any of our officers. The loss of services of one or more members of our corporate management team, particularly Mr. Schorsch, would harm our business and our prospects.

We may experience conflicts of interest with several members of our management and board of trustees relating to the disposition and operation of our initial properties and operating companies.

      Conflicts of interest relating to the acquisition of our initial properties and operating companies in September 2002 from Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of our board of trustees, and several other individuals and entities affiliated or associated with us, may lead to decisions that are not in your best interest. Mr. Schorsch, Jeffrey C. Kahn, our former Senior Vice President — Acquisitions and Dispositions, and Shelley D. Schorsch, our former Senior Vice President — Corporate Affairs and wife of Mr. Schorsch, received, directly or indirectly through their affiliates and family members, approximately 51.1% of the total consideration received by the sellers in connection with these acquisitions. The terms of the agreements relating to these acquisitions were not negotiated in an arm’s length transaction and it is possible that we could realize less value from these acquisitions than we would have achieved had the acquisitions been entered into with an unrelated third party. Additionally, Messrs. Schorsch and Kahn and Ms. Schorsch have unrealized gains associated with their interests in several of these assets and, as a result, any sale of such assets or refinancing or prepayment of principal on the indebtedness assumed by us in purchasing such assets may cause adverse tax consequences to Messrs. Schorsch and Kahn and Ms. Schorsch. These individuals may not be supportive of the taxable disposition or refinancing of the properties when it might otherwise be the optimal time for us to do so and such lack of support could affect our decisions as to the timing and structure of any such dispositions or refinancing in the future. In addition, under the terms of the contribution agreement relating to our acquisition of these properties, we have agreed to indemnify Mr. Schorsch and the other parties to the agreement in the event that we sell, transfer, distribute or otherwise dispose of any of these properties in a transaction that would result in the allocation of taxable income or gain by us to the contributing parties under Section 704 of the Internal Revenue Code, until the earlier of:

• five years from the date of the acquisition; or

• the date on which the contributors under the agreement no longer own 25% of the limited partnership interests in our operating partnership that were issued in exchange for the properties.

      This tax indemnity will equal the amount of the excess, if any, of the tax liability, assuming a 35% tax rate, on the gain resulting from the disposition of the property, over the present value (using a discount rate equal to the prime rate plus 2%) of such tax liability to the last day of our taxable year in which the indemnity expires. As a result of this agreement, we may elect not to sell or transfer these properties in order to avoid payment of the tax indemnity, despite the fact that we would otherwise be able to sell the properties for a significant gain.

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Our board of trustees may authorize the issuance of additional shares that may cause dilution.

      Our declaration of trust authorizes the board of trustees, without shareholder approval, to:

• amend the declaration of trust to increase or decrease the aggregate number of shares of beneficial interest or the number of shares of beneficial interest of any class that we have the authority to issue;

• authorize the issuance of additional common or preferred shares, or units of our operating partnership which may be convertible into common shares, in connection with future equity offerings, acquisitions of properties or other assets of companies; and

• classify or reclassify any unissued common shares or preferred shares and set preferences, rights and other terms of such classified or reclassified shares, including the issuance of preferred shares that have preference rights over the common shares with respect to dividends, liquidation, voting and other matters or common shares that have preference rights with respect to voting.

      The issuance of additional shares could be substantially dilutive to our existing shareholders.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited, which could limit your recourse in the event of actions not in your best interests.

      Maryland law provides that a trustee has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust authorizes us to indemnify our trustees and officers for actions taken by them in those capacities to the extent permitted by Maryland law. In addition, our declaration of trust limits the liability of our trustees and officers for money damages, except for liability resulting from:

• actual receipt of an improper benefit or profit in money, property or services; or

• a final judgment based upon a finding of active and deliberate dishonesty by the trustee or officer that was material to the cause of action adjudicated.

      As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist. Our bylaws require us to indemnify each trustee or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service to us. In addition, we may be obligated to fund the defense costs incurred by our trustees and officers.

Our ownership limitations may restrict business combination opportunities.

      To qualify as a REIT under the Internal Revenue Code, no more than 50% of our outstanding common shares of beneficial interest may be owned, directly or indirectly, by five or fewer persons during the last half of each taxable year (other than our first REIT taxable year). To preserve our REIT qualification, our declaration of trust generally prohibits direct or indirect ownership by any person of more than 9.9% of the number of outstanding shares of any class of our securities, including our common shares. Generally, common shares owned by affiliated owners will be aggregated for purposes of the ownership limitation. Any transfer of our common shares that would violate the ownership limitation will be null and void, and the intended transferee will acquire no rights in such shares. Instead, such common shares will be designated as “shares-in-trust” and transferred automatically to a trust effective on the day before the purported transfer of such shares. The beneficiary of a trust will be one or more charitable organizations named by us. The ownership limitation could have the effect of delaying, deterring or preventing a change in control or other transaction in which holders of common shares might receive a premium for their common shares over the then current market price or which such holders might believe to be otherwise in their best interests. The ownership limitation provisions also may make our common shares an unsuitable investment vehicle for any person seeking to obtain, either alone or with others as a group, ownership of more than 9.9% in value of our shares.

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Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.

      Our declaration of trust provides that a trustee may only be removed upon the affirmative vote of holders of two-thirds of our outstanding common shares. Vacancies may be filled by the board of trustees. This requirement makes it more difficult to change our management by removing and replacing trustees.

Our board of trustees may approve the issuance of preferred shares with terms that may discourage a third party from acquiring us.

      Our declaration of trust permits our board of trustees to issue up to 100,000,000 preferred shares, issuable in one or more classes or series. Our board of trustees may classify or reclassify any unissued preferred shares and establish the preferences and rights (including the right to vote, participate in earnings and to convert into common shares) of any such preferred shares. Thus, our board of trustees could authorize the issuance of preferred shares with terms and conditions which could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of the common shares might receive a premium for their shares over the then current market price of our common shares.

Maryland law may discourage a third party from acquiring us.

      Maryland law provides broad discretion to our board of trustees with respect to its fiduciary duties in considering a change in control of our company, including that our board is subject to no greater level of scrutiny in considering a change in control transaction than with respect to any other act by our board.

      The Maryland Business Combination Act restricts mergers and other business combinations between our company and an interested shareholder. An “interested shareholder” is defined as any person who is the beneficial owner of 10% or more of the voting power of our common shares and also includes any of our affiliates or associates that, at any time within the two year period prior to the date of a proposed merger or other business combination, was the beneficial owner of 10% or more of our voting power. A person is not an interested shareholder if, prior to the most recent time at which the person would otherwise have become an interested shareholder, our board of trustees approved the transaction which otherwise would have resulted in the person becoming an interested shareholder. For a period of five years after the most recent acquisition of shares by an interested shareholder, we may not engage in any merger or other business combination with that interested shareholder or any affiliate of that interested shareholder. After the five year period, any merger or other business combination must be approved by our board of trustees and by at least 80% of all the votes entitled to be cast by holders of outstanding voting shares and two-thirds of all the votes entitled to be cast by holders of outstanding voting shares other than the interested shareholder or any affiliate or associate of the interested shareholder unless, among other things, the shareholders (other than the interested shareholder) receive a minimum price for their common shares and the consideration received by those shareholders is in cash or in the same form as previously paid by the interested shareholder for its common shares. These provisions of the business combination statute do not apply to business combinations that are approved or exempted by our board of trustees prior to the time that the interested shareholder becomes an interested shareholder. However, the business combination statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer.

      Additionally, the “control shares” provisions of the Maryland General Corporation Law, or MGCL, are applicable to us as if we were a corporation. These provisions eliminate the voting rights of shares acquired in quantities so as to constitute “control shares,” as defined under the MGCL. Our bylaws provide that we are not bound by the control share acquisition statute. However, our board of trustees may opt to make the statute applicable to us at any time, and may do so on a retroactive basis.

      Finally, the “unsolicited takeovers” provisions of the MGCL permit our board of trustees, without shareholder approval and regardless of what is currently provided in our declaration of trust or bylaws, to implement takeover defenses that we do not yet have. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for our company or of delaying, deferring or preventing a

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change in control of our company under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then current market price.

Our board of trustees may change our investment and operational policies and practices without a vote of our common shareholders, which limits your control of our policies and practices.

      Our major policies, including our policies and practices with respect to investments, financing, growth, debt capitalization, REIT qualification and distributions, are determined by our board of trustees. Our board of trustees may amend or revise these and other policies from time to time without a vote of our shareholders. Accordingly, our shareholders will have limited control over changes in our policies.

      We have set a targeted range for the amount of net indebtedness (debt less unrestricted cash and short-term investments) that we incur from time to time. Although our average target range is 60% to 70% of total assets, we may amend or waive this target range at any time without shareholder approval and without notice to our shareholders. For example, as of December 31, 2005 our ratio of debt to total assets was approximately 71.8% and we anticipate that we will continue to exceed our target range of indebtedness for some period of time. Our declaration of trust and bylaws do not limit the amount of indebtedness that we or our operating partnership may incur. If we become highly leveraged, then the resulting increase in debt service could adversely affect our ability to make payments on our outstanding indebtedness and harm our financial condition.

Our executive officers have agreements that provide them with benefits in the event their employment is terminated, which could prevent or deter a potential acquiror from pursuing a change of control of our company.

      We have entered into agreements with our executive officers that provide them with severance benefits if their employment ends due to a termination by our company without cause, or by Mr. Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of our board of trustees, if he terminates his employment for good reason. In the case of such terminations or upon a change of control, the vesting of the restricted shares and options to purchase our common shares held by the executive officers will be accelerated. These benefits could increase the cost to a potential acquiror of our company and thereby prevent or deter a change of control of the company that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.

Risks Related to the Real Estate Industry

Mortgage debt obligations expose us to increased risk of property losses, which could harm our financial condition, cash flow and ability to satisfy our other debt obligations and pay dividends.

      Incurring mortgage debt increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. For tax purposes, a foreclosure of any of our properties 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. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash to pay our taxes, which may result in a decrease in cash available for distribution to our shareholders.

      In addition, our default under any one of our mortgage debt obligations may result in a cross-default on certain of our other indebtedness or increase the risk of default on our other indebtedness. If this occurs, our financial condition, cash flow and ability to satisfy our other debt obligations or ability to pay dividends may be harmed.

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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 changing economic, financial and investment conditions is limited. 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 structures;

• 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. These risks can be particularly pronounced with respect to the small, specialty use properties that we may purchase under our formulated price contracts with banks.

      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. 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 pay dividends to shareholders.

The costs of compliance with or liabilities under environmental laws may harm our operating results.

      Our properties may be subject to environmental liabilities. An owner or operator of real property can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:

• our 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. Some of our properties use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products, or have had other operations conducted thereon, that have released, or could create a potential for release of, hazardous substances. 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 or leasehold interest. We are aware of environmental contamination at some of our properties which we are currently investigating or remediating. We may be indemnified for many of these properties, subject to certain limitations.

      The presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs. In addition, although our leases generally require

31

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, and we cannot be sure that our tenants would satisfy their indemnification obligations under the applicable sales agreement or lease. The discovery of environmental liabilities attached to our properties could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to shareholders.

      We maintain environmental insurance coverage for our property portfolio. However, our insurance, which is limited to $5.0 million per occurrence, subject to a $75,000 self-insurance retention and a $10.0 million cap, may be insufficient to address any particular environmental situation and we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities.

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 addition, the presence of significant mold could expose us to liability from our tenants, employees of our tenants and others if property damage or health concerns arise.

Our properties may contain asbestos which could lead to liability for adverse health effects and costs of remediating asbestos.

      Certain laws and regulations govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when those materials are in poor condition or in the event of building renovation or demolition, impose certain worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air. These laws may also impose liability for a release of ACMs and may enable third parties to seek recovery against us for personal injury associated with ACMs. There are or may be ACMs at certain of our properties. We have either developed and implemented or are in the process of developing and implementing operations and maintenance programs that establish operating procedures with respect to ACMs.

      In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation is recognized when incurred — generally upon acquisition, construction, or development and (or) through the normal operation of the asset.

      To comply with FIN 47, we assessed the cost associated with our legal obligation to remediate asbestos in our properties known to contain asbestos. We believe that the majority of the costs associated with our remediation of asbestos have been identified and recorded in compliance with FIN 47, however other obligations associated with asbestos in our properties may exist. Other obligations associated with

32

asbestos in our properties will be recorded in our consolidated statement of operations in the future when/if the cost is incurred.

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 dividends to shareholders at historical levels or at all.

      All of our properties are required to comply with the Americans with Disabilities Act, or the ADA. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. While the tenants to whom we lease properties are obligated by law to comply with the ADA provisions, and under our net leases are typically obligated to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected and we could be required to expend our own funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition and our ability to make distributions to shareholders. 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 ability to pay dividends to shareholders at historical levels or at all.

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

      Under the terms and conditions of the leases currently in force on our properties, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons, air, water, land or property, on or off the premises, due to activities conducted on the properties, except for claims arising from the negligence or intentional misconduct of us or our agents. Additionally, tenants are generally required, at the tenants’ expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies issued by companies holding general policyholder ratings of at least “A” as set forth in the most current issue of Best’s Insurance Guide. Insurance policies for property damage are generally in amounts not less than the full replacement cost of the improvements less slab, foundations, supports and other customarily excluded improvements and insure against all perils of fire, extended coverage, vandalism, malicious mischief and special extended perils (“all risk,” as that term is used in the insurance industry). Insurance policies are generally obtained by the tenant providing general liability coverage varying between $1.0 million and $10.0 million depending on the facts and circumstances surrounding the tenant and the industry in which it operates. These policies include liability coverage for bodily injury and property damage arising out of the ownership, use, occupancy or maintenance of the properties and all of their appurtenant areas.

      In addition to the indemnities and required insurance policies identified above, many of our properties are also covered by flood and earthquake insurance policies obtained by and paid for by the tenants as part of their risk management programs. Additionally, we have obtained blanket liability and property damage insurance policies to protect us and our properties against loss should the indemnities and insurance policies provided by the tenants fail to restore the properties to their condition prior to a loss. All of these policies may involve substantial deductibles and certain exclusions. In certain areas, we may have to obtain earthquake and flood insurance on specific properties as required by our lenders or by law. We have also obtained terrorism insurance on some of our larger office buildings, but this insurance is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants and biological and chemical weapons. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial

33

deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay dividends to shareholders at historical levels or at all.

Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect any market on which our common shares trade, the markets in which we operate, our operations and our profitability.

      Terrorist attacks may negatively affect our operations and your investment in our common shares. We cannot assure you that there will not be further terrorist attacks against the United States or United States businesses. Some of our properties are high profile office buildings in prominent locations, or are located in areas that may be susceptible to attack, which may make these properties more likely to be viewed as terrorist targets than similar, less recognizable properties. These attacks or armed conflicts may directly impact the value of our properties through damage, destruction, loss or increased security costs. We have obtained terrorism insurance on our large office buildings to the extent required by our lenders. 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.

      Any terrorist attacks or armed conflicts 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. Our revenues are dependent upon payment of rent by financial institutions, which are particularly vulnerable to uncertainty in the worldwide financial markets. 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 pay dividends to shareholders at historical levels or at all, and may result in volatility in the market price of our securities.

Tax Risks of our Business and Structure

Your investment in our common shares has various federal, state and local income tax risks that could affect the value of your investment.

      We strongly urge you to consult your own tax advisor concerning the effects of federal, state and local income tax law on an investment in our common shares because of the complex nature of the tax rules applicable to REITs and their shareholders.

Distribution requirements imposed by law limit our flexibility in executing our business plan.

      To maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our shareholders at least 90% of our REIT taxable income each year. REIT taxable income is determined without regard to the deduction for dividends paid and by excluding net capital gains. We are also required to pay tax at regular corporate rates to the extent that we distribute less than 100% of our taxable income (including net capital gains) each year. In addition, we are required to pay a 4% nondeductible excise tax on the amount, if any, by which certain distributions we pay with respect to any calendar year are less than the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year and any amount of our income that was not distributed in prior years.

      We intend to distribute to our shareholders all or substantially all of our taxable REIT income each year in order to comply with the distribution requirements of the Internal Revenue Code and to avoid federal income tax and the nondeductible excise tax. Differences in timing between the receipt of income and the payment of expenses in arriving at REIT taxable income and the effect of required debt

34

amortization payments could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.

We may incur additional indebtedness in order to meet our distribution requirements.

      As a REIT, we must distribute at least 90% of our REIT taxable income, which limits the amount of cash we have available for other business purposes, including amounts to fund our growth. Also, it is possible that because of the differences between the time we actually receive revenue or pay expenses and the period we report those items for distribution purposes, we may have to borrow funds on a short-term basis to meet the 90% distribution requirement.

Our disposal of properties may have negative implications, including unfavorable tax consequences.

      In the past, we have sold properties that we deemed to be inconsistent with the investment parameters for our portfolio. We intend to continue to sell such properties. We may also sell properties for other reasons, as we deem appropriate.

      If we make a sale of a property directly, and it is deemed to be a sale of dealer property or inventory, the sale may be deemed to be a “prohibited transaction” under federal tax laws applicable to REITs, in which case our gain from the sale would be subject to a 100% penalty tax. If we believe that a sale of a property will likely be subject to the prohibited transaction tax, we will dispose of that property through a taxable REIT subsidiary, in which case the gain from the sale would be subject to corporate income tax but not the 100% penalty tax. We cannot assure you, however, that the Internal Revenue Service would not assert successfully that sales of properties that we make directly, rather than through a taxable REIT subsidiary, were sales of dealer property or inventory, in which case the 100% penalty tax would apply.

If we fail to remain qualified as a REIT, our dividends will not be deductible by us, and our income will be subject to taxation.

      We believe that we qualify as a REIT under the Internal Revenue Code, which affords us significant tax advantages. The requirements for this qualification, however, are complex and our management has limited experience in operating a REIT. If we fail to meet these requirements, our dividends will not be deductible by us and we will be subject to a corporate level tax on our taxable income. This would substantially reduce our cash available to pay dividends and your yield on your investment. In addition, incurring corporate income tax liability might cause us to borrow funds, liquidate some of our investments or take other steps which could negatively affect our operating results. Moreover, if our REIT status is terminated because of our failure to meet a REIT qualification requirement or if we voluntarily revoke our election, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost.

We may be subject to federal and state income taxes that would adversely affect our financial condition.

      Even if we qualify and maintain our status as a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have net income from a sale of dealer property or inventory, that income will be subject to a 100% penalty tax. In addition, we may not be able to pay sufficient distributions to avoid corporate income tax and the 4% excise tax on undistributed income. We may also be subject to state and local taxes on our income or property, either directly, at the level of our operating partnership or at the level of the other entities through which we indirectly own our properties, that would adversely affect our operating results. We cannot assure you that we will be able to continue to satisfy the REIT requirements, or that it will be in our best interests to continue to do so.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.

      The federal income tax laws governing REITs or the administrative interpretations of those laws may be amended at any time. Any of those new laws or interpretations may take effect retroactively and could

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adversely affect us or you as a shareholder. On May 28, 2003, President Bush signed into law a tax bill that reduces the tax rate on both dividends and long-term capital gains for most non-corporate taxpayers to 15% until 2008. This reduced tax rate generally does not apply to ordinary REIT dividends, which will continue to be taxed at the higher tax rates applicable to ordinary income. This legislation could cause shares in non-REIT corporations to be a more attractive investment to individual investors than they had been, and could have an adverse effect on the market price of our common shares.

Item 1B. Unresolved Staff Comments

      None

Item 2. Properties

      As of December 31, 2005, we owned or held leasehold interests in 1,107 properties located in 39 states and Washington, D.C., containing an aggregate of approximately 37.1 million rental square feet. The following table presents our portfolio as of December 31, 2005, grouped according to the transaction in which we acquired the properties (in thousands, except number of buildings and rentable square feet):

			Number of		Rentable		Occupancy
Seller/ Property Name	Date of Acquisition		Buildings		Square Feet		Percentage
Formation Transactions		September 2002		69		1,391,686		93.6%
Bank of America, N.A.		December 2002		6		203,356		81.5%
Dana Commercial Credit Corp.		January 2003		15		3,721,044		92.3%
Pitney Bowes — Wachovia		March 2003		82		984,492		99.2%
Finova Capital — BB&T		April 2003		10		322,801		100.0%
Bank of America, N.A.		June 2003		150		7,192,345		87.4%
Citigroup		August 2003		5		28,342		98.6%
Pitney Bowes — Key Bank		September 2003		30		140,590		100.0%
Pitney Bowes — Bank of America		September 2003		96		477,318		96.4%
Three Beaver Valley		September 2003		1		263,058		100.0%
Bank of America Plaza		December 2003		1		750,000		100.0%
State Street Financial Center		February 2004		1		1,024,998		100.0%
Potomac Realty — Bank of America		February 2004		5		50,982		100.0%
215 Fremont Street and Harborside		June 2004		2		661,308		76.7%
101 Independence Center		July 2004		1		526,205		92.7%
Wachovia Bank, N.A.		September 2004		128		6,663,813		86.7%
Bank of America, N.A.		October 2004		217		6,258,568		81.2%
Koll Development, LLC		January 2005		3		530,032		100.0%
National City Bank Building		January 2005		1		160,607		100.0%
Bank of America — Las Vegas		March 2005		1		82,255		94.4%
One Montgomery Street		April 2005		1		75,880		100.0%
801 Market Street		April 2005		1		365,624		94.1%
Bank of Oklahoma		May 2005		1		234,115		86.1%
Regions Bank		June 2005		95		2,547,072		67.8%
Charter One Bank		June 2005		27		485,540		46.2%
Household		July 2005		1		158,000		100.0%
Fireman’s Fund Insurance Company		August 2005		1		710,330		100.0%
One Citizens Plaza		October 2005		1		224,089		100.0%

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			Number of		Rentable		Occupancy
Seller/ Property Name	Date of Acquisition		Buildings		Square Feet		Percentage
One Colonial Plaza		November 2005		1		163,920		100.0%
Wachovia Formulated Price Contracts		Various		119		533,322		66.8%
Bank of America Formulated Price Contracts		Various		30		171,358		39.0%
Other		Various		5 1,107	17,033 37,120,083			73.9% 86.3%

      The following descriptions reflect the principal terms of each significant acquisition.

      Dana Commercial Credit Portfolio: In January 2003, we acquired 16 office buildings, including parking facilities, containing approximately 3.8 million net rentable square feet, from a wholly owned subsidiary of Dana Commercial Credit Corporation. Under the terms of the Company’s net lease with Bank of America, we will receive annual minimum rental payments of approximately $40.4 million from January 2003 through January 2010. From January 2011 through June 2022, Bank of America is not required to pay any base rental income (except for an approximately $3.0 million payment in January 2011), but will continue to pay operating expenses on the space that it occupies. Over the life of the lease, Bank of America is permitted to vacate space totaling 50.0% of the value of the portfolio based on the original purchase price paid by Dana Commercial Credit Corporation. The annual rental payments under this lease are fixed regardless of the square feet leased by Bank of America. If Bank of America does not vacate space as otherwise permitted under the lease, Bank of America will pay additional rent as provided in the lease agreement for the space it does not vacate. In June 2004, Bank of America exercised its option to vacate appropriately 654,000 square feet.

      Pitney Bowes — Wachovia Portfolio: In March 2003, we purchased a portfolio of 87 properties from Pitney Bowes through a sale leaseback arrangement with Wachovia Bank, N.A. Concurrent with this acquisition, we entered into net lease agreements with Wachovia Bank, N.A. for 74 properties and assumed net leases on the 13 remaining properties. As of December 31, 2005, we owned 66 properties with leases to Wachovia Bank, N.A expiring at various dates from 2010 through 2023, 15 properties with leases to various third party financial institutions expiring at various dates through 2015 and one vacant property.

      Bank of America Specifically Tailored and Sale Leaseback Transaction: In June 2003, we acquired from Bank of America, N.A., a portfolio of 27 large office buildings and 131 small office buildings containing approximately 8.1 million rentable square feet. Bank of America, N.A. leased an aggregate of approximately 64.7% of the rentable square feet in this portfolio with an initial lease term of 20 years. Bank of America, N.A. will pay approximately $45.0 million in annual base rent under the 20 year lease for this portfolio. Bank of America, N.A. has the option to renew this lease for up to six successive five year terms. In the case of a renewal, the rent will be the fair market rental value of the premises, as determined in accordance with the lease.

      Pitney Bowes — Bank of America: In September 2003, we acquired 97 bank branches containing approximately 479,000 square feet from Prefco III Limited Partnership. As of December 31, 2005, we owned 77 properties with leases to Bank of America, N.A. for 20 years on a triple net lease basis and 19 properties with leases to various third party financial institutions expiring at various dates through 2010.

      Bank of America Plaza: In December 2003, we acquired an office building located in St. Louis, Missouri from a subsidiary of General Electric containing approximately 750,000 square feet. The property is primarily occupied by Bank of America and IBM.

      State Street Financial Center: In February 2004, we completed the acquisition of State Street Financial Center, a 36-story, Class A office building in Boston’s Financial District that is 100% leased through September 2023 to a wholly-owned affiliate of State Street Corporation. The property also includes a 900-space parking garage. In connection with the transaction, we paid a lease inducement fee of $8.7 million to a wholly-owned affiliate of State Street Corporation to modify the terms of its lease on the property. Subsequent to the transaction, we also leased the property’s parking garage to a wholly-owned

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affiliate of State Street Corporation on a triple net basis for 20 years. We sold a 30% minority ownership interest in this property (including the garage) to IPC US Real Estate Investment Trust (IPC) in December 2004 for cash of approximately $60.3 million.

      215 Fremont Street and Harborside: In June 2004, we acquired from Charles Schwab & Co., Inc. (Schwab) a Class A office building in San Francisco, containing approximately 373,500 square feet that is 100% leased on a bond net basis by Schwab for an initial term of 20 years. Concurrently, in a separate transaction, we entered into an agreement to sublease from Schwab approximately 288,000 square feet of vacant space in Harborside, a Class A office building in Jersey City, New Jersey, and to assume certain management functions over an additional approximately 306,000 square feet of space in the same building that is also leased to Schwab but has been subleased by Schwab to third party tenants. In the event that any of the existing subtenants default on their leases (and the space thereafter becomes available), or any existing subtenants fail to renew their leases upon expiration, we agreed to sublease this additional space from Schwab. All of our subleases with Schwab will terminate in September 2017, the same date that Schwab’s leases with the ultimate owner terminate. In exchange for the agreements described above, Schwab has agreed to pay a sublease management and standby subtenant fee of approximately $11.5 million, paid over the 18 months ended December 31, 2005. Additionally, Schwab will provide a rent credit, payable through December 31, 2007, totaling approximately $40.0 million, against our initial sublease obligations.

      101 Independence Center: In July 2004, we acquired 101 Independence Center, an approximately 526,000 square foot, Class A office building in Charlotte, North Carolina. In connection with the acquisition, Bank of America, N.A., the primary occupant of the building, extended its lease for 344,000 square feet at the property through July 2021, subject to certain termination rights. As consideration for the lease extension, we paid Bank of America, N.A. a lease extension fee of approximately $5.7 million.

      Wachovia Bank, N.A.: In September 2004, we acquired from Wachovia Bank, N.A. a portfolio of 140 properties aggregating approximately 7.6 million square feet. As of December 31, 2005, Wachovia Bank, N.A. occupied approximately 4.7 million square feet, or 70%, of the remaining portfolio for a 20-year term on a triple net basis and an additional approximately 723,000 square feet of the remaining portfolio on a short term (cancellable) basis for rent equal to operating expenses for the properties. The lease permits Wachovia Bank, N.A. to reduce its leased premises by up to 5% after each of the fourth, ninth and fourteenth lease years without penalty. Such rights are cumulative, such that if Wachovia Bank, N.A. does not exercise its termination rights in the fourth and ninth years, it carries over any such unexercised rights into future years. Wachovia Corporation has guaranteed the lessee’s obligations under the leases.

      Bank of America, N.A.: In October 2004, we completed the acquisition of a portfolio of 248 properties, aggregating 7.3 million square feet, from Bank of America, N.A. On November 22, 2004, we acquired Bank of America, N.A.’s operations center in Kansas City, Missouri, a 317,000 square foot property that was temporarily held back from the original transaction, increasing the size of the overall portfolio to 249 properties and 7.6 million square feet. As of December 31, 2005, Bank of America, N.A. occupied approximately 4.4 million square feet, or 70%, of the remaining portfolio for a term of 15 years on a triple net basis. The lease permits Bank of America, N.A. to reduce its long-term leased premises by up to 200,000 square feet after the end of the second lease year upon payment of a termination fee equal to approximately $3.00 per square foot and up to an additional 200,000 square feet after the end of the third lease year upon payment of a termination fee equal to approximately $4.50 per square foot. Additionally, Bank of America, N.A. has the right to reduce its long-term leased premises by up to 150,000 square feet after three and one-half lease years and eight and one-half lease years without penalty. All such rights are cumulative, such that if Bank of America, N.A. does not exercise its termination rights in any year, it carries over any such unexercised rights into future years. Bank of America Corporation has guaranteed the lessee’s obligations under the lease.

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      Koll Development LLC: In January 2005, we acquired three properties, aggregating approximately 531,000 square feet, which were developed by Koll Development, LLC. The properties are 100% leased by Citicorp North America, Inc. on a bond net basis for 15 years.

      Regions Bank: In June 2005, we acquired a portfolio of 111 properties, aggregating approximately 3.0 million square feet from Regions Bank. As of December 31, 2005, Regions Bank occupied approximately 850,000 square feet, or 33% of the remaining portfolio for a 15 year term on a triple net basis.

      Charter One Bank: In June 2005, we acquired a portfolio of 26 properties, aggregating approximately 537,000 square feet from Charter One Bank, N.A., a subsidiary of Citizens Financial Group, Inc. As of December 31, 2005, Charter One Bank occupied approximately 159,000 square feet, or 33% of the remaining portfolio for a 7 year term on a base year lease.

      Fireman’s Fund Insurance Company: In August 2005, we acquired a three-building Class A office complex, the national headquarters for Fireman’s Fund Insurance Company, aggregating more than 700,000 square feet on approximately 64 acres, located in Novato, California. Fireman’s Fund Insurance Company leases 100% of this property on a net lease basis through November 2018.

      Assets Held For Sale: In February 2006, the Company entered into an agreement of sale to sell five 100% occupied, net leased properties for a sale price of $301.0 million, before transactions and closing costs. These properties to be sold by the Company include 215 Fremont Street, Condominium Unit #1 at 123 S. Broad Street, Philadelphia Pennsylvania, and three operations centers purchased from Koll Development LLC. The transaction is expected to close early in the second quarter of 2006.

      At December 31, 2005, we leased properties to over 1,200 tenants. The following table sets forth information regarding leases with our five largest tenants based upon base revenue and rentable square feet:

					% of
			Rental		Portfolio			% of
	Number of		Square		Rentable			Portfolio
	Locations		Feet		Square Feet			Base Revenue
Bank of America, N.A.		471		14,227,702		38.3	%		32.2	%
Subsidiary of State Street Corporation		1		1,024,998		2.8			18.9
Wachovia, N.A.		202		6,901,574		18.6			14.6
Fireman’s Fund Insurance Company		1		710,330		1.9			4.6
Regions Bank		103		1,414,561		3.8			3.3
		778		24,279,165		73.5	%		70.3	%

Item 3. Legal Proceedings

      None

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

      None

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PART II

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

      Our common shares of beneficial interest trade on the New York Stock Exchange under the symbol “AFR.” The following table sets forth the high and low sales prices for each quarter in the years ending December 31, 2004 and 2005 as quoted on the New York Stock Exchange:

		High		Low
Fiscal Year 2004:
	First Quarter	$	18.62	$	16.21
	Second Quarter	$	17.20	$	12.60
	Third Quarter	$	15.00	$	13.05
	Fourth Quarter	$	16.26	$	14.11
Fiscal Year 2005:
	First Quarter	$	16.18	$	14.45
	Second Quarter	$	16.00	$	14.50
	Third Quarter	$	15.74	$	13.15
	Fourth Quarter	$	14.49	$	11.55

      The number of holders of record of our shares was 431 as of March 15, 2006. This number does not include shareholders whose shares are held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder.

Dividend and Distributions Policy

      We elected to be taxed as a REIT under the Internal Revenue Code (IRC) commencing as of our taxable year ended December 31, 2002. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our ordinary taxable income to our shareholders. It is our intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute (in accordance with the IRC and applicable regulations) to our shareholders. However, as property dispositions are a part of our on-going business plan, it is necessary to transfer properties held for sale to our taxable REIT subsidiary, prior to completion of such sales, in order to maintain the favorable REIT tax status under the IRC. Gains on sales of these assets may be subject to taxes according to the individual property’s resident jurisdiction. When taxes are due on such sales, the tax liability is paid by our taxable REIT subsidiary. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for federal taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to federal income and excise taxes on our undistributed taxable income (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the IRC and applicable regulations thereunder).

      It is our intention to pay to our shareholders, within the time periods prescribed by the IRC, all or substantially all of our annual taxable income, including gains from the sale of real estate and recognized gains on the sale of securities. We intend to continue our policy of making sufficient cash distributions to shareholders in order for us to maintain our REIT status under the IRC and to avoid corporate income and excise tax on undistributed income.

      Since inception, dividends and Operating Partnership unit distributions have exceeded the minimum amounts required to satisfy the IRC distribution requirements. As such, any distribution amount in excess of our taxable income is designated as a return of capital. The dividend distribution policy is set by our board of trustees annually and reviewed quarterly. Payments made in excess of our taxable income are at

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the discretion of the board of trustees. Dividends will be authorized by our board of trustees and declared by us based upon a number of factors, including:

• the rent received from our tenants;

• the ability of our tenants to meet their other obligations under their leases;

• debt service requirements;

• capital expenditure requirements for our properties;

• our taxable income;

• the annual distribution requirement under the REIT provisions of the Internal Revenue Code;

• our operating expenses; and

• other factors that our board of trustees may deem relevant.

      To the extent not inconsistent with maintaining our REIT status, we may retain accumulated earnings of our taxable REIT subsidiary in such subsidiary. Our ability to pay dividends to our shareholders will depend on our receipt of distributions from our Operating Partnership and lease payments from our tenants with respect to our properties.

      Cash dividends declared during the years ended December 31, 2004 and 2005 were as follows (in thousands, except per share data):

			Total Dollars Declared to
	Per Common Share
	and Operating		Common		Operating Partnership
	Partnership Unit		Shareholders		Unitholders
Fiscal Year 2004
First Quarter	$	0.25	$	27,412	$	1,665
Second Quarter		0.25		27,477		1,613
Third Quarter		0.26		28,835		970
Fourth Quarter		0.26		28,860		944
Fiscal Year 2005
First Quarter	$	0.27	$	30,115	$	915
Second Quarter		0.27		34,697		915
Third Quarter		0.27		34,753		865
Fourth Quarter		0.27		34,752		941

      We cannot assure you that we will continue to have cash available for distributions at historical levels or at all. See the section entitled “Risk Factors” in Item 1A, Part I of this Form 10-K.

Equity Compensation Plans

      Information about our equity compensation plans at December 31, 2005 was as follows:

	(a)		(b)		(c)
					Number of Securities
					Remaining Available for
	Number of Securities		Weighted-Average		Future Issuance Under
	to be Issued Upon		Exercise Price of		Equity Compensation
	Exercise of		Outstanding		Plans (Excluding
	Outstanding Options,		Options, Warrants		Securities Reflected in
Plan Category	Warrants and Rights		and Rights(2)		Column(a))
Equity Compensation plans approved by security holders(1)		3,042,361	$	10.40		5,544,947
Equity Compensation plans not approved by security holders		—		—		—
Total		3,042,361	$	10.40		5,544,947

(1)	Relates to our 2002 Equity Incentive Plan
(2)	Weighted average exercise price of outstanding options, excludes restricted common shares

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Item 6. Selected Financial Data

      The selected financial data presented below as of December 31, 2005, 2004, 2003 and 2002 and for the years ended December 31, 2005, 2004 and 2003 and the period from September 10, 2002 to December 31, 2002 are derived from the consolidated financial statements of American Financial Realty Trust. The financial data as of December 31, 2001 and for the period January 1, 2002 to September 9, 2002 and the year ended December 31, 2001 are derived from the combined financial statements of our predecessor entities, which consisted of American Financial Resource Group, Inc. and its wholly owned subsidiaries, First States Management Corp., First States Properties, Inc., Strategic Alliance Realty LLC, First States Properties, L.P., First States Partners, L.P., Chester Court Realty, L.P., Dresher Court Realty, L.P., First States Partners II, L.P., First States Partners III, L.P., First States Holdings, L.P., and the general partner of each of these partnerships, all of which are deemed to be our predecessor entities for accounting purposes.

      The historical financial statements of our predecessor entities represent the combined financial condition and results of operations of the entities that previously owned our initial properties and operating companies, as well as several properties and an entity controlled by Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of our board of trustees, or by his wife, Shelley D. Schorsch, our former Senior Vice President — Corporate Affairs, that we did not acquire in connection with our formation transactions. In addition, the historical financial information for our predecessor entities included herein and set forth elsewhere reflects our predecessor entities’ corporate investment strategy. Historical financial results are not indicative of our future performance. In addition, since the financial information presented below is only a summary and does not provide all of the information contained in our financial statements, including related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the financial statements, including related notes and the reports of Independent Registered Public Accounting Firm, which refer to the fact that the consolidated financial information for American Financial Realty Trust is presented on a different cost basis than that of the Predecessor and, therefore, is not comparable.

In thousands, except per share data

										Period from
	Year Ended			Year Ended			Year Ended			September 10, 2002 to
	December 31, 2005			December 31, 2004			December 31, 2003			December 31, 2002
Operating Information:
Total revenues	$	520,349		$	319,875		$	119,790		$	13,202
Income (loss) from continuing operations		(94,290	)		(24,511	)		(25,084	)		8,412
Net income (loss)		(93,615	)		(22,245	)		(18,822	)		8,944
Basic income (loss) per share:
From continuing operations		(0.79	)		(0.24	)		(0.35	)		0.20
From discontinued operations		0.01			0.02			0.09			0.01
Total basic income (loss) per share		(0.78	)		(0.22	)		(0.26	)		0.21
Diluted income (loss) per share:
From continuing operations		(0.79	)		(0.24	)		(0.35	)		0.19
From discontinued operations		.01			0.02			0.09			0.01
Total diluted income (loss) per share		(0.78	)		(0.22	)		(0.26	)		0.20
Dividends/distributions declared per common share and Operating Partnership units		1.08			1.02			1.00			0.22
Cash Flow Information:
From operating activities		98,283			139,866			94,809			12,879
From investing activities		(702,346	)		(1,733,651	)		(46,387	)		(1,365,239	)
From financing activities		603,701			1,493,233			101,894			1,413,202

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	December 31, 2005		December 31, 2004		December 31, 2003		December 31, 2002
Balance Sheet Information:
Real estate investments, at cost	$	3,556,878	$	3,054,532	$	1,654,723	$	250,544
Cash and cash equivalents		110,245		110,607		211,158		60,842
Marketable investments and accrued interest		3,353		24,272		67,561		144,326
Residential mortgage-backed securities portfolio		—		—		—		1,116,119
Intangible assets, net		642,467		590,341		115,084		2,413
Total assets		4,623,576		3,951,847		2,142,339		1,605,165
Mortgage notes payable		2,467,596		2,008,554		921,355		149,886
Credit facilities		171,265		270,000		—		—
Convertible debt, net		446,134		445,926		—		—
Reverse repurchase agreements		—		—		—		1,053,529
Total debt		3,084,995		2,724,480		921,355		1,203,415
Below-market lease liabilities, net		67,613		59,232		49,485		1,268
Total liabilities		3,662,509		3,016,789		1,128,373		1,231,990
Minority interest		53,224		65,099		36,365		36,513
Total shareholders’ equity		907,843		869,959		977,601		336,662
Total liabilities and shareholders’ equity		4,623,576		3,951,847		2,142,339		1,605,165

	Predecessor
	Period from
	January 1, 2002 to			Year Ended
	September 9, 2002			December 31, 2001
Operating Information:
Total revenues	$	23,981		$	34,237
Income (loss) from continuing operations		(3,130	)		(6,220	)
Net income (loss)		5,657			(2,280	)
Cash Flow Information:
From operating activities		2,382			4,587
From investing activities		6,625			(5,745	)
From financing activities		(7,388	)		949

	December 31, 2001
Balance Sheet Information:
Real estate investments, at cost	$	177,578
Cash and cash equivalents		1,597
Marketable investments and accrued interest		546
Total assets		183,760
Mortgage notes payable		158,587
Credit facilities		3,791
Other indebtedness		4,754
Total debt		167,132
Total liabilities		174,611
Owners’ net investment		9,149
Total liabilities and owners’ net investment		183,760

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report.

      The following discussion includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act, reflecting information about possible or assumed future results of our business, financial condition, liquidity, results of operations,

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plans and objectives. These forward-looking statements are subject to risks and uncertainties. Statements regarding the following subjects are forward-looking by their nature:

•      our business strategy;

•      our projected operating results;

•      our ability to identify and complete additional property acquisitions;

•      our ability to profitably dispose of non-core assets;

•      our ability to complete and finance pending property acquisitions, including those under our formulated price contracts, and the estimated timing of the closings of such acquisitions;

•      our ability to obtain future financing;

•      our ability to lease-up assumed leasehold interests above the leasehold liability obligation;

•      estimates relating to our future dividends;

•      our understanding of our competition;

•      market trends;

•      projected capital expenditures; and

•      the impact of technology on our products, operations and business.

      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 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 the forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our common shares, along with the following factors that could cause actual results to vary from our forward-looking statements:

•      general volatility of the capital markets and the market price of our common shares;

•      our ability to obtain financing with respect to our properties on favorable terms or at all;

•      our ability to maintain our current relationships with financial institutions and to establish new relationships with additional financial institutions;

•      changes in our business strategy;

•      availability, terms and deployment of capital;

•      our ability to successfully complete our information system implementation currently in progress;

•      availability of qualified personnel;

•      our ability to maintain an adequate, effective control environment;

•      our ability to accurately project future financial performance;

•      changes in our industry, interest rates or the general economy;

•      the degree and nature of our competition;

•      the conversion provisions of our convertible senior notes; and

•      the additional risks relating to our business described under the heading “Risk Factors” in Part IA of this Form 10-K.

      When we use the words “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking

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statements. We do not intend to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

Overview

      We are a self-administered, self-managed Maryland real estate investment trust, or REIT. We are focused primarily on acquiring and operating properties leased to regulated financial institutions. We believe banks will divest of their corporate real estate, in order to enhance operating performance. We also believe that our contractual relationships, with large national banks, our growing visibility within the banking industry and the flexible acquisition and lease structures we can offer financial institutions positions us for continued growth. We seek to lease our properties to banks and financial institutions, generally using long-term triple net or bond net leases, resulting in stable risk-adjusted returns on our capital. We lease space not occupied by financial institutions to other third party tenants at market terms.

      We believe that our competitive advantage over traditional real estate companies is our ability to provide banks and other financial institutions with operational flexibility and the benefits of reduced real estate exposure. We seek to become the preferred landlord of leading banks and other financial institutions through the development of mutually beneficial relationships and by offering flexible acquisition structures and lease terms. We believe that financial institutions enjoy our long-term relationship oriented business strategy rather than undergoing a competitive, selective bidding process with various real estate companies. Recent transactions involving Bank of America, N.A., Wachovia Bank, N.A., Citizens Financial Group, Inc. and Regions Financial Corporation demonstrate our ability to cultivate and maintain mutually beneficial relationships with leading financial institutions.

      As of December 31, 2005, we owned or held leasehold interests in 1,107 properties located in 39 states and Washington, D.C., including 645 bank branches and 462 office buildings, containing an aggregate of approximately 37.1 million rentable square feet.

Acquisitions

      During the year ended December 31, 2005, we acquired interests in 286 properties, containing an aggregate of approximately 6.8 million square feet, and 33 land parcels, for a total net purchase price of $919.8 million. The most significant acquisitions included the purchase of (i) a three-building Class A office complex, aggregating more than 700,000 square feet on approximately 64 acres, which is the corporate headquarters of Fireman’s Fund Insurance Company; (ii) a portfolio of 111 properties from Regions Bank, aggregating approximately 3.0 million square feet; (iii) a portfolio of 35 properties from Charter One Bank, N.A., a subsidiary of Citizens Financial Group, Inc., aggregating approximately 537,000 square feet; and (iv) three properties, aggregating approximately 531,000 square feet, which were developed by Koll Development, LLC and 100% leased to Citicorp North America, Inc.

Dispositions

      During the year ended December 31, 2005, we disposed of 143 non-core properties, land parcels and leasehold interests aggregating approximately 2.5 million square feet, for net proceeds of $124.6 million. These dispositions resulted in a gain of $22.4 million, before minority interest. Approximately 1.7 million square feet was vacant or soon to be vacant at the time of sale.

Financings

      During the year ended December 31, 2005, we received proceeds of $933.8 million from new mortgages, including (i) debt secured by properties acquired during the year ended December 31, 2005 of $449.8 million, (ii) long-term financing of $304.0 million on the portfolio of properties acquired from Bank of America, N.A. in October 2004, which was originally financed under our secured credit facility, and (iii) $180.0 million refinancing of the mortgage debt on our Dana Commercial Credit portfolio of office properties. The refinancing of our Dana Commercial Credit portfolio is consistent with our refinancing strategy, which is focused on extending the term of existing debt while selectively reducing or eliminating

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amortization requirements and increasing internally generated cash flow. During the year ended December 31, 2005, principal payments aggregated $241.8 million, including the payment related to the refinancing of mortgage debt on our Dana Commercial Credit portfolio of $161.3 million, scheduled debt amortization of $57.0 million and prepayments as a result of property dispositions of $23.5 million.

      During the year ended December 31, 2005, we executed a renewal of our secured credit facility, expanding the maximum available under the facility to $400.0 million and extending the term to October 2008. The outstanding advance on our secured credit facility of $270.0 million at December 31, 2004 was paid in March 2005, when we received long-term financing on the portfolio of properties acquired from Bank of America, N.A. in October 2004. The outstanding advance of $171.3 million at December 31, 2005 primarily represents the financing of our Regions Bank portfolio acquired in June 2005 and our leased-up bank branches acquired from Wachovia Bank, N.A. in November 2005.

Second Public Offering

      On May 9, 2005, we completed a second public offering of 16,750,000 common shares of beneficial interest at $14.60 per share. The aggregate net proceeds from this offering (after underwriting discounts, commissions and other offering costs) were approximately $242.8 million. The Company used the aggregate net proceeds for acquisitions.

Portfolio Review

      Summarized in the table below are our key portfolio statistics, each of which decreased during the year ended December 31, 2005. These decreases were primarily due to the recapture of scheduled short-term space occupied by bank tenants subsequent to recent acquisitions of certain properties and the acquisition of vacant branches purchased under our formulated price contracts in the fourth quarter of 2005. Over the upcoming periods, we expect that our occupancy will increase through the lease-up of core properties and the disposal of non-core properties. However, we expect that other key portfolio metrics will decrease as we lease-up core properties to non-bank tenants.

	December 31,
	2005			2004
Occupancy		86.3	%		87.0	%
% base revenue from financial institutions		86.7	%		88.4	%
% base revenue from tenants rated “A-” or better (per Standard & Poor’s)		84.2	%		86.3	%
% base revenue from net leases(1)		85.1	%		89.7	%
Average remaining lease term (years)		13.4			14.7

(1)  Includes triple net and bond net leases, as well as other similar leases in which our exposure to operating expenses is capped at the amount that has been, or we expect will be, reached in the near future.

      We intend to continue our strategy of acquiring high quality properties through a combination of sale leaseback transactions, specifically tailored transactions, landlord of choice transactions and through our formulated price contracts, and to finance our acquisitions with a combination of equity and debt. We expect to arrange long-term financing on both a secured and unsecured fixed rate basis. We intend to continue to grow our existing relationships and develop new relationships throughout the banking industry, which we expect will lead to further acquisition opportunities. We will also continue to dispose of non-core properties that do not meet our continuing portfolio objectives.

New Information System

      Effective January 1, 2006, we implemented a new information system. As a result, a number of our operational processes and internal control procedures will change to conform to the work-flow of the new application. We anticipate that the new information system and internal control procedures will enhance

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our current processes and financial reporting structure, however we cannot assure you that this implementation will be executed without some interruption of our operating processes and controls.

Significant Accounting Estimates and Critical Accounting Policies

      Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our consolidated financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates include:

Revenue Recognition

      Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straightline basis over the initial term of the lease. Since many of our leases provide for rental increases at specified intervals, straightline basis accounting requires us to record a receivable, and include in revenues, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Revenues also include income related to tenant reimbursements for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred.

      We continually review receivables related to rent, tenant reimbursements and unbilled rent receivables and determine collectibility by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectibility of a receivable is in doubt, we record an increase in our allowance for uncollectible accounts or record a direct write-off of the receivable in our consolidated statements of operations.

Investments in Real Estate

      Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.

      Depreciation is computed using the straightline method over the estimated useful life of up to 40 years for buildings and improvements, five to ten years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

      We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

      We follow Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. SFAS No. 144 requires that the operations related to properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statement of operations for all periods presented, and properties intended to be sold to be designated as “held for sale” on the balance sheet.

      Based on the occurrence of certain events or changes in circumstances, we review the recoverability of the property’s carrying value. Such events or changes in circumstances include the following:

• a significant decrease in the market price of a long-lived asset;

• a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition;

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• a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;

• an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;

• a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset; and

• a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

      We review our portfolio on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate. These assessments have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income.

Purchase Price Allocation

      Pursuant to SFAS No. 141, “Business Combinations,” we follow the purchase method of accounting for all business combinations. To ensure that intangible assets acquired and liabilities assumed in a purchase method business combination can be recognized and reported apart from goodwill, we ensure that the applicable criteria specified in SFAS No. 141 are met.

      We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, buildings, equipment and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships.

      Amounts allocated to land, buildings, equipment and fixtures are based on cost segregation studies performed by independent third-parties or on our analysis of comparable properties in our portfolio. Depreciation is computed using the straightline method over the estimated life of 40 years for buildings, five to ten years for building equipment and fixtures, and the lesser of the useful life or the remaining lease term for tenant improvements.

      Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.

      The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as

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if vacant. Factors considered by us in our analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which typically ranges from six to 18 months. We also estimate costs to execute similar leases including leasing commissions, legal and other related expenses.

      The aggregate value of intangibles assets related to customer relationship is measured based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors.

      The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from two to 20 years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

      In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each property as a result of our pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

Accounting for Derivative Financial Investments and Hedging Activities

      We use derivatives to hedge, fix and cap interest rate risk and we account for our derivative and hedging activities using SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires all derivative instruments to be carried at fair value on the balance sheet. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction. Cash flow hedges that are considered highly effective are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income within shareholders’ equity. Amounts are reclassified from other comprehensive income to the income statements in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under SFAS No. 133.

      Under cash flow hedges, derivative gains and losses not considered highly effective in hedging the change in expected cash flows of the hedged item are recognized immediately in the income statement. For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.

Recent Accounting Pronouncements

      The Securities and Exchange Commission’s (SEC) Office of the Chief Accountant and its Division of Corporation Finance announced the release of Staff Accounting Bulleting No. 107, “Share-Based Payment” (SAB No. 107) in response to frequently asked questions and to provide the SEC staff’s views regarding the

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application of SFAS No. 123 (revised 2004), “Share-Based Payments” (SFAS No. 123(R)), issued in December 2004. SAB No. 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations; addresses the staff’s views on the subject of valuation of share-based payment transactions for public companies; and reiterates the importance of disclosures related to share-based payment transactions in the financial statements filed with the SEC.

      SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed by SFAS No. 123, “Accounting for Stock-Based Compensation,” to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required by SFAS No. 123 and currently used by us to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. The SEC deferred the effective date for SFAS No. 123(R) for public companies to the first annual period beginning after June 15, 2005. Accordingly, we adopted SFAS No. 123(R) as of January 1, 2006. As a result of adopting SFAS No. 123(R), we will recognize as compensation cost in our financial statements the unvested portion of existing options granted prior to the effective date and the cost of stock options granted to employees after the effective date based on the fair value of the stock options at grant date. Based on stock options outstanding at December 31, 2005, compensation expense related to stock option awards will be approximately $82 and $6 for the years ending December 31, 2006 and 2007, respectively.

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” (SFAS No. 154), which replaces APB Opinion No. 20, “Accounting Changes,” (APB No. 20), and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” and changes the requirements for the accounting for and reporting of a change in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, rather than previously requirement under APB No. 20 that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 will not have a material effect on our financial position or results of operations.

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Results of Operations

Comparison of the Year Ended December 31, 2005 and 2004

      The following comparison of our results of operations for the year ended December 31, 2005 to the year ended December 31, 2004, makes reference to the following: (i) the effect of the “Same Store,” which represents all properties owned by us at January 1, 2004 and still owned by us at December 31, 2005, excluding assets held for sale at December 31, 2005 and (ii) the effect of “Acquisitions,” which represents all properties acquired during the period from January 1, 2004 through December 31, 2005. Acquisitions include State Street Financial Center, Harborside, 101 Independence Center, the Wachovia Bank, N.A. portfolio acquired in September 2004, the Bank of America, N.A. portfolio acquired in October 2004, the National City Bank Building, Bank of America — West, One Montgomery Street, 801 Market Street, Bank of Oklahoma Plaza, Charter One Bank portfolio, Regions Bank portfolio, Household, Fireman’s Fund, One Citizen Plaza, One Colonial Plaza and properties acquired under our formulated price contracts.

Amounts in thousands:

											Corporate and
	Same Store				Acquisitions						Eliminations						Total Portfolio
	2005		2004		2005			2004			2005			2004			2005			2004
Revenues:
Rental income	$	147,955	$	142,485	$	182,733		$	81,155		$	(823	)	$	(480	)	$	329,865		$	223,160
Operating expense reimbursements		67,765		64,932		117,466			28,607			13			(19	)		185,244			93,520
Interest and other income, net		2,374		1,010		465			(479	)		2,401			2,664			5,240			3,195
Total revenues		218,094		208,427		300,664			109,283			1,591			2,165			520,349			319,875
Property operating expenses		95,333		91,290		175,794			54,967			(12,713	)		(6,352	)		258,414			139,905
Property writedown — hurricane		—		—		949			—			—			—			949			—
Property damage recoverage — hurricane		—		—		(949	)		—			—			—			(949	)		—
Net operating income		122,761		117,137		124,870			54,316			14,304			8,517			261,935			179,970
Marketing, general and administrative		—		—		—			—			24,144			23,888			24,144			23,888
Broken deal costs		—		—		—			—			1,220			227			1,220			227
Amortization of deferred equity compensation		—		—		—			—			10,411			9,078			10,411			9,078
Outperformance plan — contingent restricted share component		—		—		—			—			—			(5,238	)		—			(5,238	)
Severance and related accelerated amortization of deferred compensation		—		—		—			—			4,503			1,857			4,503			1,857
Earnings before interest, depreciation and amortization		122,761		117,137		124,870			54,316			(25,974	)		(21,295	)		221,657			150,158
Depreciation and amortization		72,820		68,664		89,789			34,634			1,314			510			163,923			103,808
Operating income	$	49,941	$	48,473	$	35,081		$	19,682		$	(27,288	)	$	(21,805	)		57,734			46,350
Interest expense																		(157,608	)		(89,417	)
Gain on sale of land and minority interest in a property, net																		1,596			17,773
Net loss on investments																		(530	)		(409	)
Minority interest																		4,518			1,192
Loss from continuing operations																		(94,290	)		(24,511	)
Discontinued operations																		(18,952	)		(6,084	)
Yield maintenance fees																		(567	)		(3,060	)
Net gains on disposals																		20,194			11,410
Income (loss) from discontinued operations																		675			2,266
Net loss																	$	(93,615	)	$	(22,245	)

Net Operating Income

      Total revenues increased $200.4 million, or 62.6%, to $520.3 million for the year ended December 31, 2005 from $319.9 million for the year ended December 31, 2004. Property operating expenses increased $118.5 million, or 84.7%, to $258.4 million for the year ended December 31, 2005 from $139.9 million for the year ended December 31, 2004. These increases, which are largely attributable to Acquisitions as well

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as certain 2005 activity in Same Store portfolios, resulted in an increase to total net operating income of $81.9 million, or 45.5%, to $261.9 million for the year ended December 31, 2005 from $180.0 million for the year ended December 31, 2004.

Same Store — Net Operating Income

      Net operating income on the Same Store increased $5.7 million, or 4.9%, to $122.8 million for the year ended December 31, 2005 from $117.1 million for the year ended December 31, 2004. This increase was primarily due to the following:

      Dana Commercial Credit. The properties in the Dana Commercial Credit portfolio are primarily occupied by Bank of America, N.A. under a single master lease agreement. This master lease agreement allows Bank of America, N.A. to return certain space (or retain the space upon payment of additional rent) in 2004, 2009, and 2015. The return of the space does not reduce the amount of Bank of America, N.A.’s contractual rent obligations. In June 2004 and January 2005, Bank of America, N.A. returned in aggregate approximately 654,000 square feet. Prior to June 2004, Bank of America, N.A. paid rent on the returned space and directly collected the rent from its third party tenants and directly paid operating expenses. As a result, in June 2004 and January 2005, in addition to the income we already receive from Bank of America, N.A. for the properties, we also began directly collecting rental income and operating expense reimbursements from subtenants that occupy a portion of the returned space and from Bank of America, N.A. for certain space that it decided to retain and directly paying and incurring operating expenses. These increases to net operating income on the Dana Commercial Credit portfolio were partially offset by lost rental income from a scheduled lease termination by a non-bank tenant, which occurred in June 2005. The net effect of this returned space and the scheduled lease termination totaled approximately $0.9 million of additional net operating income for the year ended December 31, 2005 compared to the year ended December 31, 2004.

      The increase in rental income in the Dana Commercial Credit portfolio was also related to the correction of straightline rental income. During the fourth quarter of 2005, the Company discovered that rental income was being straightlined through December 2022, six months longer than the actual expiration of June 2022. After evaluating the impact of this adjustment, approximately $0.9 million of additional rental income was recorded during the fourth quarter of 2005 in order to adjust deferred straightline rent to the proper balance as of December 31, 2005.

      Formulated price contract. Net operating income on Same Store also increased as a result of new leases across certain portfolios, particularly properties acquired under our formulated price contracts with Wachovia Bank, N.A. and Citibank. Once branches purchased or assumed under our formulated contracts are leased, the tenant generally directly pays operating expenses under net lease arrangements.

      123 South Broad Street. During the year ended December 31, 2005, we recorded an early termination fee of $1.3 million, which resulted in an increase to other income. This fee was received in connection with a bank tenant vacating a portion of the space it leased in 123 South Broad Street in Philadelphia. As a result of this early termination, net operating income, excluding the early termination fee, on our 123 South Broad Street decreased primarily due to the accelerated amortization of the accounts related to the lease.

      Bank of America, N.A. Portfolio Acquired in June 2003. During the year ended December 31, 2005, we recorded an early termination fee of $0.5 million, which resulted in an increase to other income, from a non-bank third party tenant. This early termination was initiated by the tenant due to its financial instability. In connection with this early termination, we accelerated amortization of straightline rent and intangibles, which resulted in an increase to rental income of $1.0 million.

      Three Beaver Valley. During the year ended December 31, 2005, we finished construction of an adjacent parking garage and signed a new lease with the tenant effective January 1, 2005, which contributed $0.4 million to net operating income.

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Acquisitions — Net Operating Income

      Net operating income on Acquisitions increased $70.6 million, or 130.0%, to $124.9 million for the year ended December 31, 2005 from $54.3 million for the year ended December 31, 2004. This increase primarily relates to the following:

      Timing of Acquisitions. The increase in net operating income on Acquisitions primarily related to the timing of acquisitions in the year ended December 31, 2005, which included a full year of results for Acquisitions purchased in 2004 and a partial year of results for Acquisitions purchased in 2005. The largest effect relates to the September 2004 and October 2004 purchases of the portfolios of properties from Wachovia Bank, N.A. and Bank of America, N.A., respectively.

      State Street Financial Center. Both the timing of the acquisition of State Street Financial Center in February 2004 and the July 2004 completion of the lease on the parking garage at State Street Financial Center contributed to the increase in net operating income on Acquisitions.

      Lease-up. Net operating income on Acquisitions also increased as a result of lease-up across certain portfolios, including Harborside in Jersey City, New Jersey and properties acquired under our formulated price contracts.

Marketing, General and Administrative Expenses

      Marketing, general and administrative expenses increased $0.2 million, or 0.8%, to $24.1 million for the year ended December 31, 2005, from $23.9 million for the year ended December 31, 2004. This increase was primarily attributable to increased personnel costs, professional fees and office and travel related expenses. These increases were partially offset by the increase in the capitalization of certain leasing-related costs. The decrease of marketing, general and administrative expenses as a percentage of total revenues to 4.6% for the year ended December 31, 2005, from 7.5% for the year ended December 31, 2004, is largely attributable to the increase in rental income and operating expense reimbursements resulting from Acquisitions.

Broken Deal Costs

      Broken deal costs increased $1.0 million to $1.2 million for the year ended December 31, 2005, from $0.2 million for the year ended December 31, 2004. Our policy is to capitalize, as deferred costs, external expenses associated with potential acquisitions. However, when we make the decision not to pursue transactions that do not meet our investment criteria, the previously capitalized costs are immediately expensed as broken deal costs in our consolidated statement of operations. The majority of our broken deal costs during both the years ended December 31, 2005 and 2004 related to withdrawing from potential transactions associated with our European expansion efforts.

Amortization of Deferred Equity Compensation

      The amortization of deferred equity compensation increased $1.3 million to $10.4 million for the year ended December 31, 2005, from $9.1 million for the year ended December 31, 2004. This increase was associated with the amortization of additional restricted stock grants issued during the year ended December 31, 2005.

Outperformance Plan — Contingent restricted share component

      During the year ended December 31, 2004, we reversed the previously recorded expense associated with the contingent restricted share component of our Outperformance Plan. This expense was reversed due to variable plan accounting treatment as a result of the performance in our stock price relative to the measured index. The Outperformance Plan was a three-year plan that expired on January 1, 2006 and was succeeded by the 2006 Long Term Incentive Plan as our long-term performance plan for senior executives.

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Severance and Related Accelerated Amortization of Deferred Compensation

      During the years ended December 31, 2005 and 2004, we incurred severance charges related to the separation of two senior officers and one senior officer, respectively. These severance charges included the amortization of deferred compensation associated with the acceleration of vesting and additional issuance of restricted stock awards.

Depreciation and Amortization Expense

      Depreciation and amortization expense increased approximately $60.1 million, or 57.9%, to $163.9 million for the year ended December 31, 2005, from $103.8 million for the year ended December 31, 2004. This increase was primarily due to depreciation and amortization expense associated with Acquisitions as well as the following:

      Same Store. The increase in depreciation and amortization expense in Same Store was primarily attributable to the correction of useful lives on certain portfolios. During the year ended December 31, 2005, the Company discovered that certain depreciable assets, primarily intangible assets, were being amortized over the improper useful lives. After evaluating the impact of these adjustments, approximately $0.9 million of additional depreciation and amortization expense was recorded during the year ended December 31, 2005 in order to adjust accumulated amortization to the proper balances. Since the change shortened useful lives, depreciation and amortization is higher in the year ended December 31, 2005 relative to the year ended December 31, 2004.

      The increase in depreciation and amortization expense in Same Store was also related to additional capital and tenant improvements across various portfolios and the accelerated amortization of intangibles and tenant improvements related to early lease terminations.

      Corporate. The increase in depreciation and amortization expense in Corporate is primarily attributable to leasehold improvements, office furniture and fixtures due to the expansion of our Corporate offices as well as equipment associated with our new information system capitalized during the year ended December 31, 2005.

Interest Expense on Mortgages and Other Debt

      Interest expense on mortgage notes and other debt increased approximately $68.2 million, or 76.3%, to $157.6 million for the year ended December 31, 2005, from $89.4 million for the year ended December 31, 2004. This increase was primarily attributable to additional borrowings and contractual increases in interest rates, specifically due to the following:

      New Borrowings. During the year ended December 31, 2005, we received proceeds of $449.8 million under new or assumed mortgages, secured by properties acquired in 2005, which increased interest expense by $10.3 million. Interest expense increased $28.5 million due to incurring a full year of interest expense on mortgages secured by properties acquired in 2004 and in September 2004 the interest rate on the $520.0 million mortgage note payable secured by State Street Financial Center changed from a variable rate of LIBOR plus 1.25% to a fixed rate of 5.79%. In addition, in March 2005, we completed the $304.0 million long-term financing, secured by the Bank of America, N.A. portfolio purchased in October 2004. This financing bore interest at a floating rate equal to LIBOR plus 0.02% through June 14, 2005, before reverting to a fixed rate of 5.96% for the remainder of the loan term and increased interest expense by $13.0 million.

      Secured Credit Facility. Interest expense on our secured credit facility increased by $0.9 million. Although average advances under our secured credit facility decreased to $85.9 million during the year ended December 31, 2005 from $95.3 million during the year ended December 31, 2004, the weighted average effective interest rate increased to 6.89% from 5.29%. The advances outstanding at December 31, 2004 of $270.0 million were drawn in October 2004 to partially fund the acquisition of the Bank of America, N.A. portfolio. These funds were repaid in March 2005, when proceeds of $304.0 million from a long-term loan secured by the portfolio were received. After the repayment in March 2005, the secured

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credit facility remained unused until funds were drawn to finance a portion of the Regions Bank portfolio and leased-up properties purchased under formulated price contracts during the third and fourth quarters of 2005.

      Senior Convertible Notes. During the year ended December 31, 2005, we incurred a full year of interest expense associated with our convertible senior notes issued in July 2004 and October 2004, which resulted in an increase to interest expense of $12.4 million.

      Deferred Financing Costs. During the year ended December 31, 2005, we incurred additional non-cash interest expense of $4.7 million related to the accelerated amortization of deferred financing costs due to the refinancing of the mortgage secured by the Dana Commercial Credit portfolio. During the year ended December 31, 2005, we also incurred additional non-cash interest expense associated with the change in the amortization method of deferred financing costs from the straightline to effective interest method. This change in methodology resulted in an increase in non-cash interest expense of $0.5 million to adjust accumulated amortization to the proper balance at December 31, 2005.

      Variable to Fixed Changes in Interest Rates. The $63.0 million mortgage secured by Bank of America Plaza completed in April 2004, converted from a variable rate of LIBOR plus 1.5% (2.62% in June 2004) to a fixed rate of 4.55% in July 2004.

      Debt Amortization and Extinguishment. These increases in interest expense are partially offset by contractual debt amortization of $57.0 million during the year ended December 31, 2005 and the early extinguishment of debt of approximately $23.5 million due to the disposition of the underlying properties.

Gain on Sale of Land and Minority Interest in a Property, Net

      During the year ended December 31, 2005, we sold five parcels of land acquired in November 2005 under our formulated price contract with Wachovia Bank, N.A. for a net gain of $1.6 million. The net gain recorded during the year ended December 31, 2004, primarily relates to the sale of a 30% interest in State Street Financial Center for a net gain of $17.7 million.

Net loss on Investments

      Net loss on investments increased $0.1 million to $0.5 million for the year ended December 31, 2005, from $0.4 million for the year ended December 31, 2004. This increase was primarily due to a loss incurred on the sale of certain marketable securities. We do not hold a position in such securities as of December 31, 2005.

Minority Interest

      Minority interest increased $3.3 million to $4.5 million for the year ended December 31, 2005, from $1.2 million for the year ended December 31, 2004. This amount represents an allocation of net loss to unitholders in our Operating Partnership and an allocation of net income or loss from our 123 South Broad Street, State Street Financial Center and 801 Market Street properties to third parties that own a minority interest in those properties. We sold a 30% minority interest in State Street Financial Center in December 2004 and acquired an 89% majority interest in 801 Market Street in April 2005; therefore, little or no allocations to minority interest were recorded on these properties during the year ended December 31, 2004. On October 31, 2005, the Company acquired the remaining 11% limited partnership interest in the entity that owned 123 S. Broad Street in Philadelphia, PA. Therefore, allocations of minority interest on 123 South Broad ceased after October 31, 2005.

Discontinued Operations — Loss from Discontinued Operations.

      Loss from discontinued operations increased $12.9 million to a loss of $19.0 million, net of minority interest, for the year ended December 31, 2005, from a loss of $6.1 million, net of minority interest, for the year ended December 31, 2004. The properties included in discontinued operations generated approximately $13.1 million more in net loss during the year ended December 31, 2005 compared to the

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same period in 2004, primarily due to interest expense and depreciation and amortization. A majority of the properties sold or held for sale at December 31, 2005 were acquired in 2005 or in the fourth quarter of 2004 and therefore only contributed a partial year of losses to the year ended December 31, 2004, if at all. This increase was partially offset by a $0.2 million decrease in impairment charges during the year ended December 31, 2005 compared to the same period in 2004.

Discontinued Operations — Yield Maintenance Fees

      During the year ended December 31, 2005, we sold seven properties encumbered by a mortgage and incurred related charges on the early extinguishment of debt of approximately $0.6 million, net of minority interest. In comparison, during the year ended December 31, 2004, we sold three properties encumbered by mortgages and incurred related charges on the early extinguishment of debt of approximately $3.1 million, net of minority interest.

Discontinued Operations — Net Gains

      During the year ended December 31, 2005 and 2004, we sold 130 and 48 properties for a gain of $20.2 million and $11.4 million, net of minority interest and income taxes, respectively. We have established investment criteria for properties included in our real estate portfolio and a policy to dispose of non-core properties that do not meet such criteria. Pursuant to our policy, we generally intend to commence efforts to dispose of non-core properties within 30 days of acquisition and dispose of them within approximately 12 months of acquisition. If we sell properties at a gain, we may incur income tax liability.

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Comparison of the Years Ended December 31, 2004 and 2003

      The following comparison of our results of operations for the year ended December 31, 2004 to the year ended December 31, 2003, makes reference to the following: (i) the effect of the “Same Store,” which represents all properties owned by us at January 1, 2003 and still owned by us at December 31, 2004, excluding assets held for sale at December 31, 2005 and (ii) the effect of “Acquisitions,” which represents all properties acquired during the period from January 1, 2003 through December 31, 2004. Acquisitions included the Dana Commercial Credit portfolio, Pitney Bowes-Wachovia, Bank of America, N.A. portfolio purchased in June 2003, Pitney Bowes-KeyBank, Pitney Bowes-Bank of America, Three Beaver Valley, Bank of America Plaza, State Street Financial Center, Harborside, 101 Independence Center, the Wachovia Bank, N.A. portfolio acquired in September 2004, the Bank of America, N.A. portfolio acquired in October 2004 and properties acquired under our formulated price contracts.

Amounts in thousands:

										Corporate and
	Same Store				Acquisitions					Eliminations						Total Portfolio
	2004		2003		2004			2003		2004			2003			2004			2003
Revenues:
Rental income	$	25,193	$	24,294	$	198,447		$	61,276	$	(480	)	$	(83	)	$	223,160		$	85,487
Operating expense reimbursements		5,810		5,860		87,729			24,143		(19	)		(21	)		93,520			29,982
Interest and other income, net		682		640		(150	)		148		2,663			3,533			3,195			4,321
Total revenues		31,685		30,794		286,026			85,567		2,164			3,429			319,875			119,790
Property operating expenses		13,505		13,030		132,747			34,297		(6,347	)		(3,195	)		139,905			44,132
Net operating income		18,180		17,764		153,279			51,270		8,511			6,624			179,970			75,658
Marketing, general and administrative		—		—		—			—		23,888			16,350			23,888			16,350
Broken deal costs		—		—		—			—		227			—			227			—
Amortization of deferred equity compensation		—		—		—			—		9,078			3,361			9,078			3,361
Outperformance plan — cash component		—		—		—			—		—			2,014			—			2,014
Outperformance plan — contingent restricted share component		—		—		—			—		(5,238	)		5,238			(5,238	)		5,238
Severance and related accelerated amortization of deferred compensation		—		—		—			—		1,857			—			1,857			—
Earnings before interest, depreciation and amortization		18,180		17,764		153,279			51,270		(21,301	)		(20,339	)		150,158			48,695
Depreciation and amortization		8,821		8,864		94,477			33,965		510			146			103,808			42,975
Operating income	$	9,359	$	8,900	$	58,802		$	17,305	$	(21,811	)	$	(20,485	)		46,350			5,720
Interest expense																	(89,417	)		(28,164	)
Gain on sale of land and minority interest in a property, net																	17,773			—
Net loss on investments																	(409	)		(9,239	)
Net interest income from residential mortgage-backed securities																	—			4,661
Minority interest																	1,192			1,938
Loss from continuing operations																	(24,511	)		(25,084	)
Discontinued operations																	(6,084	)		(2,145	)
Yield maintenance fees																	(3,060	)		—
Net gains on disposals																	11,410			8,407
Income from discontinued operations																	2,266			6,262
Net loss																$	(22,245	)	$	(18,822	)

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Net Operating Income

      Total revenues increased $200.1 million, or 167.0%, to $319.9 million for the year ended December 31, 2004 from $119.8 million for the year ended December 31, 2003. Property operating expenses increased $95.8 million, or 217.2%, to $139.9 million for the year ended December 31, 2004 from $44.1 million for the year ended December 31, 2003. These increases, which are largely attributable to Acquisitions as well as certain 2004 activity in Same Store portfolios, resulted in an increase to total net operating income of $104.3 million, or 137.8%, to $180.0 million for the year ended December 31, 2004 from $75.7 million for the year ended December 31, 2003.

Same Store — Net Operating Income

      Net operating income on the Same Store increased $0.4 million, or 2.2%, to $18.2 million for the year ended December 31, 2004 from $17.8 million for the year ended December 31, 2003. This increase was primarily due to the lease-up of properties acquired from Wachovia Bank, N.A. under our formulated price contracts.

Acquisitions — Net Operating Income

      Net operating income on Acquisitions increased $102.0 million, or 198.8%, to $153.3 million for the year ended December 31, 2004 from $51.3 million for the year ended December 31, 2003. This increase primarily related to the following:

      Timing of Acquisitions. The primary reason for the increase in net operating income on Acquisitions related to the timing of acquisitions in that the year ended December 31, 2004 included a full year of results for Acquisitions purchased in 2003 and a partial year of results for Acquisitions purchased in 2004. The largest effect relates to the September 2004 purchase of a portfolio of properties from Wachovia Bank, N.A. and the June 2003 and October 2004 purchases of portfolios of properties from and Bank of America, N.A.

      Dana Commercial Credit. In addition to the effect of the timing of the acquisition of the Dana Commercial Credit portfolio, which occurred in January 2003, net operating income on the Dana Commercial Credit portfolio increased due to the change in lease arrangement in some of the properties from bond net terms to net lease terms. The properties in this portfolio are primarily occupied by Bank of America, N.A. under a single master lease agreement. This master lease agreement allows Bank of America, N.A. to return certain space (or retain the space upon payment of additional rent) in 2004, 2009, and 2015. The return of the space does not reduce the amount of Bank of America, N.A.’s contractual rent obligations. In June 2004 and January 2005, Bank of America, N.A. returned in aggregate approximately 654,000 square feet. Prior to June 2004, Bank of America, N.A. paid rent on the returned space and directly collected the rent from its third party tenants and directly paid operating expenses. As a result, in June 2004 and January 2005, in addition to the income we already receive from Bank of America, N.A. for the properties, we also began directly collecting rental income and operating expense reimbursements from subtenants that occupy a portion of the returned space and from Bank of America, N.A. for certain space that it decided to retain and directly paying and incurring operating expenses. As a result of this change, net operating income on the Dana Commercial Credit portfolio increased $1.7 million in the year ended December 31, 2004 compared to the year ended December 31, 2003.

Marketing, General and Administrative Expenses

      Marketing, general and administrative expenses increased $7.5 million, or 45.7%, to $23.9 million for the year ended December 31, 2004, from $16.4 million for the year ended December 31, 2003. This increase primarily related to additional compensation and related benefits resulting from the increased number of employees required to operate a public company and to manage a substantially increased number of properties. The increase was also attributable to an additional $1.1 million of initial costs associated with the investigation of European expansion opportunities, trustees and officer’s insurance premiums, marketing and travel related expenses and professional fees. The decrease of marketing, general and administrative expenses as a percentage of total revenues to 7.5% for the year ended December 31,

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2004, from 13.6% for the year ended December 31, 2003, was largely attributable to the increase in rental income and operating expense reimbursements resulting from Acquisitions.

Broken Deal Costs

      During the year ended December 31, 2004, we incurred broken deal costs of $0.2 million. No such costs were incurred during the year ended December 31, 2003. Our policy is to capitalize, as deferred costs, external expenses associated with potential acquisitions. However, once a decision is made not to pursue transactions that do not meet our investment criteria, the previously capitalized costs are immediately expensed as broken deal costs in the Consolidated Statement of Operations. The majority of our broken deal costs during the year ended December 31, 2004 related to withdrawing from potential transactions associated with our European expansion efforts.

Amortization of Deferred Equity Compensation

      The amortization of deferred equity compensation increased $5.7 million, or 167.6%, to $9.1 million for the year ended December 31, 2004, from $3.4 million for the year ended December 31, 2003. The amortization for the year ended December 31, 2004 included the expense associated with awards granted in 2004 and 2003; whereas amortization for the year ended December 31, 2003 only includes awards granted in 2003, most of which were not granted until July 2003.

Outperformance Plan — Cash and Contingent Restricted Share Components

      During the year ended December 31, 2003, we recorded an expense associated with the cash and contingent restricted share components of our Outperformance Plan of $2.0 million and $5.2 million, respectively. During the year ended December 31, 2004, we reversed the previously recorded expense associated with the contingent restricted share component of our Outperformance Plan, all of which was recorded during the year ended December 31, 2003. This expense was reversed due to variable plan accounting treatment as a result of the performance in our stock price relative to the measured index. The Outperformance Plan was a three-year plan that expired on January 1, 2006 and was succeeded by the 2006 Long Term Incentive Plan as our long-term performance plan for senior executives.

Severance and Related Accelerated Amortization of Deferred Compensation

      During the year ended December 31, 2004, we incurred severance charges related to the separation of one senior officer. These severance charges included the amortization of deferred compensation associated with the acceleration of vesting of restricted stock awards. No such expense was incurred during the year ended December 31, 2003.

Depreciation and Amortization Expense

      Depreciation and amortization expense increased approximately $60.8 million, or 141.4%, to $103.8 million for the year ended December 31, 2004, from $43.0 million for the year ended December 31, 2003. This increase was primarily due to depreciation and amortization expense associated with Acquisitions.

      Same Store. The increase in depreciation and amortization expense in Same Store was primarily attributable to additional capital and tenant improvements.

      Corporate. The increase in depreciation and amortization expense in Corporate was primarily attributable to leasehold improvements and office furniture and fixtures.

Interest Expense on Mortgages and Other Debt

      Interest expense on mortgage notes and other debt increased approximately $61.2 million, or 217.0%, to $89.4 million for the year ended December 31, 2004, from $28.2 million for the year ended

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December 31, 2003. This increase was primarily attributable to additional borrowings and contractual increases in interest rates, specifically due to the following:

      New Borrowings. During the year ended December 31, 2004, interest expense increased by $48.1 million as a result of new debt, secured by properties acquired during the year ended December 31, 2004 and a full year of interest expense on debt secured by properties acquired during the year ended December 31, 2003. The increase included variable to fixed rate interest rate changes described below.

      Variable to Fixed Changes in Interest Rates. The $63.0 million mortgage secured by Bank of America Plaza completed in April 2004, converted from a variable rate of LIBOR plus 1.5% (2.62% in June 2004) to a fixed rate of 4.55% in July 2004. In December 2003, the interest rate on mortgages encumbered by properties in our Bank of America, N.A. portfolio acquired in June 2003 reverted from a variable rate of LIBOR plus 1.40% to a fixed rate of 5.47%. In April and May 2003, interest rates on mortgages secured by our Pitney Bowes-Wachovia and Dana Commercial Credit portfolios reverted from a variable rate of LIBOR plus 1.25% for both loans to a fixed rate of 5.05% and 4.04%, respectively.

      In September 2004, the interest rate on the $520.0 million mortgage note payable secured by State Street Financial Center changed from a variable rate of LIBOR plus 1.25% (2.61% in August 2004) to a fixed rate of 5.79%.

      Secured Credit Facility. During the year ended December 31, 2004, we incurred interest expense of $5.0 million related to advances under our secured credit facility to fund Acquisitions. We did not have any advances under this facility during the year ended December 31, 2003.

      Senior Convertible Note. During the year ended December 31, 2004, we incurred interest expense of $8.2 million associated with our convertible senior notes issued in July 2004 and October 2004. No such expense was incurred during the year ended December 31, 2003.

      Debt Amortization. These increases in interest expense are partially offset by the effect of contractual debt amortization of $39.2 million, which occurred during the year ended December 31, 2004.

Gain on Sale of Land and Minority Interest in a Property, Net

      The net gain recorded during the year ended December 31, 2004, primarily relates to the sale of a 30% interest in State Street Financial Center for a net gain of $17.7 million.

Loss on Investments

      Loss on investments was approximately $0.4 million for the year ended December 31, 2004 as compared to a loss of approximately $9.2 million for the year ended December 31, 2003. This decrease was primarily due to a loss incurred on the sale of investments in our residential mortgage-backed securities portfolio during the year ended December 31, 2003. Our portfolio of residential mortgage-backed securities was sold in the second quarter of 2003.

Net Interest Income on Residential Mortgage-Backed Securities, Net of Expenses

      During the year ended December 31, 2003, net interest income from our residential mortgage-backed securities portfolio was approximately $4.7 million. We did not have any net interest income from residential mortgage-backed securities during the year ended December 31, 2004 because on May 21, 2003, our board of trustees approved the sale of all remaining residential mortgage-backed securities in our portfolio, the repayment of all borrowings under reverse repurchase agreements used to finance the portfolio and the termination of a related hedging agreement. These transactions were completed during the second quarter of 2003.

Minority Interest

      Minority interest decreased approximately $0.7 million to approximately $1.2 million for the year ended December 31, 2004, from approximately $1.9 million for the year ended December 31, 2003. This amount represents an allocation of net loss to unitholders in our Operating Partnership and an allocation of net income or loss from our 123 South Broad Street and State Street Financial Center properties to

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individuals who own an 11% and 30% interest in the entities that own those properties, respectively. We sold a 30% minority interest in State Street Financial Center in December 2004; therefore, no allocations to minority interest was recorded on this property during the year ended December 31, 2003.

Discontinued Operations — Loss from Operations.

      Loss from discontinued operations increased approximately $4.0 million to a loss of approximately $6.1 million, net of minority interest for the year ended December 31, 2004, from a loss of approximately $2.1 million, net of minority interest for the year ended December 31, 2003. This increase is primarily due to impairment charges on properties sold of approximately $3.6 million during the year ended December 31, 2004, compared to approximately $1.6 million during the year ended December 31, 2003. Excluding impairment charges, the properties included in discontinued operations generated approximately $1.9 million of additional net loss during the year ended December 31, 2004 compared to the same period in 2003.

Discontinued Operations — Yield Maintenance Fees.

      During the year ended December 31, 2004, we sold three properties encumbered by mortgages and incurred related charges on early extinguishment of debt of approximately $3.1 million, net of minority interest. We did not incur charges related to the early extinguishment of debt, during the year ended December 31, 2003.

Discontinued Operations — Net Gains.

      During the year ended December 31, 2004 and 2003, we sold 48 and 38 properties for a gain, net of minority interest and income taxes, of approximately $11.4 million and $8.4 million, respectively. We have established investment criteria for properties included in our real estate portfolio and a policy to dispose of non-core properties that do not meet such criteria. Pursuant to our policy, we generally intend to commence efforts to dispose of non-core properties within 30 days of acquisition and dispose of them within approximately 12 months of acquisition. If we sell properties at a gain, we may incur an income tax liability on such gains.

Cash Flows for the Year Ended December 31, 2005

      During the year ended December 31, 2005, net cash provided by operating activities was approximately $98.3 million. The level of cash flows provided by operating activities is affected by the receipt of scheduled rent payments and the timing of the payment of operating and interest expenses. The increase in deferred revenue is due to the prepayment of contractual rent payments received from Bank of America, N.A. for the Dana Commercial Credit portfolio that apply to future periods, sublease management and standby subtenant fees related to our leasehold interest in Harborside and prepaid rent related to properties we did not own on December 31, 2004.

      Net cash used in investing activities was approximately $702.3 million. Investing activities consisted primarily of payments for acquisitions, net of cash acquired, of approximately $807.0 million and approximately $41.6 million for payments related to capital expenditures and leasehold termination costs. Payments for capital expenditures and leasehold termination costs include $11.1 million of non-real estate capital expenditures, $6.1 million of tenant improvements, $8.6 million of completed building improvements and equipment projects, $14.8 million of construction in progress and $1.0 million of termination costs. Payments for completed building improvements and equipment include approximately $4.7 million of the pro-rata share of these costs that will be reimbursed with interest by our bank tenants over the useful life of the assets. These payments were partially offset by net sales of marketable securities of approximately $20.7 million and proceeds from sales of real estate and non-real estate investments and payments received to assume leasehold interests of approximately $125.6 million.

      Net cash provided by financing activities was approximately $603.7 million. Financing activities consisted primarily of proceeds from mortgage notes payable, convertible senior notes and credit facilities of approximately $1,108.7 million, which were used principally to finance properties acquired in 2005 and

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the Bank of America, N.A. portfolio purchased in 2004. We also received approximately $244.4 million of proceeds from our secondary offering in May 2005 and the exercise of stock options and $0.3 million of contributions from the minority interest owners of State Street Financial Center. These proceeds were partially offset by (i) dividends to shareholders and distributions to Operating Partnership unitholders of approximately $134.4 million, (ii) repayment of mortgage notes payable and payment of financing costs of approximately $594.9 million, (iii) approximately $4.4 million of payments to redeem Operating Partnership units issued in connection with the acquisition of State Street Financial Center and (iv) approximately $16.0 million related to an increase in restricted cash.

Cash Flows for the Year Ended December 31, 2004

      During the year ended December 31, 2004, net cash provided by operating activities was approximately $139.9 million. The level of cash flows provided by operating activities was affected by the receipt of scheduled rent payments and the timing of the payment of operating and interest expenses. The increase in deferred leasing costs was primarily related to the lease inducement fee paid to a subsidiary of State Street Corporation, the tenant in State Street Financial Center, and a lease extension fee paid to Bank of America, N.A., a tenant in 101 Independence Center. These increases were partially offset by the increase in deferred revenue. The increase in deferred revenue was due to the prepayment of contractual rent payments received from Bank of America, N.A. for the Dana Commercial Credit portfolio that apply to future periods, sublease management and standby subtenant fees related to our leasehold interest in Harborside and prepaid rent related to properties we did not own on December 31, 2003, including State Street Financial Center and the portfolios we purchased from Wachovia Bank, N.A. in September 2004 and Bank of America, N.A. in October 2004.

      Net cash used in investing activities was approximately $1,733.7 million. Investing activities consisted primarily of payments for acquisitions, net of cash acquired, of approximately $2,006.7 million, principally for the acquisition of State Street Financial Center, 215 Fremont Street, 101 Independence Center, and the Wachovia Bank, N.A. and Bank of America, N.A. portfolios, and approximately $15.8 million for payments related to capital expenditures and leasehold termination costs. These payments were partially offset by net sales of marketable securities of approximately $42.8 million, proceeds from sales of real estate and non-real estate investments and payments received to assume leasehold interests of approximately $187.0 million and net proceeds from the sale of a 30% interest in State Street Financial Center of $59.0 million.

      Net cash provided by financing activities was approximately $1,493.2 million. Financing activities consisted primarily of proceeds from mortgage notes payable, convertible senior notes and credit facilities of approximately $1,965.5 million, which were used principally to finance a portion of the purchase price of State Street Financial Center, 215 Fremont Street, and the Wachovia Bank, N.A. and Bank of America, N.A. portfolios and proceeds from the exercise of stock options of approximately $7.5 million. These proceeds were partially offset by (i) dividends to shareholders and distributions to Operating Partnership unitholders of approximately $116.8 million, (ii) repayment of mortgage notes payable and payment of financing costs of approximately $300.2 million, (iii) approximately $31.1 million of payments to redeem Operating Partnership units issued in connection with the acquisition of State Street Financial Center, and (iv) approximately $31.7 million related to an increase in restricted cash.

Cash Flows for the Year Ended December 31, 2003

      During the year ended December 31, 2003, net cash provided from operating activities was approximately $94.8 million. The level of cash flows provided by operating activities is affected by the receipt of scheduled rent payments and the timing of the payment of operating and interest expenses. In January 2003, we received a rental payment of approximately $40.4 million from Bank of America, N.A. under the terms of a lease we assumed in the acquisition of a portfolio of 14 office buildings and two parking facilities from a wholly owned subsidiary of Dana Commercial Credit Corporation.

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      Net cash used for investing activities was approximately $46.4 million, and included (i) sales of residential mortgage-backed securities of approximately $939.6 million, (ii) receipt of principal payments on residential mortgage-backed securities of approximately $172.6 million, (iii) net sales of marketable investments of approximately $76.8 million, (iv) acquisitions of real estate investments, net of proceeds on sales of real estate investments, of approximately $1,239.9 million, (v) a decrease in accrued interest income of $7.6 million and (vi) capital expenditures of approximately $3.1 million.

      Net cash provided by financing activities was approximately $101.9 million, and included (i) repayments of reverse repurchase agreements of approximately $1,053.5 million, (ii) proceeds from share issuances of approximately $741.3 million, (iii) payment of dividends and distributions to Operating Partnership unitholders and shareholders of approximately $63.0 million, (iv) repayment of mortgage notes and bridge notes payable of approximately $935.4 million, (v) payment for deferred financing costs of approximately $36.1 million, (vi) borrowings under mortgage notes and bridge loans of approximately $1,460.3 million and (vii) an increase in restricted cash of approximately $11.7 million.

Liquidity and Capital Resources

Short-Term Liquidity Requirements

      We had an aggregate of $113.6 million of cash, cash equivalents and short-term investments as of December 31, 2005. On May 9, 2005, we completed a public offering of 16,750,000 common shares and received proceeds of approximately $242.8 million, which were deployed in their entirety to complete acquisitions previously identified in that offering’s prospectus or additional acquisitions identified after the completion of the offering.

      Based on the collateral pool of assets pledged on our secured credit facility at December 31, 2005, we had approximately $198.6 million of immediately available funds and had drawn $171.3 million of advances, resulting in a net immediate availability of $27.3 million. We also had $201.4 million of additional, uncollateralized availability under this facility. In addition to our secured credit facility, we have an unsecured credit facility with a $60.0 million borrowing limit, available for general corporate purposes. At December 31, 2005, we had $56.4 million of letters of credit outstanding under the unsecured facility, resulting in a net availability of $3.6 million. As of December 31, 2005, total availability under both our secured and unsecured credit facilities was approximately $31.0 million, excluding additional collateral that could be pledged under the secured credit facility of $201.4 million.

      As of February 28, 2006, we had $96.7 million of cash, cash equivalents and short-term investments. This decrease during the period from December 31, 2005 to February 28, 2006 primarily relates to our dividend payment of $35.7 million, the interest payment on our senior convertible notes of $9.8 million and acquisitions under our formulated price contracts of $4.3 million.

      These cash payments were partially offset by the receipt of the annual rent payment of $40.4 million related to the Dana Commercial Credit portfolio. Since we completed the refinancing of the mortgage debt on our Dana Commercial Credit portfolio of office properties in December 2005 to a non-amortizing mortgage, we were not required to pay the January principal payment under the original loan terms of approximately $20.5 million. In addition to eliminating principal amortization requirements, the refinancing extended the term of the mortgage from approximately five years to twelve years with an increase in the debt balance from approximately $161.3 million to the refinanced amount of $180.0 million. The interest rate also increased from 4.04% to 5.61% as a result of this refinancing. Completion of the refinancing of this portfolio is consistent with our announced refinancing strategy, which is focused on extending the term of existing debt, while selectively reducing or eliminating amortization requirements, and increasing internally generated cash flow.

      As of December 31, 2005, we had approximately $38.7 million in pending acquisitions under contract or letters of intent, excluding acquisitions pending under our formulated price contracts. The most significant of these pending acquisitions was a portfolio of 16 properties, which we acquired from National City Corporation in March 2006 for a purchase price of approximately $33.3 million, including transaction-

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related expenses. We anticipate that these acquisitions will be partially funded from our secured credit facility with an advance of $23.1 million. Our contracts and letters of intent to acquire the proposed acquisitions are subject to various closing conditions, including the satisfactory completion of our due diligence investigation regarding the properties to be acquired, and there can be no assurance as to when, or if, any or all of the proposed acquisitions will be consummated. Likewise, there can be no assurance that the acquisitions we are currently negotiating will result in contracts and/or will be consummated.

      As of December 31, 2005, we also had approximately $54.1 million in pending acquisitions under outstanding notifications and notifications we anticipate receiving under our formulated price contracts. Pursuant to our formulated price contracts, we acquire, or assume leasehold interests in, the surplus bank branches of financial institutions at a formulated price established by independent appraisals. At March 15, 2006, we were still in due diligence periods and had not received appraisals for all the properties for which we received or anticipate receiving notice. Therefore, where possible and quantifiable, we have estimated the purchase price of the properties we anticipate acquiring, based on the appraisals we have received for similar properties. The acquisition of these properties will be principally financed with cash available from operations, proceeds from dispositions and advances from our secured credit facility collateralized by other existing properties in our portfolio. We anticipate receiving advances from our secured credit facility of approximately $34.5 million to fund these acquisitions.

      In March 2006, we anticipate receiving proceeds from selling non-core properties of approximately $29.0 million, net of principal payments on related debt. These dispositions include properties we anticipate acquiring in March 2006 and selling soon after acquisition. We also anticipate receiving an additional $34.5 million in proceeds, net of principal payments on related debt, from the sale of other non-core properties in the second quarter of 2006. We cannot assure that we will successfully close these dispositions. If such properties are not sold or not sold in a timely manner, our liquidity position could be adversely affected. In February 2006, we entered into an agreement with Resnick Development Corp. to sell five 100% occupied properties, which aggregate approximately 1.2 million square feet, for approximately $301.0 million, before transaction and closing costs, and net of approximately $16.0 million in loan defeasance and prepayment costs that will be paid or reimbursed by the purchaser at closing. We anticipate that this transaction will be completed in April 2006, at which time, after debt principal payments, defeasance and other closing costs, we anticipate receiving proceeds from this sale of approximately $65 million.

      As of December 31, 2005, we had 14 formulated price contracts with banking institutions, including contracts with three of the six largest depositary institutions in the United States. Unless terminated, our formulated price contracts automatically renew on an annual basis. Since our formulated price agreements require us, with limited exceptions, to purchase all bank branches, subject to notification, that the counter parties determine to be surplus properties, the total contractual obligation under these agreements is not quantifiable. If we are unable to accurately forecast the number of properties that we may become obligated to purchase, or if we are unable to secure adequate debt or equity financing to fund the purchase price, we may not have sufficient capital to purchase these properties. If we cannot perform our obligations, we may become subject to liquidated or other damages or impair our relationships with these institutions. The institutions with which we have such agreements may also have the right to terminate the agreements if we breach our obligations under them. Any of these damages could significantly affect our operating results, and if these agreements are terminated, our ability to acquire additional properties and successfully execute our business plan. If we are successful in entering into similar agreements with other financial institutions, we may need a significant amount of additional capital to fund additional acquisitions under those agreements. We cannot assure you that we will be able to raise necessary capital on acceptable terms, or at all. Our inability to fund required acquisitions would adversely affect our revenues, impair our business plan and reduce cash available for distribution to shareholders.

      Under a long-term triple-net lease agreement with one of our tenants, we have agreed to allow the tenant to obtain leasehold financing once the tenant is able to obtain certain regulatory approval to conduct its business. The previously vacant property that the tenant leases is presently securitized along with other properties included in our Bank of America, N.A. portfolio acquired in June 2003. The tenant’s financing

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arrangements, will require us to extinguish the debt and pay approximately $8.3 million to release this property from the securitization. We expect this release to occur during the second quarter of 2006.

      On June 30, 2006, the short-term bridge facility initially received in anticipation of completing a pooled securitization financing, secured by Bank of Oklahoma Plaza, One Citizens Plaza and One Colonial Plaza, will expire at which time this $90.0 million facility must be renewed or repaid. We anticipate that the pooled securitization financing will be completed before the short-term bridge facility expires, however we cannot assure you that the timing will not be delayed by unforeseen circumstances and that we will be able to renew or raise the necessary funds to meet our obligations. In December 2005, we satisfied all post closing requirements related to the short-term bridge facility. The portion of the short-term bridge facility secured by Bank of Oklahoma Plaza and One Citizens Plaza was initially 100% full recourse to our Operating Partnership. The recourse decreased from approximately $68.7 million to approximately $16.2 million, when the post closing requirements were satisfied. We anticipate that the pooled securitization financing will refinance Bank of Oklahoma Plaza, One Citizens Plaza and One Colonial Plaza as well as a multitude of other assets. After debt payments and defeasance costs, we anticipate receiving net proceeds from the pooled securitization financing in the range of approximately $40 million to $50 million.

      Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses, contractually obligated reimbursable and non-reimbursable capital expenditures, dividend and distribution payments to our shareholders and unitholders, respectively, debt service, inclusive of principal repayment and interest expense related to both secured and unsecured debt and commitments to complete pending acquisitions. Although cash flow from real estate operating activity is a source from which these payments are provided, with the exception of acquisitions, it alone is not sufficient to meet these obligations. In addition to cash flow from real estate operating activity and cash available from our credit facilities, we expect to fund short-term liquidity requirements from any or all of the following sources:

• proceeds from the sale of non-core real estate assets;

• proceeds from the sale of interests in existing real property assets contributed to and maintained or re-developed through off balance sheet entities to be formed with unrelated third party investors;

• the placement of mortgage financings on existing unencumbered assets;

• the placement of mortgage financings to refinance existing encumbered assets; and

• the issuance of secured or unsecured debt securities.

      However, if these sources of funds become unavailable, our access to the capital markets becomes restricted or we are unable to match the completion of capital sourcing transactions with capital needs, our ability to meet our short-term liquidity requirements will be adversely affected.

Long-Term Liquidity Requirements

      Our long-term requirements generally consist of real property investments, the refinancing of existing long-term debt obligations, which may come due in the next 12 months, as well as the repayment of balances outstanding on our credit facilities. These investments and refinancing requirements may be funded utilizing capital market transactions, which may include the issuance of preferred equity, common equity and various forms of secured and unsecured long-term debt instruments. Such financings may also be funded through short-term bank loans and long-term mortgages. In addition, we are actively managing our debt and capital position. We are currently reviewing our debt portfolio, in order to identify and refinance obligations with high interest rate coupons or high debt service constants. Through these refinancings, we anticipate improved cash flow by decreasing interest payment obligations or eliminating or reducing debt amortization. We are also looking to extend the term of certain debt to balance future refinancing requirements.

      We expect to continue to acquire additional properties in the next 12 months. We expect to fund current acquisition commitments and future commitments with any or all of the sources of capital described above. We intend to arrange debt in accordance with our general borrowing policies, which

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include utilizing our credit facilities prior to securing permanent debt financing and/or obtaining short-term floating rate bridge financings to expedite the closing of such acquisitions.

      We anticipate that our current cash and cash equivalents, cash flow from real estate operating activity and access to the capital markets is sufficient to meet our short-term and long-term capital requirements. However, if these sources of funds become unavailable or our access to the capital markets becomes restricted, our ability to meet current dividend and other cash payment requirements will be adversely affected.

      Our properties are encumbered by mortgages and other financing agreements aggregating approximately $3,319.5 million in outstanding principal, excluding unamortized premiums and discounts, as of December 31, 2005, with an average remaining term of 11.5 years and a weighted average interest rate (excluding unamortized debt premium and discounts and the effects of hedging activities) of 5.67%. During the year ending December 31, 2006, we are required to pay $161.3 million in debt service, which includes $90.0 million under our short-term bridge facility which we expect to refinance from a pooled securitization in the second quarter of 2006, $19.0 million of other balloon payments and $52.3 million of contractual debt amortization. The table below summarizes the properties financed and the principal payments required as of December 31, 2005 in the following calendar years (dollars in millions):

			Balance at		Coupon			Principal Payments and Debt Security Schedule
	Number of		December 31,		Interest
Property/Borrowing	Properties		2005(1)		Rate(1)			2006		2007		2008		2009		2010		Thereafter
State Street Financial Center, Boston, MA		1	$	501.5		5.79	%	$	11.5	$	12.2	$	12.9	$	13.7	$	14.6	$	436.6
Convertible Senior Notes		—		450.0		4.38	%		0.0		0.0		0.0		0.0		0.0		450.0
Bank of America, N.A. acquired in June 2003		147		391.2		5.47	%		9.5		10.1		10.6		11.2		11.9		337.9
Bank of America, N.A. acquired in Oct. 2004		206		298.9		5.96	%		4.1		4.4		4.6		4.9		5.2		275.7
Wachovia Bank, N.A.		129		216.4		6.40	%		2.9		3.1		3.3		3.6		3.9		199.6
777 San Marin Drive, Novato, CA		1		189.8		5.55	%		2.7		2.9		3.0		3.2		3.4		174.6
Dana Commercial Credit		13		180.0		5.61	%		0.0		0.0		0.0		0.0		0.0		180.0
Secured credit facility(2)		184		171.3		6.11	%		0.0		171.3		0.0		0.0		0.0		0.0
215 Fremont Street, San Francisco, CA		1		131.3		5.98	%		3.0		3.2		3.4		3.6		3.7		114.4
101 Independence Center, Charlotte, NC		1		78.8		5.53	%		1.1		1.2		1.3		1.3		1.4		72.5
Koll Development Company, LLC		3		66.4		6.35	%		0.8		0.8		0.9		0.9		1.0		62.0
Bank of America Plaza, St. Louis, MO		1		60.2		4.55	%		2.1		2.2		2.3		53.6		0.0		0.0
Pitney Bowes-Bank of America		73		58.3		5.33	%		3.3		2.9		2.0		1.6		1.7		46.8
One Citizens Plaza, Providence, RI(3)		1		51.3		5.69	%		51.3		0.0		0.0		0.0		0.0		0.0
123 S. Broad Street, Unit 2, Philadelphia, PA		1		50.9		8.43	%		0.5		50.4		0.0		0.0		0.0		0.0
State Street Financial Center Mezzanine(4)		—		50.0		6.19	%		0.7		4.9		5.8		6.8		7.6		24.2
Pitney Bowes — Wachovia		41		43.8		4.07	%		4.0		4.4		4.9		5.3		25.2		0.0
801 Market Street, Philadelphia, PA		1		42.5		6.17	%		0.6		0.6		0.6		0.7		0.7		39.3
Three Beaver Valley, Wilmington, DE		1		42.2		5.06	%		0.6		0.7		0.7		0.7		0.8		38.7
123 S. Broad Street, Unit 1, Philadelphia, PA		1		35.1		8.43	%		0.4		0.4		0.4		0.5		33.4		0.0
Pitney Bowes — Wachovia		23		25.3		5.50	%		0.9		0.9		1.0		1.0		1.1		20.4
One Colonial Place, Glenn Allen, VA(3)		1		21.3		5.69	%		21.3		0.0		0.0		0.0		0.0		0.0
One Montgomery Street, San Francisco, CA		1		19.0		8.30	%		19.0		0.0		0.0		0.0		0.0		0.0
201 Robert S. Kerr Avenue, Oklahoma City, OK(3)		1		17.4		5.69	%		17.4		0.0		0.0		0.0		0.0		0.0
6900 Westcliff Drive, Las Vegas, NV		1		16.9		5.41	%		0.2		0.2		0.3		0.3		0.3		15.6
2200 Benson Street, Sioux Falls, SD		1		15.6		6.55	%		0.3		0.3		0.3		0.3		0.4		14.0
610 Old York Road, Jenkintown, PA		1		14.8		8.29	%		0.2		0.2		0.2		0.2		14.0		0.0
177 Meeting Street, Charleston, SC		1		9.7		7.44	%		0.2		0.2		0.2		0.2		0.2		8.7
1965 East Sixth Street, Cleveland, OH		1		6.4		5.31	%		0.1		0.1		0.1		0.1		0.1		5.9
50 W. Market Street, West Chester, PA		1		3.5		6.75	%		0.1		3.4		0.0		0.0		0.0		0.0
4 Pope Avenue, Hilton Head, SC		1		3.3		5.89	%		0.1		0.1		0.1		0.2		0.2		2.6
200 Reid Street, Palatka, FL		1		3.2		5.81	%		0.1		0.1		0.1		0.1		0.1		2.7
Debt between $1.0 million and $3.0 million(5)		23		34.1		5.94	%		1.0		1.1		1.1		1.2		2.4		27.3
Debt less than $1.0 million(6)		31		19.1		6.19	%		1.3		0.6		1.3		2.4		0.8		12.7
		894	$	3,319.5		5.67	%	$	161.3	$	282.9	$	61.4	$	117.6	$	134.1	$	2,562.2

(1)	Excludes unamortized debt premium and discounts and hedging activity and the related effects on interest rates.
(2)	Borrowings bear interest at LIBOR plus 1.75%
(3)	Debt is floating based on LIBOR plus 1.40%.
(4)	Debt is floating based on LIBOR plus 1.83% through October 2006, when it is prepayable without penalty. If not prepaid, it converts to a fixed rate of 9.75% through maturity in July 2013.
(5)	Includes one variable-rate loan totaling $1.1 million, which bear interest at LIBOR plus 2.00%.
(6)	Includes seven variable-rate loans totaling $4.1 million, which bear interest at one-month Constant Maturity Treasury plus 2.00%.

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     Our indebtedness contains various financial and non-financial covenants customarily found in financing arrangements, including debt service coverage ratio requirements and in the case of our unsecured credit facility, limitations on our total indebtedness and our total secured indebtedness. As of December 31, 2005 and 2004, we were in compliance with all of these covenants.

Contractual Obligations

      The following table outlines the timing of payment requirements (excluding interest payments) related to our contractual obligations as of December 31, 2005 (amounts in thousands):

	Less Than		One to Three		Three to		More Than
	One Year		Years		Five Years		Five Years		Total(1)
Mortgage notes payable — fixed-rate	$	70,410	$	161,817	$	236,814	$	2,084,077	$	2,553,118
Mortgage notes payable — variable-rate		90,866		11,237		14,905		28,079		145,087
Convertible senior notes		—		—		—		450,000		450,000
Credit facilities		—		171,265		—		—		171,265
Operating and capital leases		17,520		35,019		34,138		195,416		282,093
Purchase obligations(2)		92,958		422		322		126		93,828
	$	271,754	$	379,760	$	286,179	$	2,757,698	$	3,695,391

(1)

Excludes unamortized debt premium and discounts.

(2)

Includes approximately $33.3 million for a portfolio of 16 properties, which we acquired in March 2006 from National City Corporation, other properties aggregating $5.4 million and approximately $54.1 million related to notifications outstanding and notifications we anticipate receiving under our formulated price contracts. However, since our formulated price agreements require us, with limited exceptions, to purchase all bank branches, subject to notification, that the counter parties determine to be surplus properties, the total contractual obligation under these agreements is not quantifiable.

     As of December 31, 2005, we had $56.4 million of letters of credit outstanding. We have provided Charles Schwab & Co., Inc. with an irrevocable, standby letter of credit for $27.2 million as security for our obligation under a subtenant agreement and a sublease management and standby subtenant agreement at Harborside Plaza in Jersey City, New Jersey. The amount of the letter of credit will increase concurrently with each rent credit and sublease management fee paid to us by Charles Schwab & Co., Inc. up to $51.6 million and then decrease over the term of our obligations through October 2017. In connection with various reserve requirements for our long-term financing of the Bank of America, N.A. portfolio we acquired in October 2004, we posted a $20.0 million letter of credit as collateral. This letter of credit may be reduced when certain conditions are met, including various leasing and maintenance requirements. We also provided Bank of America, N.A. with an irrevocable, standby letter of credit for $6.0 million, as security for our obligations under our lease agreements related to the properties we acquired from Bank of America, N.A. in June 2003 and October 2004. The remaining letters of credit were primarily issued to secure payments under leasehold interests and issued to utility companies in lieu of a cash security deposit to establish service. In addition, the Company has $0.6 million in surety bonds outstanding as of December 31, 2005 issued to utility companies in lieu of a cash security deposit to establish service.

      We generally intend to refinance the remaining principal balance of our mortgage notes payable as they become due or repay them if the respective property is sold.

Inflation

      Some of our leases contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. In addition, our net leases require the tenant to pay its allocable share of the amortized cost of capital expenditures with interest as well as operating expenses, including common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation.

67

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or rates. Our market risk arises primarily from interest rate risk relating to variable-rate borrowings. To meet our short- and long-term liquidity requirements, we borrow funds at a combination of fixed and variable rates. Borrowings under our credit facilities bear interest at variable rates. Our long-term debt, which consists of secured financings, typically bears interest at fixed rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, caps, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not hold or issue these derivative contracts for trading or speculative purposes.

      As of December 31, 2005, our debt included fixed-rate debt, including debt secured by assets held for sale, with a carrying value of approximately $3,003.1 million and a fair value of approximately $2,973.6 million. Changes in market interest rates on our fixed-rate debt impacts the fair value of the debt, but it has no impact on interest incurred or cash flow. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our debt to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed-rate debt assumes an immediate 100 basis point move in interest rates from their December 31, 2005 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by approximately $219.6 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by approximately $246.1 million.

      As of December 31, 2005, our debt included variable-rate mortgage notes payable with a carrying value of $316.4 million. The sensitivity analysis related to our variable-rate debt assumes an immediate 100 basis point move in variable interest rates with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable notes payable would increase or decrease our interest expense by approximately $2.4 million annually.

      These amounts were determined by considering the impact of hypothetical interest rates changes on our borrowing costs, and, assumes no other changes in our capital structure.

      As the information presented above includes only those exposures that existed as of December 31, 2005, it does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.

Item 8. Financial Statements and Supplementary Data

      The financial statements and supplementary financial data are listed under Item 15(a) and filed as part of this Annual Report on Form 10-K. See Item 15.

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

      None.

Item 9A. Controls and Procedures

(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

      The Company’s management, under the supervision of and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2005. In

68

conducting the aforementioned evaluation and assessment, management identified a material weakness in internal control over financial reporting relative to the Company’s accounting for income taxes, as described below in Item 9A(b). This deficiency was identified during the course of the Company’s 2005 audit. Accordingly, management concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2005.

(b) Management’s Report on Internal Control Over Financial Reporting

      The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined within Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

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

      A material weakness in internal control over financial reporting is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

      Management, conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria contained in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission as of December 31, 2005. Based on that evaluation, management has concluded that, as of December 31, 2005, the Company did not maintain effective internal control over financial reporting because of a material weakness in internal control over financial reporting relating to the Company’s accounting for income taxes. Specifically, the Company’s processes and procedures did not provide for an appropriate level of expertise to determine the correct tax basis of its property dispositions and did not provide for adequate management oversight and review of the tax accounting treatment of property dispositions. This material weakness resulted in a material misstatement reflecting an overstatement of income tax expense and understatement of net income in the Company’s statement of operations for the quarter and year ended December 31, 2005. The Company corrected this error prior to the issuance of its 2005 financial statements.

      Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

(c) Change in Internal Control Over Financial Reporting

      There was no change in our internal control over financial reporting during the quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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      In response to the material weakness described above, subsequent to December 31, 2005, the Company has taken, and intends to take further, remedial measures. To date, those remedial measures include the following:

• Design of a revised control process over accounting for income taxes, which includes additional management oversight and review of the tax accounting treatment of property dispositions.

• Initiate a quarter end review by outside tax accountants, who are not our external auditors, of quarterly tax entries and activities.

Item 9B. Other Information

      None.

70

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees of

American Financial Realty Trust:

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that American Financial Realty Trust did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of a material weakness identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). American Financial Realty Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

      A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment: As of December 31, 2005, American Financial Realty Trust did not maintain effective internal control over financial reporting because of a material weakness in internal control over financial reporting relating to the Company’s accounting for income taxes. Specifically, the Company’s processes and procedures did not provide for an appropriate level of expertise to determine the correct tax basis of its property dispositions and did not provide for adequate management oversight and review of the tax accounting treatment of property dispositions. This material weakness resulted in a material misstatement reflecting an overstatement of income tax expense and understatement of net income in the Company’s statement of operations for the quarter and year ended December 31, 2005.

71

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of American Financial Realty Trust and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three year period ended December 31, 2005. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated March 14, 2006, which expressed an unqualified opinion on those consolidated financial statements.

      In our opinion, management’s assessment that American Financial Realty Trust did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, American Financial Realty Trust has not maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 14, 2006

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PART III

Item 10. Directors and Executive Officers of the Registrant

      The information required by Item 10 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2006 annual meeting of shareholders.

Item 11. Executive Compensation

      The information required by Item 11 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2006 annual meeting of shareholders.

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

      The information required by Item 12 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2006 annual meeting of shareholders.

Item 13. Certain Relationships and Related Transactions

      The information required by Item 13 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2006 annual meeting of shareholders.

Item 14. Principal Accountant Fees and Services

      The information required by Item 14 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2006 annual meeting of shareholders.

PART IV

Item 15. Exhibits, Financial Statement Schedules

      (a) The following documents are filed as part of this report under Item 8 of Part II hereof:

	Page
1. Financial Statements
Reports of Independent Registered Public Accounting Firm		78
Consolidated Balance Sheets at December 31, 2005 and 2004		79
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		80
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2005, 2004 and 2003		81
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		82
Notes to Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003		83
2. Financial Statement Schedules
Schedule III — Real Estate Investments		110
3. Historical Financial Information of Lease Guarantor
Bank of America Corporation and Subsidiaries		152
State Street Corporation		155

      Financial statement schedules other than those listed above have been omitted because they are either not required, not applicable or the information is otherwise included in the notes to the Financial Statements.

73

      (b) Exhibits

				Incorporated by Reference
Exhibit									Filed
Number			Exhibit Description	Form	Filing Date		Exhibit		Herewith
	3	.1	Amended and Restated Declaration of Trust of the Registrant.	S-11		4/11/03		3.1
	3	.2	Articles of Amendment to Amended and Restated Declaration of Trust of the Registrant.	10-K		3/9/05		3.2
	3	.3	Bylaws of the Registrant.	S-11		6/19/03		3.2
	3	.4	Amended and Restated Agreement of Limited Partnership of First States Group, L.P., dated September 10, 2002.	S-11		2/21/03		3.3
	4	.1	Registration Rights Agreement, dated September 4, 2002, by and among the Registrant and the Contributors listed on Schedule 1 thereto.	S-11		2/21/03		4.1
	4	.2	Common Shares Registration Rights Agreement, dated September 4, 2002, by and among the Registrant and Friedman, Billings, Ramsey & Co., Inc.	S-11		2/21/03		4.2
	4	.3	Registration Rights Agreement, dated September 10, 2002, by and among the Registrant, Nicholas S. Schorsch, Irvin G. Schorsch and Louis D. Davis, III.	S-11		2/21/03		4.3
	4	.4	Common Shares Registration Rights Agreement, dated September 10, 2002, by and between the Registrant and Friedman, Billings, Ramsey & Co., Inc., as agent for the investors listed on Schedule A thereto.	S-11		2/21/03		4.4
	4	.5	Indenture, dated as of July 9, 2004, between American Financial Realty Trust and Deutsche Bank Trust Company Americas, as trustee.	S-3		10/7/04		4.1
	4	.6	First Supplemental Indenture, dated as of October 1, 2004, between American Financial Realty Trust and Deutsche Bank Trust Company Americas, as trustee.	S-3		10/7/04		4.2
	4	.7	Second Supplemental Indenture, dated as of December 29, 2004, between American Financial Realty Trust and Deutsche Bank Trust Company Americas, as trustee.	S-3		12/30/04		4.3
	4	.8	Form of 4.375% Convertible Senior Notes (included in Exhibit 4.6).	S-3		10/7/04		4.3
	4	.9	Registration Rights Agreement, dated as of July 9, 2004, among American Financial Realty Trust, Deutsche Bank Securities, Inc. and Banc of America Securities LLC.	S-3		10/7/04		4.4
	4	.10	Registration Rights Agreement, dated as of October 1, 2004, between American Financial Realty Trust and Deutsche Bank Securities, Inc.	S-3		10/7/04		4.5
	10	.1	Contribution Agreement, dated September 4, 2002, by and between the Contributors and First States Group, L.P.	S-11		4/11/03		10.1
	10	.2	Limited Partnership Agreement of First States Partners II, L.P., dated September 12, 2000.	S-11		4/11/03		10.2
	10	.3	Agreement, dated November 22, 2000, by and between Bank of America, N.A. and American Financial Resource Group, LLC.	S-11		4/11/03		10.9
	10	.4	Master Purchase, Sale and Lease Transfer Agreement, dated September 12, 2002, by and between Wachovia Bank, National Association and First States Group, L.P.	S-11		4/11/03		10.8
	10	.5	Form of Amended and Restated Lease Agreement, dated May 23, 2003, by and among U.S. Bank National Association, Patrick E. Thebado and Bank of America, N.A.	S-11		6/4/03		10.4
	10	.6	Guarantee, dated May 23, 2003, by Bank of America Corporation, in favor of U.S. Bank National Association.	S-11		5/23/03		10.33
	10	.7	Master Lease Agreement, dated June 30, 2003, by and between First States Investors 5000A, LLC and Bank of America, N.A.	8-K		7/11/03		10.5
	10	.8	Loan Agreement, dated as of July 18, 2003, by and among First States Investors DB I, LLC, Deutsche Bank AG, LaSalle Bank National Association, and the other lender parties thereto.	10-K		3/26/04		10.48
	10	.9	Amended and Restated Loan and Security Agreement, dated as of October 1, 2003, by and between First States Investors 5000A, LLC and German American Capital Corporation.	10-K		3/26/04		10.49
	10	.10†	Supplemental Executive Retirement Plan.	S-11		4/11/03		10.24
	10	.11†	2002 Equity Incentive Plan, as amended and restated on July 24, 2003.	14A		8/25/03
	10	.12†	Employment Agreement, dated January 1, 2004, by and between Sonya A. Huffman and First States Group, L.P.	10-Q		5/12/04		10.4
	10	.13†	Employment Agreement, dated July 21, 2003, by and between Lee S. Saltzman and First States Group, L.P.	S-11		8/22/03		10.45

74

				Incorporated by Reference
Exhibit									Filed
Number			Exhibit Description	Form	Filing Date		Exhibit		Herewith
	10	.14†	Employment Agreement, dated January 1, 2004, by and between Robert J. Delany and First States Group, L.P.	10-Q		8/6/04		10.1
	10	.15	Lease Agreement between Kingston Bedford Joint Venture LLC, as Landlord, and SSB Realty LLC, as Tenant, dated May 9, 2001.	8-K		3/3/04		10.3
	10	.16	First Amendment to Lease Agreement between Kingston Bedford Joint Venture LLC, as Landlord, and SSB Realty LLC, as Tenant, dated August 15, 2003.	8-K		3/3/04		10.4
	10	.17	Second Amendment to Lease Agreement between First States Investors 228, LLC (a successor to Kingston Bedford Joint Venture LLC), as Landlord, and SSB Realty LLC, as Tenant, dated February 14, 2004.	8-K		3/3/04		10.5
	10	.18	Loan Agreement, dated as of February 17, 2004, by and between First States Investors 228, LLC and Lehman Brothers Bank FSB.	8-K		3/3/04		10.6
	10	.19	Note, dated as of February 17, 2004, by First States Investors 228, LLC, in favor of Lehman Brothers Bank FSB, in the principal amount of $520,000,000.	8-K		3/3/04		10.7
	10	.20	Agreement of Purchase and Sale, dated as of May 10, 2004, between First States Investors 3300, LLC and Wachovia Bank, National Association.	8-K		9/28/04		10.1
	10	.21	First Amendment to Agreement of Sale and Purchase, dated as of September 2 2004, by and between First States Investors 3300, LLC and Wachovia Bank, National Association.	8-K		9/28/04		10.2
	10	.22	Second Amendment to Agreement of Sale and Purchase, dated as of August 16, 2004, by and between First States Investors 3300, LLC and Wachovia Bank, National Association.	8-K		9/28/04		10.3
	10	.23	Third Amendment to Agreement of Sale and Purchase, dated as of September 22, 2004, by and between First States Investors 3300, LLC and Wachovia Bank, National Association.	8-K		9/28/04		10.4
	10	.24	Master Agreement Regarding Leases, dated as of September 22, 2004, by and between First States Investors 3300, LLC, as Landlord, and Wachovia Bank, National Association, as Tenant.	8-K		9/28/04		10.5
	10	.25	Lease Guaranty, dated as of September 22, 2004, executed by Wachovia Corporation in favor of First States Investors 3300, LLC.	8-K		9/28/04		10.6
	10	.26	Loan Agreement, dated as of September 22, 2004, by and between First States Investors 3300, LLC and Lehman Brothers Holdings Inc.	8-K		9/28/04		10.7
	10	.27	Promissory Note, dated as of September 28, 2004, by First States Investors 3300, LLC, in favor of Lehman Brothers Holdings Inc., in the principal amount of $219,000,000.	8-K		9/28/04		10.8
	10	.28	Agreement of Sale and Purchase between Bank of America, N.A. and First States Group, L.P. dated September 27, 2004.	8-K		10/1/04		10.1
	10	.29	Master Lease Agreement between First States Investors 5200, LLC, as Landlord, and Bank of America, N.A., as Tenant, dated October 1, 2004.	8-K		10/1/04		10.2
	10	.30	Guarantee, dated as of October 1, 2004, executed by Bank of America Corporation in favor of First States Investors 5200, LLC.	8-K		10/1/04		10.3
	10	.31	First Amendment to Loan Agreement, dated as of August 9, 2004, by and among First States Investors DB I, LLC, Deutsche Bank AG and La Salle Bank National Association.	8-K		10/1/04		10.4
	10	.32	Second Amendment to Loan Agreement, dated as of September 30, 2004, by and among First States Investors DB I, LLC, Deutsche Bank AG and La Salle Bank National Association.	8-K		10/1/04		10.5
	10	.33	Amended and Restated Promissory Note, dated as of September 30, 2004, by First States Investors DB I, LLC, in favor of Deutsche Bank AG, in the principal amount of up to $400,000,000.	8-K		10/1/04		10.6
	10	.34	Guaranty and Indemnity, dated as of September 30, 2004, by and between First States Group, L.P. and Deutsche Bank AG.	8-K		10/1/04		10.7
	10	.35	Purchase Agreement, dated as of December 15, 2004, by and between First States Group, L.P. and IPC Realty II, LLC.	10-K		3/9/05		10.49
	10	.36†	Employment Agreement, dated March 28, 2005, by and between Robert M. Patterson and First States Group, L.P.	10-Q		5/6/05		10.2
	10	.37	Loan and Security Agreement, dated as of March 4, 2005, between First States Investors 5200, LLC, as Borrower, and German American Capital Corporation and Bear Stearns Commercial Mortgage, Inc., collectively as Lender.	10-Q		5/6/05		10.3

75

				Incorporated by Reference
Exhibit									Filed
Number			Exhibit Description	Form	Filing Date		Exhibit		Herewith
	10	.39	First Amendment, dated as of April 12, 2005, to Loan and Security Agreement, dated as of March 4, 2005, between First States Investors 5200, LLC, as Borrower, and German American Capital Corporation and Bear Stearns Commercial Mortgage, Inc., collectively as Lender.	10-Q		5/6/05		10.4
	10	.40	Guaranty of Recourse Obligations, dated as of March 4, 2005, for the benefit of German American Capital Corporation and Bear Stearns Commercial Mortgage, Inc.	10-Q		5/6/05		10.5
	10	.41	First Amendment, dated as of April 12, 2005, to Guaranty of Recourse Obligations, dated as of March 4, 2005, for the benefit of German American Capital Corporation and Bear Stearns Commercial Mortgage, Inc.	10-Q		5/6/05		10.6
	10	.42	Promissory Note, dated as of March 4, 2005, by First States Investors 5200, LLC, in favor of German American Capital Corporation, in the principal amount of $152,000,000.	10-Q		5/6/05		10.7
	10	.43	Promissory Note, dated as of March 4, 2005, by First States Investors 5200, LLC, in favor of Bear Stearns Commercial Mortgage, Inc., in the principal amount of $152,000,000.	10-Q		5/6/05		10.8
	10	.44†	2006 Long Term Incentive Plan.	10-Q		8/9/05		10.2
	10	.45†	2005 Bonus Plan.	10-Q		8/9/05		10.3
	10	.46	Underwriting Agreement, dated as of May 4, 2005, among First States Group, L.P., Banc of America Securities LLC, Wachovia Capital Markets, LLC and Citigroup Global Markets Inc.	8-K		5/6/05		10.1
	10	.47†	Addendum, dated June 20, 2005, to Employment Agreement, dated January 1, 2004, by and between Robert J. Delany and First States Group, L.P.	8-K		6/23/05		10.1
	10	.48†	Severance and Release Agreement, dated June 30, 2005, by and between Shelley D. Schorsch and First States Group, L.P.	8-K		7/5/05		10.1
	10	.49†	Employment Agreement, dated August 30, 2005, by and between Nicholas S. Schorsch and First States Group, L.P.	10-Q		11/8/05		10.1
	10	.50†	Employment Agreement, dated August 30, 2005, by and between Glenn Blumenthal and First States Group, L.P.	10-Q		11/8/05		10.2
	10	.51†	Employment Agreement, dated August 30, 2005, by and between David J. Nettina and First States Group, L.P.	10-Q		11/8/05		10.3
	10	.52†	Employment Agreement, dated August 30, 2005, by and between Edward J. Matey Jr. and First States Group, L.P.	10-Q		11/8/05		10.4
	10	.53	Third Amendment to Loan Agreement, dated as of September 30, 2005, by and among First States Investors DB I, LLC, Deutsche Bank AG and LaSalle Bank National Association.	10-Q		11/8/05		10.5
	10	.54	Contribution Agreement, effective as of October 26, 2005, by and between the Contributors and First States Group, L.P.							X
	21	.1	Subsidiaries of the Registrant.							X
	23	.1	Consent of KPMG LLP (independent auditors of the Registrant).							X
	31	.1	Certificate of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.							X
	31	.2	Certificate of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.							X
	32	.1*	Certificate of Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.							X
	32	.2*	Certificate of Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.							X

*  This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

†  Compensatory plan or arrangement.

76

SIGNATURES

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

AMERICAN FINANCIAL REALTY TRUST

/s/ NICHOLAS S. SCHORSCH

Nicholas S. Schorsch

President and Chief Executive Officer

Date: March 15, 2006

      Pursuant to the requirements of the Securities Exchange Act, 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/ NICHOLAS S. SCHORSCH Nicholas S. Schorsch	Vice Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)	March 15, 2006
/s/ DAVID J. NETTINA David J. Nettina	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 15, 2006
/s/ BRIAN S. BLOCK Brian S. Block	Vice President and Chief Accounting Officer (Principal Accounting Officer)	March 15, 2006
/s/ LEWIS S. RANIERI Lewis S. Ranieri	Chairman of the Board of Trustees	March 15, 2006
/s/ GLENN BLUMENTHAL Glenn Blumenthal	Executive Vice President — Chief Operating Officer and Trustee	March 15, 2006
/s/ RAYMOND GAREA Raymond Garea	Trustee	March 15, 2006
/s/ MICHAEL J. HAGAN Michael J. Hagan	Trustee	March 15, 2006
/s/ JOHN P. HOLLIHAN  III John P. Hollihan  III	Trustee	March 15, 2006
/s/ WILLIAM M. KAHANE William M. Kahane	Trustee	March 15, 2006
/s/ RICHARD A. KRAEMER Richard A. Kraemer	Trustee	March 15, 2006
/s/ ALAN E. MASTER Alan E. Master	Trustee	March 15, 2006

77

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees of

American Financial Realty Trust:

      We have audited the accompanying consolidated balance sheets of American Financial Realty Trust and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2005. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule III. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Financial Realty Trust and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, 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 consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of American Financial Realty Trust’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2006, expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania

March 14, 2006

78

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and December 31, 2004

(In thousands, except share and per share data)

			December 31,
			2005			2004
Assets:
Real estate investments, at cost:
	Land		$	475,457		$	415,852
	Land held for development			24,563			—
	Buildings and improvements			2,645,618			2,280,971
	Equipment and fixtures			401,661			352,737
	Leasehold interests			9,579			4,972
		Total real estate investments, at cost		3,556,878			3,054,532
		Less accumulated depreciation		(260,852	)		(147,478	)
		Total real estate investments, net		3,296,026			2,907,054
Cash and cash equivalents				110,245			110,607
Restricted cash				73,535			59,905
Marketable investments and accrued interest				3,353			24,272
Tenant and other receivables, net				51,435			34,667
Prepaid expenses and other assets				37,789			65,551
Assets held for sale				341,338			101,827
Intangible assets, net of accumulated amortization of $64,369 and $25,749				642,467			590,341
Deferred costs, net of accumulated amortization of $13,179 and $7,637				67,388			57,623
		Total assets	$	4,623,576		$	3,951,847
Liabilities and Shareholders’ Equity:
Mortgage notes payable			$	2,467,596		$	2,008,554
Credit facilities				171,265			270,000
Convertible notes, net				446,134			445,926
Accounts payable				4,350			4,947
Accrued interest expense				19,484			24,510
Accrued expenses and other liabilities				55,938			60,098
Dividends and distributions payable				35,693			29,805
Below-market lease liabilities, net of accumulated amortization of $8,912 and $3,396				67,613			59,232
Deferred revenue				150,771			105,745
Liabilities related to assets held for sale				243,665			7,972
		Total liabilities		3,662,509			3,016,789
Minority interest				53,224			65,099
Shareholders’ equity:
	Preferred shares, 100,000,000 shares authorized at $0.001 per share, no shares issued and outstanding at December 31, 2005 and 2004, respectively			—			—
	Common shares, 500,000,000 shares authorized at $0.001 per share, 128,712,181 and 111,001,935 issued and outstanding at December 31, 2005 and 2004, respectively			129			111
	Capital contributed in excess of par			1,384,500			1,130,034
	Deferred equity compensation			(12,852	)		(16,518	)
	Accumulated deficit			(457,313	)		(229,380	)
	Accumulated other comprehensive loss			(6,621	)		(14,288	)
		Total shareholders’ equity		907,843			869,959
		Total liabilities and shareholders’ equity	$	4,623,576		$	3,951,847

See accompanying notes to consolidated financial statements.

79

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2005, 2004 and 2003

(In thousands, except per share data)

			Year Ended December 31,
			2005			2004			2003
Revenues:
	Rental income		$	329,865		$	223,160		$	85,487
	Operating expense reimbursements			185,244			93,520			29,982
	Interest and other income, net			5,240			3,195			4,321
		Total revenues		520,349			319,875			119,790
Expenses:
	Property operating			258,414			139,905			44,132
	Property writedown — hurricane			949			—			—
	Property damage recoverable — hurricane			(949	)		—			—
	Marketing, general and administrative			24,144			23,888			16,350
	Broken deal costs			1,220			227			—
	Amortization of deferred equity compensation			10,411			9,078			3,361
	Outperformance plan — cash component			—			—			2,014
	Outperformance plan — contingent restricted share component			—			(5,238	)		5,238
	Severance and related accelerated amortization of deferred compensation			4,503			1,857			—
	Interest expense on mortgages and other debt			157,608			89,417			28,164
	Depreciation and amortization			163,923			103,808			42,975
		Total expenses		620,223			362,942			142,234
Loss before net gain on sale of land and minority interest in a property, net interest income on residential mortgage-backed securities, net loss on investments, minority interest and discontinued operations				(99,874	)		(43,067	)		(22,444	)
Gain on sale of land and minority interest in a property, net				1,596			17,773			—
Interest income from residential mortgage-backed securities, net of interest expense on reverse repurchase agreements of $4,355 for the year ended December 31, 2003				—			—			4,661
Net loss on investments				(530	)		(409	)		(9,239	)
Loss from continuing operations before minority interest				(98,808	)		(25,703	)		(27,022	)
Minority interest				4,518			1,192			1,938
Loss from continuing operations				(94,290	)		(24,511	)		(25,084	)
Discontinued operations:
	Loss from operations before yield maintenance fees, net of minority interest of $528, $197 and $98 for the years ended December 31, 2005, 2004 and 2003, respectively			(18,952	)		(6,084	)		(2,145	)
	Yield maintenance fees, net of minority interest of $16 and $103 for the years ended December 31, 2005 and 2004, respectively			(567	)		(3,060	)		—
	Net gains on disposals, net of minority interest of $562, $374 and $382 for the years ended December 31, 2005, 2004 and 2003, respectively; net of income taxes			20,194			11,410			8,407
	Income from discontinued operations			675			2,266			6,262
		Net loss	$	(93,615	)	$	(22,245	)	$	(18,822	)
Basic and diluted income (loss) per share:
	From continuing operations		$	(0.79	)	$	(0.24	)	$	(0.35	)
	From discontinued operations			0.01			0.02			0.09
		Total basic and diluted loss per share	$	(0.78	)	$	(0.22	)	$	(0.26	)

See accompanying notes to consolidated financial statements.

80

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2005, 2004 and 2003

(In thousands, except share and per share data)

							Capital					Retained			Accumulated
			Shares of		Common		Contributed					Earnings			Other
			Beneficial		Shares at		in Excess of		Deferred			(Accumulated			Comprehensive
			Interest		Par		Par		Compensation			Deficit)			Income (Loss)			Total
Balance, December 31, 2002				42,498,008	$	42	$	343,389	$	(1,885	)	$	(406	)		(4,478	)	$	336,662
	Net loss			—		—		—		—			(18,822	)		—			(18,822	)
	Other comprehensive income (loss):
		Reclassification adjustment for losses reclassified into operations		—		—		—		—			—			9,497			9,497
		Unrealized loss on derivatives		—		—		—		—			—			(19,360	)		(19,360	)
		Unrealized loss on available for sale securities		—		—		—		—			—			(115	)		(115	)
		Minority interest allocation		—		—		—		—			—			236			236
	Total comprehensive loss			—		—		—		—			—			—			(28,564	)
	Issuance of common shares, net of expenses			64,143,564		64		740,832		—			—			—			740,896
	Exercised options of common shares			37,812		—		378		—			—			—			378
	Conversion of Operating Partnership units into common shares			28,333		—		196		—			—			—			196
	Dividends declared at $1.00 per share			—		—		—		—			(75,329	)		—			(75,329	)
	Issuance of restricted shares			1,388,500		2		17,766		(17,768	)		—			—			—
	Amortization of deferred equity compensation			—		—		—		3,362			—			—			3,362
Balance, December 31, 2003				108,096,217		108		1,102,561		(16,291	)		(94,557	)		(14,220	)		977,601
	Net loss			—		—		—		—			(22,245	)		—			(22,245	)
	Other comprehensive income (loss):
		Reclassification adjustment for losses reclassified into operations		—		—		—		—			—			2,034			2,034
		Unrealized loss on derivatives		—		—		—		—			—			(1,436	)		(1,436	)
		Unrealized loss on available for sale securities		—		—		—		—			—			(438	)		(438	)
		Minority interest allocation		—		—		—		—			—			(228	)		(228	)
	Total comprehensive loss			—		—		—		—			—			—			(22,313	)
	Issuance of common shares, net of expenses			16,854		—		244		—			—			—			244
	Exercised options of common shares			748,946		1		7,551		—			—			—			7,552
	Conversion of Operating Partnership units into common shares			1,520,688		2		9,178		—			—			—			9,180
	Dividends declared at $1.02 per share			—		—		—		—			(112,578	)		—			(112,578	)
	Issuance of restricted shares			619,230		—		10,500		(10,500	)		—			—			—
	Amortization of deferred equity compensation			—		—		—		10,273			—			—			10,273
Balance, December 31, 2004				111,001,935		111		1,130,034		(16,518	)		(229,380	)		(14,288	)		869,959
	Net loss			—		—		—		—			(93,615	)		—			(93,615	)
	Other comprehensive income (loss):
		Reclassification adjustment for net losses reclassified into operations		—		—		—		—			—			3,303			3,303
		Realized gain on derivatives		—		—		—		—			—			4,771			4,771
		Unrealized loss on available for sale securities		—		—		—		—			—			(126	)		(126	)
		Minority interest allocation		—		—		—		—			—			(281	)		(281	)
	Total comprehensive loss			—		—		—		—			—			—			(85,948	)
	Issuance of common shares, net of expenses			16,767,385		16		242,825		—			—			—			242,841
	Exercised options of common shares			186,524		1		1,862		—			—			—			1,863
	Conversion of Operating Partnership units into common shares			185,755		—		6		—			—			—			6
	Dividends declared at $1.08 per share			—		—		—		—			(134,318	)		—			(134,318	)
	Issuance of restricted shares			570,582		1		9,773		(9,774	)		—			—			—
	Amortization of deferred equity compensation			—		—		—		13,440			—			—			13,440
Balance, December 31, 2005				128,712,181	$	129	$	1,384,500	$	(12,852	)	$	(457,313	)	$	(6,621	)	$	907,843

See accompanying notes to consolidated financial statements.

81

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2005, 2004 and 2003

(In thousands)

				Year Ended December 31,
				2005			2004			2003
Cash flows from operating activities:
	Net loss			$	(93,615	)	$	(22,245	)	$	(18,822	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation			138,990			93,241			44,350
		Minority interest			(4,500	)		(1,118	)		(1,654	)
		Amortization of leasehold interests and intangible assets			38,887			18,145			7,844
		Amortization of above- and below-market leases			(120	)		1,539			336
		Amortization of deferred financing costs			12,656			5,006			4,474
		Amortization of deferred compensation			13,440			10,273			3,361
		Non-cash component of Outperformance Plan			—			(5,238	)		5,238
		Non-cash compensation charge			262			244			694
		Impairment charges			3,581			4,060			1,551
		Net gain on sales of properties and lease terminations			(23,006	)		(30,076	)		(11,459	)
		Net loss on sales of investments			530			409			9,239
		Premium amortization on residential mortgage-backed securities			—			—			4,464
		Leasing costs			(8,404	)		(17,349	)		—
		Payments received from tenants for lease terminations			440			2,061			—
		Decrease (increase) in operating assets:
		Tenant and other receivables, net			(19,601	)		(22,055	)		(10,620	)
		Prepaid expenses and other assets			(81	)		(16,466	)		(533	)
		Increase (decrease) in operating liabilities:
		Accounts payable			(709	)		3,138			(647	)
		Accrued expenses and other liabilities			(10,469	)		44,972			27,761
		Deferred revenue and tenant security deposits			50,002			71,325			29,232
			Net cash provided by operating activities		98,283			139,866			94,809
Cash flows from investing activities:
	Payments for acquisitions of real estate investments, net of cash acquired				(806,951	)		(2,006,703	)		(1,273,916	)
	Capital expenditures and leasehold termination costs				(41,559	)		(15,786	)		(3,072	)
	Proceeds from sales of real estate and non-real estate assets				125,583			187,016			33,980
	Proceeds from sale of minority interest in a property				—			58,974			—
	Sales of residential mortgage-backed securities				—			—			939,621
	Receipt of principal payments on residential mortgage-backed securities				—			—			172,622
	Decrease (increase) in accrued interest income				(89	)		99			7,612
	Sales of marketable investments				21,240			52,880			76,766
	Purchases of marketable investments				(570	)		(10,131	)		—
			Net cash used in investing activities		(702,346	)		(1,733,651	)		(46,387	)
Cash flows from financing activities:
	Borrowing under (repayments of) reverse repurchase agreements				—			—			(1,053,529	)
	Repayments of mortgages, bridge notes payable and credit facilities				(594,063	)		(274,398	)		(935,411	)
	Increase in restricted cash				(16,045	)		(31,707	)		(11,654	)
	Proceeds from mortgages, bridge notes payable and credit facilities				1,108,652			1,531,425			1,460,341
	Proceeds from issuance of convertible senior notes, net				—			434,030			—
	Payments for deferred financing costs, net				(838	)		(25,758	)		(36,071	)
	Proceeds from common share issuances, net				244,442			7,552			741,274
	Redemption of Operating Partnership units				(4,405	)		(31,112	)		—
	Contributions by limited partners				353			—			—
	Dividends and distributions				(134,395	)		(116,799	)		(63,056	)
			Net cash provided by financing activities		603,701			1,493,233			101,894
Increase (decrease) in cash and cash equivalents					(362	)		(100,552	)		150,316
Cash and cash equivalents, beginning of period					110,607			211,159			60,842
Cash and cash equivalents, end of period				$	110,245		$	110,607		$	211,158
Supplemental cash flow and non-cash information:
	Cash paid for interest			$	166,533		$	76,582		$	22,573
	Cash paid for income taxes			$	24		$	1,693		$	1,796
Debt assumed in real estate acquisitions				$	78,645		$	48,072		$	301,243
Operating Partnership units issued to acquire real estate				$	—		$	35,867		$	6,938
Non-cash acquisition costs				$	2,367		$	—		$	—

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2005, 2004 and 2003

(In thousands, except share, per share, buildings and square feet data)

(1) The Company

      American Financial Realty Trust (the Company) is a self-administered and self-managed real estate investment trust (REIT). The Company was formed as a Maryland REIT on May 23, 2002 to acquire and operate properties leased primarily to regulated financial institutions.

      The Company’s interest in its properties is held through its operating partnership, First States Group, L.P. (the Operating Partnership). The Company is the sole general partner of the Operating Partnership and held a 97.4% interest in the Operating Partnership as of December 31, 2005. There were 3,483,776 Operating Partnership units outstanding as of December 31, 2005.

      On September 10, 2002, AFR commenced operations upon completing a private placement of common shares of beneficial interest, and through its Operating Partnership, acquired substantially all of the assets, liabilities, and operations of American Financial Real Estate Group (AFREG or the Predecessor) in a business combination accounted for under Staff Accounting Bulletin Topic 5g with carryover basis for the portion of the net assets acquired from the majority shareholder/general partner and his affiliates and fair value for the remaining portion of the net assets acquired from all other investors (the Formation Transaction). AFREG was comprised of certain operating companies and real estate limited partnerships under the common control of Nicholas S. Schorsch, the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees, or members of his immediate family. Mr. Schorsch was the sole or majority shareholder in each of the operating companies acquired and the sole general partner in each of the real estate limited partnerships whose interests were acquired. In the case of each limited partnership, the general partner had sole discretionary authority over major decisions such as the acquisition, sale or refinancing of principal partnership assets. AFREG acquired corporate-owned real estate assets, primarily bank branches and office buildings from financial institutions, and owned and managed such assets principally under long-term, triple net leases.

      The Company operates in one segment, and focuses on acquiring, operating and leasing properties to regulated financial institutions. Rental income from Bank of America, N.A., State Street Corporation and Wachovia Bank, N.A., or their respective affiliates, represented the following percentages of total rental income for the respective periods:

	Year Ended
	December 31,
	2005		2004		2003
Bank of America, N.A.		32%		37%		49	%
State Street Corporation		19%		24%		—
Wachovia Bank, N.A.		15%		14%		22	%

      No other tenant represented more than 10% of rental income for the periods presented.

(2) Summary of Significant Accounting Policies

     (a) Basis of Accounting

      The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

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     (b) Principles of Consolidation

      The Company consolidates its accounts and the accounts of the majority-owned and controlled Operating Partnership and reflects the remaining interest in the Operating Partnership as minority interest. The Operating Partnership holds and consolidates its majority or controlling interests in the other partnerships and reflects the remaining ownership interests within minority interest.

      All significant intercompany accounts and transactions have been eliminated in the accompanying consolidated financial statements.

      In December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation (FIN) No. 46R (FIN 46R), “Consolidation of Variable Interest Entities,” to replace Interpretation No. 46 (FIN 46) which was issued in January 2003. FIN 46R addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and whether it should consolidate the entity. FIN 46R was applicable immediately to variable interest entities created after January 31, 2003 and as of the first interim period ending after March 15, 2004 to those created before February 1, 2003 and not already consolidated under FIN 46 in previously issued financial statements. The Company has adopted FIN 46R and analyzed the applicability of this interpretation to its structures. The Company acquired an interest in one variable interest entity during the year ended December 31, 2005 and includes the accounts of this entity in the consolidated financial statements as the Company is the primary beneficiary of this entity.

     (c) Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, investments in real estate, purchase price allocations and derivative financial instruments and hedging activities.

     (d) Reclassifications

      Certain amounts have been reclassified in the prior periods to conform to the current period presentation.

     (e) Real Estate Investments

      The Company records acquired real estate at cost. Depreciation is computed using the straightline method over the estimated useful life of 40 years for buildings, 5 to ten years for building equipment and fixtures, and the lesser of the useful life or the remaining lease term for tenant improvements and leasehold interests. Maintenance and repairs expenditures are charged to expense as incurred.

     (f) Impairment of Long Lived Assets

      The Company follows Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which establishes a single accounting model for the impairment or disposal of long-lived assets. SFAS No. 144 requires that the operations related to properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statement of operations for all periods presented, and properties intended to be sold to be designated as “held for sale” on the balance sheet.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company reviews the recoverability of the property’s carrying value, when circumstances indicate a possible impairment of the value of a property. The review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used and fair value less estimated cost to dispose for assets held for sale. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.

     (g) Cash and Cash Equivalents

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

     (h) Restricted Cash

      Restricted cash includes amounts escrowed pursuant to mortgage agreements for insurance, taxes, repairs and maintenance, tenant improvements, interest, and debt service and amounts held as collateral under security and pledge agreements relating to leasehold interests.

     (i) Marketable Investments and Accrued Interest

      Marketable investments consist of shares in an institutional mutual fund that invests primarily in mortgage-backed securities. The Company has classified these investments as available-for-sale and recorded them at fair value. These short-term investments had a cost basis of $3,125 and $24,536 as of December 31, 2005 and 2004, respectively. The unrealized loss of $404 at December 31, 2004 is excluded from earnings and reported as a component of other comprehensive income (loss). These investments were sold during the year ended December 31, 2005. As of December 31, 2005 and 2004, $3,121 and $4,455 of these investments were pledged as collateral for obligations related to leasehold interest liabilities, respectively. Additionally, the Company has accrued interest income of $228 and $140 as of December 31, 2005 and 2004, respectively.

      The following table provides information regarding the sale of marketable investments:

	Year Ended December 31,
	2005		2004		2003
Gross proceeds from sales	$	21,240	$	52,880	$	154,687
Gross realized gains		—		4		5	(1)
Gross realized losses		530		413		393	(1)

(1)  Excludes gross realized gains and losses related to residential mortgage-backed securities of $1,893 and $10,744, respectively, for the year ended December 31, 2003.

     (j) Residential Mortgage-Backed Securities

      The Company accounted for its residential mortgage-backed securities portfolio in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Residential mortgage-backed security transactions are recorded on the date the securities are purchased or sold. Residential mortgage-backed securities classified as available-for-sale are reported at fair value, with unrealized gains and temporary unrealized losses excluded from earnings and reported as accumulated

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other comprehensive income (loss). Amortization of any premium or discount related to the purchase of securities is included as a component of interest income. Realized gains or losses on the sale of residential mortgage-backed securities are determined on the specific identification method and are included in net income as net gains or losses on sales of securities. Unrealized losses on residential mortgage-backed securities that are determined to be other than temporary are recognized in income.

      The Company invested in residential mortgage-backed securities during the year ended December 31, 2003. The Company’s investments were financed by entering into reverse repurchase agreements to leverage the overall return on capital invested in the portfolio. During the year ended December 31, 2003, the Company had interest income on residential mortgage-backed securities, net of expenses of $9,016 and interest expense on reverse repurchase agreements of $4,355. On May 21, 2003, the Company’s board of trustees approved the sale of these securities, the repayment of all borrowings under reverse repurchase agreements, and the termination of a related hedging arrangement. At December 31, 2005 and 2004, the Company held no residential mortgage-backed securities in a leveraged portfolio.

     (k) Tenant and Other Receivables

      Tenant and other receivables are primarily derived from the rental income that each tenant pays in accordance with the terms of its lease, which is recorded on a straightline basis over the initial term of the lease. Since many leases provide for rental increases at specified intervals, straightline basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that will only be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Tenant and other receivables also includes receivables related to tenant reimbursements for common area maintenance expenses and certain other recoverable expenses that are recognized as revenue in the period in which the related expenses are incurred.

      Tenant and other receivables are recorded net of the allowances for doubtful accounts. The Company continually reviews receivables related to rent, tenant reimbursements and unbilled rent receivables and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company increases the allowance for uncollectible accounts or records a direct write-off of the receivable in the consolidated statements of operations.

      During the fourth quarter of 2005, the Company discovered that rental income related to one master lease agreement was being straightlined for a period six months longer than the actual expiration. Had the Company recorded straightline rental income over the proper period, net loss would have been decreased by $467 and $455 for the years ended December 31, 2004 and 2003, respectively. The adjustments represent 2.1% and 2.4% of net loss and $0.00 and $0.01 of net loss per share for the years ended December 31, 2004 and 2003, respectively. The Company has evaluated, on both the qualitative and quantitative basis, the impact of this adjustment and concluded that it is not significant to the financial statements for the interim periods during and for the years ended December 31, 2005, 2004 and 2003. During the year ended December 31, 2005, the Company recorded $922 of additional rental income to adjust deferred straightline rent to the proper balance.

     (l) Prepaid Expenses and Other Assets

      The Company makes payments for certain expenses such as insurance and property taxes in advance of the period in which it receives the benefit. These payments are classified as prepaid expenses and amortized over the respective period of benefit relating to the contractual arrangement. The Company also escrows deposits related to pending acquisitions and financing arrangements, as required by a seller or lender, respectively. Prepaid acquisition costs represent a portion of the total purchase price of a property

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and are reclassified into real estate investments and related intangible assets, as appropriate, at the time the acquisition is completed. If such costs are related to an acquisition that will not be consummated and the deposit is not recoverable, the respective amounts are recorded as broken deal costs in the accompanying consolidated statements of operations. Costs prepaid in connection with securing financing for a property are reclassified into deferred costs at the time the transaction is completed.

     (m) Intangible Assets

      Pursuant to SFAS No. 141, “Business Combinations,” the Company follows the purchase method of accounting for all business combinations. To ensure that intangible assets acquired and liabilities assumed in a purchase method business combination should be recognized and reported apart from goodwill, the Company ensures that the applicable criteria specified in SFAS No. 141 are met.

      The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, buildings on an as-if vacant basis, equipment and tenant improvements. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships.

      Above-market and below-market in-place lease values for properties acquired are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to each in-place lease and management’s estimate of the fair market lease rate for each such in-place lease, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the initial term and any fixed-rate renewal periods in the respective leases.

      The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as-if vacant. Factors considered by management in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period, which primarily ranges from six to 18 months. Management also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.

      The aggregate value of intangibles related to customer relationships is measured based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the tenant. Characteristics considered by management in determining these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors.

      The value of in-place leases is amortized to expense over the initial term of the respective leases, which range primarily from two to 20 years. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

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      In making estimates of fair values for purposes of allocating purchase price, management utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. Management also considers information obtained about each property as a result of its pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

      Intangible assets and acquired lease obligations consist of the following:

	December 31,
	2005			2004
Intangible assets:
In-place leases, net of accumulated amortization of $38,037 and $12,295	$	315,685		$	254,771
Customer relationships, net of accumulated amortization of $20,647 and $9,494		342,656			318,244
Above-market leases, net of accumulated amortization of $8,868 and $4,113		19,355			21,553
Goodwill		700			700
Amounts related to assets held for sale, net of accumulated amortization of $3,183 and $153		(35,929	)		(4,927	)
Total intangible assets	$	642,467		$	590,341
Intangible liabilities:
Below-market leases, net of accumulated amortization of $8,969 and $3,502	$	67,790		$	60,812
Amounts related to liabilities held for sale, net of accumulated amortization of $57 and $106		(177	)		(1,580	)
Total intangible liabilities	$	67,613		$	59,232

      The following table provides the weighted average amortization period as of December 31, 2005 for intangible assets and liabilities and the projected amortization expense for the next five years:

	Weighted
	Average
	Amortization
	Period		2006			2007			2008			2009			2010
In-place leases		15.2	$	26,082		$	25,121		$	24,427		$	23,578		$	21,944
Customer relationships		36.7		10,871			10,871			10,827			10,784			10,750
Total to be included in depreciation and amortization expense			$	36,953		$	35,992		$	35,254		$	34,362		$	32,694
Above-market lease assets		7.1	$	(4,329	)	$	(4,275	)	$	(3,716	)	$	(2,856	)	$	(2,240	)
Below-market lease liabilities		28.1		3,819			3,519			3,204			2,951			2,579
Total to be included in (deducted from) rental revenue			$	(510	)	$	(756	)	$	(512	)	$	95		$	339

      During the year ended December 31, 2005, the Company discovered that certain depreciable assets, primarily intangible assets, were being amortized over the improper useful lives within two real estate portfolios. Had the Company recorded amortization expense utilizing the proper useful lives, net loss would have been increased by $385 and $480 for the years ended December 31, 2004 and 2003, respectively. The adjustments represent 1.7% and 2.5% of net loss and $0.00 and $0.01 of net loss per share for the years ended December 31, 2004 and 2003, respectively. The Company has evaluated, on both the qualitative and quantitative basis, the impact of this adjustment and concluded that it is not significant to the financial statements for the interim periods during and for the years ended December 31, 2005, 2004 and 2003, respectively. During the year ended December 31, 2005, the Company recorded $865 of additional amortization expense to adjust accumulated amortization to the proper balances.

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     (n) Deferred Costs

      The Company has deferred certain expenditures related to the leasing and financing of certain properties. Direct costs of leasing, including internally capitalized payroll costs associated with leasing activities, are deferred and amortized over the terms of the underlying leases. Direct costs of financings are deferred and amortized over the terms of the underlying financing agreements.

      Prior to 2005, the Company amortized deferred financing costs to interest expense on a straightline basis. During the year ended December 31, 2005, the Company changed its amortization methodology to an effective interest rate basis. Had the Company recorded amortization expense on an effective interest rate basis in prior years, net loss would have been increased by $467 and $41 for the years ended December 31, 2004 and 2003, respectively. The adjustments represent 2.1% and 0.2% of net loss and $0.00 and $0.00 of net loss per share for the years ended December 31, 2004 and 2003, respectively. The Company has evaluated, on both the qualitative and quantitative basis, the impact of this adjustment and concluded that it is not significant to the financial statements for the interim periods during and for the years ended December 31, 2005, 2004 and 2003, respectively. During the year ended December 31, 2005, the Company recorded $508 of additional interest expense to adjust net deferred costs to the proper balances.

     (o) Leasehold Interests

      Leasehold interest assets and liabilities are recorded based on the difference between the fair value of management’s estimate of the net present value of cash flows expected to be paid and earned from the subleases over the non-cancelable lease terms and any payments received in consideration for assuming the leasehold interests. Factors used in determining the net present value of cash flows include contractual rental amounts, costs of tenant improvements, costs of capital expenditures and contractual amounts due under the corresponding operating lease assumed. Amounts allocated to leasehold interests, based on their respective fair values, are amortized on a straightline basis over the remaining lease term.

     (p) Accounting for Derivative Financial Investments and Hedging Activities

      The Company uses derivatives to hedge, fix and cap interest rate risk and accounts for its derivative and hedging activities using SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, which requires all derivative instruments to be carried at fair value on the balance sheet.

      Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company only engages in cash flow hedges.

      Under cash flow hedges, derivative gains and losses not considered highly effective in hedging the change in expected cash flows of the hedged item are recognized immediately in the consolidated statements of operations. For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction. Cash flow hedges that are considered highly effective are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount

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recorded in other comprehensive income within shareholders’ equity. Amounts are reclassified from other comprehensive income to the statements of operations in the period or periods the hedged forecasted transaction affects earnings.

     (q) Comprehensive Income (Loss)

      Comprehensive income (loss) is recorded in accordance with the provisions of SFAS No. 130, “Reporting Comprehensive Income.” SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income (loss) is comprised of net income, changes in unrealized gains or losses on derivative financial instruments and unrealized gains or losses on available-for-sale securities. Since February 2003, the Company has been entering into derivative agreements to hedge the variability of cash flows related to forecasted interest payments associated with obtaining certain financings in order to fix interest rates and maintain expected returns. The Company incurs a loss on derivative agreements, if interest rates decline, or a gain if interest rates rise, during the period between the derivative inception date and derivative settlement date. Unrealized gains and losses on derivatives are amortized into interest expense in the consolidated statements of operations over the life of the underlying debt.

     (r) Revenue Recognition

      Rental income from leases is recognized on a straightline basis regardless of when payments are due. Certain lease agreements also contain provisions that require tenants to reimburse the Company for real estate taxes, common area maintenance costs and the amortized cost of capital expenditures with interest. Such amounts are included in both revenues and operating expenses when the Company is the primary obligor for these expenses and assumes the risks and rewards of a principal under these arrangements. Under leases where the tenant pays these expenses directly, such amounts are not included in revenues or expenses.

      Deferred revenue represents rental revenue and management fees received prior to the date earned. Deferred revenue also includes rental payments received in excess of rental revenues recognized as a result of straightline basis accounting.

     (s) Sales of Real Estate Properties

      The Company recognizes sales of real estate properties only upon closing, in accordance with SFAS No. 66, “Accounting for Sales of Real Estate” (SFAS No. 66). Payments received from purchasers prior to closing are recorded as deposits. Profit on real estate sold is recognized using the full accrual method upon closing when the collectibility of the sales price is reasonably assured and the Company is not obligated to perform significant activities after the sale. Profit may be deferred in whole or part until the sale meets the requirements of profit recognition on sales of real estate under SFAS No. 66.

     (t) Rent Expense

      Rent expense is recognized on a straightline basis regardless of when payments are due. Accrued expenses and other liabilities in the accompanying consolidated balance sheets include an accrual for rental expense recognized in excess of amounts currently due. For the years ended December 31, 2005, 2004 and 2003 rent expense related to leasehold interests, which is included in property operating expenses and corporate office space, which is included in marketing, general and administrative expense was $14,947, $9,338 and $3,336, respectively.

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     (u) Income Taxes

      The Company has elected to qualify as a REIT under Sections 856-860 of the Internal Revenue Code and intends to remain so qualified. Earnings and profits, which determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes due to differences in cost basis, differences in the estimated useful lives used to compute depreciation, and differences between the allocation of the Company’s net income and loss for financial reporting purposes and for tax reporting purposes.

      The Company has a wholly-owned taxable REIT subsidiary as defined under the Internal Revenue Code. The asset and liability approach is used by the taxable REIT subsidiary to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Valuation allowances are established to reduce net deferred tax assets to the amount for which recovery is more likely than not. During the year ended December 31, 2005, the Company recorded a current and deferred income tax benefit of $505 and $622, respectively. No such benefit or provision was recorded during the year ended December 31, 2004. During the year ended December 31, 2003, the Company had a current and deferred income tax expense of $2,670 and $0, respectively.

      As of December 31, 2005, the taxable REIT subsidiary recorded a deferred tax asset of $622 related to expenses, which are deductible tax purposes in future periods. No valuation allowance was recorded as the Company believes it is more likely than not that the future benefit associated with this deferred tax asset will be realized. The Company also recorded a current tax receivable of $505 related to a refund of taxes paid in prior years. There were no deferred tax assets or liabilities as of December 31, 2004.

      The net book basis of real estate assets exceeds the tax basis by approximately $12,747 and $21,070 at December 31, 2005 and 2004, respectively, primarily due to the difference between the cost basis of the assets acquired and their carryover basis recorded for tax purposes.

      For the year ended December 31, 2005, 92% of the Company’s dividends were characterized as a return of capital. For the year ended December 31, 2004, 33% of the Company’s dividends were characterized as ordinary income and 67% were characterized as a return of capital for federal income tax purposes. For the year ended December 31, 2003, 50% of the Company’s dividends were characterized as ordinary income and 50% were characterized as a return of capital for federal income tax purposes.

     (v) Stock Based Compensation

      SFAS No. 123, “Accounting for Stock-Based Compensation,” permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value based method defined in SFAS No. 123 has been applied. Under APB Opinion No. 25, compensation expense would be recorded on the date of option grant, if the current market price of the underlying stock exceeded the exercise price.

      SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” requires disclosure in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As permitted under SFAS No. 148 and SFAS No. 123, the Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure in accordance with the provisions of SFAS No. 148 and SFAS No. 123. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements, as all options granted under the plan had an exercise price equal to the market value of the underlying common shares on the date of grant.

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      The Company recognizes compensation cost related to restricted share awards on a straightline basis over the respective vesting periods. The following table illustrates the effect on net loss and basic and diluted loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to share-based employee compensation:

	Year Ended December 31,
	2005			2004			2003
Net loss	$	(93,615	)	$	(22,245	)	$	(18,822	)
Add: Total share-based employee compensation expense included in net loss		13,440			5,035			9,318
Deduct: Total share-based employee compensation expense determined under fair value based methods for all awards		(14,966	)		(6,987	)		(10,408	)
Pro forma net loss	$	(95,141	)	$	(24,197	)	$	(19,912	)
Basic and diluted loss per share — as reported	$	(0.78	)	$	(0.22	)	$	(0.26	)
Basic and diluted loss per share — pro forma	$	(0.79	)	$	(0.22	)	$	(0.27	)

      The Securities and Exchange Commission’s (SEC) Office of the Chief Accountant and its Division of Corporation Finance announced the release of Staff Accounting Bulleting No. 107, “Share-Based Payment” (SAB No. 107) in response to frequently asked questions and to provide the SEC staff’s views regarding the application of SFAS No. 123 (revised 2004), “Share-Based Payments” (SFAS No. 123(R)), issued in December 2004. SAB No. 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations; addresses the staff’s views on the subject of valuation of share-based payment transactions for public companies; and reiterates the importance of disclosures related to share-based payment transactions in the financial statements filed with the SEC.

      SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed by SFAS No. 123 to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required by SFAS No. 123 and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award.

      The effective date for SFAS No. 123(R) was deferred for public companies to the first annual period beginning after June 15, 2005. Accordingly, the Company will adopt SFAS No. 123(R) as of January 1, 2006. As a result of adopting SFAS No. 123(R), the Company will recognize as compensation cost in its financial statements the unvested portion of existing options granted prior to the effective date and the cost of stock options granted to employees after the effective date based on the fair value of the stock options at grant date. Based on stock options outstanding at December 31, 2005, compensation expense related to stock option awards will be approximately $82 and $6 for the years ending December 31, 2006 and 2007, respectively.

     (w) Conditional Asset Retirement Obligations

      In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations,” (FIN 47). FIN 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement

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obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation is recognized when incurred — generally upon acquisition, construction, or development and (or) through the normal operation of the asset.

      Pursuant to FIN 47, the Company assessed the cost associated with its legal obligation to remediate asbestos in its properties and recognized the effect of applying FIN 47 as a change in accounting principle by recording the following in connection with the remediation of asbestos: i) a liability for the existing asset retirement obligation of $2,565, adjusted for accretion; ii) an asset retirement cost capitalized as an increase to building of $2,210; and iii) accumulated depreciation on the capitalized cost of $109. The associated accretion expense related to the asset retirement obligation of $355 and the associated depreciation expense related to the adjustment to building of $109 was recorded in the consolidation statement of operations. The accretion and depreciation expense was measured for the time period from the date the liability would have been recognized had the provisions of FIN 47 been in effect when the liability was incurred through December 31, 2005.

     (x) Hurricane Damage

      The Company follows FIN No. 30 “Accounting for Involuntary Conversions of Nonmonetary Assets to Monetary Assets, an interpretation of APB Opinion No. 29” (FIN 30), which clarifies the accounting for involuntary conversions of nonmonetary assets (such as property or equipment) to monetary assets (such as insurance proceeds). FIN 30 states that involuntary conversions of nonmonetary assets to monetary assets are monetary transactions for which gain or loss shall be recognized even though the Company reinvests or is obligated to reinvest the monetary assets in replacement nonmonetary assets.

      When one of the Company’s fully-insured properties located in Chalmette, Louisiana suffered substantial damage from Hurricane Katrina, an involuntary conversion of this nonmonetary asset (property) to a monetary asset (insurance proceeds) occurred. Based on estimates of the damage, the Company recorded a property write-down of $949 during the year ended December 31, 2005. Since the property is fully-insured, the Company recorded the recovery to be received from insurance proceeds of $949 to fully offset the property write-down. The total amount of insurance proceeds to be received less the applicable deductible of approximately $100 is expected to be determined and recorded as a gain in the consolidated statement of operations during the year ending December 31, 2006.

      Other properties in the Company’s portfolio sustained damage from hurricanes in 2005. However, the damage was below the insurance deductibles assigned to each respective property. The aggregate damage sustained on these properties of $1,687 during the year ended December 31, 2005 is included in property operating expenses on the consolidated statements of operations.

     (y) Recent Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” (SFAS No. 154), which replaces APB Opinion No. 20, “Accounting Changes” (APB Opinion No. 20), and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for accounting for and reporting of a change in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, rather than the previous requirement under APB Opinion No. 20 that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 will not have a material effect on the Company’s financial position or results of operations.

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(3) Acquisitions and Dispositions

      During the year ended December 31, 2005 and 2004, the Company acquired 286 and 436 properties and leasehold interests, respectively. In addition, the Company purchased 33 parcels of land designated as land held for development during the year ended December 31, 2005. The following table presents the allocation of the net assets acquired and liabilities assumed during the year ended December 31, 2005 and 2004:

	Year Ended December 31,
	2005			2004
Real estate investments, at cost:
Land	$	110,175		$	221,173
Land held for development		27,504			—
Buildings		531,512			1,005,600
Equipment and fixtures		87,372			180,834
Initial tenant improvements		46,799			167,961
Leasehold interests, net		(3,492	)		(1,600	)
		799,870			1,573,968
Intangibles and other assets:
In-place leases		93,940			232,650
Customer relationships		36,400			263,714
Above-market lease assets		3,043			7,339
Below-market lease liabilities		(15,310	)		(13,509	)
Other assets		1,850			—
		119,923			490,194
Total assets		919,793			2,064,162
Mortgage notes assumed, at fair value		(78,645	)		(48,072	)
Other liabilities assumed		(492	)		(5,098	)
Minority interest		(2,367	)		—
Operating Partnership units issued		—			(35,866	)
Cash paid	$	838,289		$	1,975,126

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      The following table presents information regarding property and leasehold interests acquired during the years ended December 31, 2005 and 2004:

			Number of
Property/Seller	Date		Buildings(1)		Purchase Price(2)
Koll Development Company, LLC		Jan. 2005		3	$	89,224
National City Bank Building		Jan. 2005		1		9,506
Bank of America — West		March 2005		1		24,033
One Montgomery Street		April 2005		1		37,346
801 Market Street		April 2005		1		68,078
Bank of Oklahoma		May 2005		1		20,328
First Charter Bank		May 2005		1		558
Regions Bank		June 2005		111		111,645
Charter One Bank		Various		35		40,714
Household		July 2005		1		24,660
Fireman’s Fund Insurance Company		Aug. 2005		1		283,653
One Citizens Plaza		Oct. 2005		1		60,082
One Colonial Plaza		Nov. 2005		1		25,267
Bank of America Formulated Price Contracts		Various		26		16,047
Wachovia Bank Formulated Price Contracts		Various		101		108,172	(3)
Land		Various		—		480
Total 2005				286	$	919,793
State Street Financial Center		Feb. 2004		1	$	706,898
Potomac Realty — Bank of America		Feb. 2004		5		9,557
215 Fremont Street and Harborside		June 2004		2		135,806
101 Independence Center		July 2004		1		106,196
Wachovia Bank, N.A.		Sept. 2004		140		510,409
Bank of America, N.A.		Oct. 2004		250		575,776
Bank of America Formulated Price Contracts		Various 2004		12		2,184
Wachovia Formulated Price Contracts		Various 2004		18		11,120
Other		Various 2004		7		6,216
Total 2004				436	$	2,064,162

(1)	Includes the assumption of leasehold interests and parking facilities.
(2)	Includes all acquisition costs and the value of acquired intangible assets and assumed liabilities. Excludes non-real estate assets acquired.
(3)	Includes the cash paid for land parcels.

      Pro forma information relating to the acquisition of operating properties is presented below as if these transactions had been consummated on January 1, 2004. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisitions had been completed on January 1, 2004, nor does the pro forma financial information purport to represent the results of operations for future periods.

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      The following table presents the pro forma information as if the acquisitions during the years ended December 31, 2005 and 2004 had been consummated on January 1, 2004:

	Year Ended December 31,
	2005			2004
Pro forma revenues	$	567,364		$	570,955
Pro forma loss from continuing operations	$	(98,518	)	$	(54,390	)
Basic and diluted pro forma loss per share from continuing operations	$	(0.82	)	$	(0.52	)

      On December 22, 2004, the Company sold a 30% minority ownership interest in State Street Financial Center, resulting in proceeds of $58,974 and a gain of $17,693, net of related transaction costs.

      The following table presents information regarding other property dispositions including land parcels and leasehold interests, completed during the years ended December 31, 2005, 2004 and 2003:

	Number of		Sale
	Buildings and		Proceeds,
	Land Parcels(1)		Net		Gain(2)
Total 2005		143	$	124,643	$	21,790
Total 2004		57		185,898		11,488
Total 2003		45		33,980		8,407

(1)	Includes the sale of five parcels of land and eight leasehold interest terminations during the year ended December 31, 2005, the sale of two parcels of land and seven leasehold terminations during the year ended December 31, 2004 and seven leasehold terminations during the year end December 31, 2003.
(2)	Net of provision for income taxes and allocation of minority ownership interest.

(4) Indebtedness

      The Company had four types of financings in place as of December 31, 2005 and 2004, which include mortgage notes payable, a secured credit facility, convertible senior notes, and an unsecured credit facility. The weighted average effective interest rate on these borrowings was 5.8%, 5.0% and 5.7% for the years ended December 31, 2005, 2004 and 2003, respectively. The fair value of these borrowings, calculated by comparing the outstanding debt to debt with similar terms at current interest rates, was $3,289,984 and $2,710,911 as of December 31, 2005 and 2004, respectively.

      The Company’s secured financing agreements contain various financial and non-financial covenants customarily found in these types of agreements, as well as a requirement that certain individual properties or property portfolios maintain a minimum debt service coverage ratio, as defined, typically of 1.1 to 1.0, calculated at the end of each quarter using a trailing 12-month period. The lender related to the secured credit facility has the right to reassess the ratio from time to time and may require the Company to pledge additional collateral or repay a portion of the principal outstanding under this facility.

      The unsecured credit facility also contains customary financial covenants. The original terms included a minimum debt service coverage ratio for the Company of 1.2 to 1.0 through June 30, 2005, increasing to 1.3 to 1.0, thereafter. In June 2005, the terms of the unsecured credit facility were amended to maintain this ratio at 1.2 to 1.0. This facility also includes maximum levels of i) indebtedness as a percentage of the Company’s total assets of 70%, ii) secured recourse debt as a percentage of the Company’s total assets of 5%, iii) investment in any non-wholly owned entity as a percentage of the Company’s total assets of 20% and iv) investment in any mortgages, notes, accounts receivable, or notes receivable as a percentage of the Company’s total assets of 15%. In June 2005, the Company’s covenant obligations under the unsecured facility were modified to maintain the existing covenants through the term of the agreement.

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      As of December 31, 2005 and 2004, the Company was in compliance with all such covenants.

     (a) Mortgage Notes Payable

      The following is a summary of mortgage notes payable as of December 31, 2005 and 2004:

	Encumbered
	Properties		Balance			Interest Rates		Maturity Dates
Fixed-rate mortgages		699	$	2,553,118			4.1% to 8.8%		May 2006 to June 2024
Variable-rate mortgages		11		145,087			5.7% to 6.3%		June 2006 to Nov. 2023
Total mortgage notes payable		710		2,698,205
Unamortized debt premiums and discounts				3,080
Mortgage notes payable related to assets held for sale		5		(233,689	)
Balance, December 31, 2005			$	2,467,596
Fixed-rate mortgages		356	$	1,582,185			4.0% to 8.8%		May 2006 to Dec. 2023
Variable-rate mortgages		144		425,041			3.6% to 4.7%		Oct. 2011 to June 2024
Total mortgage notes payable		500		2,007,226
Unamortized debt premiums and discounts				3,208
Mortgage notes payable related to assets held for sale		3		(1,880	)
Balance, December 31, 2004			$	2,008,554

      Principal payments due on the mortgage notes payable as of December 31, 2005 are as follows:

2006	$	161,276
2007		111,641
2008		61,413
2009		117,588
2010		134,131
2011 and thereafter		2,112,156
Total	$	2,698,205

     (b) Secured Credit Facility

      The Company entered into a $300,000 secured credit facility in July 2003. During the year ended December 31, 2004, the Company negotiated a temporary increase in the maximum amount available under this facility from $300,000 to $400,000, which expired in March 31, 2005, to accommodate the acquisition of the Bank of America, N.A. portfolio purchased in October 2004. In September 2005, the Company executed a renewal of this credit facility, expanding the maximum available under the facility to $400,000, extending the term to October 2008 and paid a related financing fee of $3,740.

      Advances under this facility must be repaid within 18 months of the date of the borrowing. Advances are made in the aggregate principal amount of up to 80% of the lesser of either (i) the maximum amount of subsequent debt financing that can be secured by the properties that the Company acquires with borrowings under this facility or (ii) the acquisition cost of such properties. This facility bears interest at a rate of LIBOR plus either (i) with respect to conduit properties, 1.75%, or (ii) with respect to credit tenant lease properties, an amount, ranging from 1.25% to 2.50%, based on the credit rating of the tenant(s) in the property being financed by the proceeds of the specific advance. From February 1, 2005 to March 3, 2005, the interest rate on this facility was temporarily reduced to LIBOR in anticipation of

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the repayment of the then outstanding advances with the proceeds of a long-term financing secured by properties in the portfolio purchased from Bank of America, N.A. in October 2004.

      As of December 31, 2005, the Company had $171,265 of advances outstanding under this facility, secured by 184 properties, with an interest rate of LIBOR plus 1.75% (6.11% at December 31, 2005). As of December 31, 2004, the Company had $270,000 of advances outstanding under this facility, secured by 236 properties in the portfolio acquired from Bank of America, N.A. in October 2004, with an interest rate of LIBOR plus 1.50% (3.89% at December 31, 2004).

     (c) Convertible Senior Notes

      During the year ended December 31, 2004, the Company completed, through a private offering, the issuance of $450,000 of convertible senior notes and received proceeds of $434,030, net of discount and financing costs. The convertible senior notes are senior unsecured obligations, mature on July 9, 2024 and bear interest at a rate of 4.375%.

      The Company cannot redeem the convertible notes before July 20, 2009. All or a portion of the notes can be redeemed by the Company at any time after July 20, 2009 at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest through the date of redemption. The note holders may require the Company to repurchase all or a portion of their respective notes on July 15, 2009, 2014 and 2019 for a repurchase price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, payable in cash. The note holders are entitled to convert the notes into common shares prior to their maturity date if, among other circumstances, the closing sale price of the Company’s common shares for at least 20 trading days in a period of 30 consecutive trading days (ending on the last day of the fiscal quarter preceding the quarter in which the conversion occurs) is more than 120% of the applicable conversion price on the 30th trading day. As of the initial closing of the offering of the notes on July 9, 2004, the initial conversion price per share was $17.84, which is subject to adjustment upon certain events, including, but not limited to, the issuance to all holders of common shares of (i) additional common shares as a dividend, (ii) certain rights, warrants or options entitling them to subscribe for, or purchase common shares, or (iii) cash dividends or cash distributions exceeding $0.25 per quarter. As a result of the Company declaring dividends exceeding $0.25, the conversion price per share was adjusted immediately after each record date. As of December 31, 2005 and 2004, the conversion price per share was $17.74 and $17.82, respectively. On December 16, 2005, the Company declared a dividend of $0.27, which resulted in an adjustment to the conversion price per share to $17.71 on January 1, 2006.

      In October 2004, the Emerging Issues Task Force of the FASB ratified Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effects on Diluted Earnings per Share” (EITF Issue No. 04-8). EITF Issue No. 04-8 requires the inclusion of convertible shares for contingently convertible debt in the calculation of diluted earnings per share using the if-converted method, regardless of whether the contingency has been met. In response to EITF Issue No. 04-8, the Company entered into a Second Supplemental Indenture to the Indenture for the convertible senior notes pursuant to which it irrevocably elected to satisfy the conversion obligation with respect to the principal amount of any notes surrendered for conversion with cash. As a result of this election, EITF Issue No. 04-8 requires the Company to include in its calculation of fully diluted earnings per share only those common shares issuable in satisfaction of the aggregate conversion obligation in excess of the aggregate principal amount of notes outstanding. The inclusion of any such shares would cause a reduction in the Company’s fully diluted earnings per share for any periods in which such shares are included. Volatility in the Company’s share price could cause such common shares to be included in the Company’s fully diluted earnings per share calculation in one quarter and not in a subsequent quarter, thereby increasing the volatility of the Company’s fully diluted earnings per share. As a result of applying EITF Issue No. 04-8, no shares have been included in the calculation of earnings per share.

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     (d) Unsecured Credit Facility

      The Company maintains a $60,000 unsecured credit facility for general corporate purposes, established in September 2004. This facility has an initial term of two years, expiring in September 2006, and bears interest at different rates depending upon the Company’s designation at the time of borrowing of the advance as a Eurodollar Rate Loan or a Base Rate Loan. If the Company designates the advance as a Eurodollar Rate Loan then the advance bears interest at LIBOR plus 2.00%. If the Company designates the advance as a Basic Rate Loan then the advance bears interest at the greater of (i) the Prime Rate plus 1%, or (ii) the Federal Funds Rate plus 1.50%.

      The unsecured credit facility maintains a $60,000 sub-limit for letters of credit, increased from $50,000 in June 2005. As of December 31, 2005, the Company had $56,353 of letters of credit outstanding and no advances under this facility. As of December 31, 2004, the Company had $21,862 of letters of credit outstanding and no advances under this facility. These letters of credit are primarily used to secure payments under leasehold interests and are issued to utility companies in lieu of a cash security deposits to establish service.

(5) Derivative Instruments and Other Financing Arrangements

      Since February 2003, the Company has been entering into derivative agreements to hedge the variability of cash flows related to forecasted interest payments associated with obtaining certain financings in order to fix interest rates and maintain expected returns. The Company incurs a loss on derivative agreements, if interest rates decline, or a gain if interest rates rise, during the period between the derivative inception date and derivative settlement date. These gains and losses have been recorded in other comprehensive income, as these derivatives were highly effective. Since February 2003, the Company has incurred a net loss aggregating $11,464 relating to terminating these agreements in connection with the closing of the respective financings. The gains and losses incurred during the years ended December 31, 2005 and 2004 are summarized below:

      In March 2004, the Company entered into an agreement designed to straightline the variability of cash payments relating to the rents received under certain leases in the Pitney Bowes-Wachovia portfolio. This agreement ends in August 2010, coterminous with the end of the leases. The monies received and paid related to this agreement are recorded in deferred revenue on the consolidated balance sheet. As of December 31, 2005 and 2004, the Company had a liability of $3,569 and $1,253, respectively related to this agreement.

      In July 2004, the Company entered into a forward treasury lock agreement with an aggregate notional amount of $131,000. These derivatives were designated as a hedge of the variability of cash flows related to forecasted interest payments associated with the financing of a $133,900 mortgage note payable secured by 215 Fremont Street. In July 2004, the Company incurred a loss of approximately $1,436 when the treasury lock agreement was terminated in connection with the closing of the related mortgage note payable. This loss is recorded in accumulated other comprehensive income (loss) and is being reclassified to earnings over the term of the new debt instrument.

      In connection with the sale of a 30% minority interest in State Street Financial Center in December 2004, the Company agreed to cap the minority interest purchaser’s maximum interest rate at 4.28% as it relates to the portion of the $50,000 of mezzanine debt assumed by the minority interest purchaser for a five-year period. Therefore, all interest expense over 4.28% is the Company’s responsibility. The mezzanine debt bears interest at a rate of LIBOR plus 1.83% (6.19% at December 31, 2005). The Company determined the initial fair value of this interest rate cap liability to be $1,150 and recorded it as a reduction of the gain recognized as a result of the minority interest disposition. The Company intends to prepay the mezzanine debt in October 2006 and obtain new financing, however the Company’s obligation

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to cap the rate on the new debt will continue for the five year period. As of December 31, 2004, the Company had a liability of $1,150 related to this agreement. In June 2005, the Company purchased an interest rate cap for $1,060 to effectively hedge the risk associated with the cap the Company had provided to the minority interest purchaser. As of December 31, 2005, the fair value of the asset related to the purchased cap and the liability associated with the given cap were both $1,307. Changes in the fair value of this asset and liability are included in interest expense in the consolidated statement of operations.

      In June 2005, the Company entered into a forward-starting interest rate swap with an aggregate notional amount of $175,000. This derivative was designated as a hedge of the variability of cash flows relating to forecasted interest payments associated with the $190,000 of financing for the acquisition of an office complex leased by Fireman’s Fund Insurance Company, which was completed in August 2005. The Company terminated the swap upon the completion of the acquisition and related financing and received $4,771 from the counter party from the net cash settlement of the derivative position in August 2005, due to the increase in market rates since the derivative inception date in June 2005. This amount was recorded in accumulated other comprehensive income (loss) and is being reclassified as a reduction to interest expense over the term of the mortgage payable.

      During the years ended December 31, 2005, 2004 and 2003, the Company reclassified approximately $2,773, $1,625 and $258 of accumulated other comprehensive income (loss) to interest expense, respectively. These amounts are included in the consolidated statements of shareholders’ equity and comprehensive income (loss) as a component of the reclassification adjustment for losses reclassified into operations. Over the next 12 months, the Company expects to reclassify $994 to interest expense as the underlying hedged items affect earnings, such as when the forecasted interest payments occur.

(6) Shareholders’ Equity

      On May 9, 2005, the Company closed an underwritten public offering of 16,750,000 common shares of beneficial interest and granted the underwriters in the offering the right to purchase up to 2,512,500 additional common shares to cover any over-allotments. The aggregate net proceeds from this offering (after underwriting discounts and commissions and other offering costs) were approximately $242,841. The Company used the aggregate net proceeds to acquire additional properties, as described in the prospectus relating to the offering and other properties identified after the offering.

      On June 30, 2003, the Company completed its initial public offering through the issuance of 64,142,500 common shares of beneficial interest. The Company received net proceeds of $740,896, after payment of $60,885 in offering expenses including underwriters’ discounts and commissions.

(7) Employee Benefits

401(k) Plan

      The Company has established and maintained a retirement savings plan under section 401(k) of the Internal Revenue Code (IRC). The 401(k) plan allows eligible employees, as defined within the plan, to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. The Company matches each eligible employees’ annual contributions, within prescribed limits, in an amount equal to 100% of the first 3% of employees’ salary reduction contributions plus 50% of the next 2% of employees’ salary reduction contributions. Matching contributions of the Company vest immediately. The expense associated with the Company’s matching contribution was $300, $191 and $120 for the years ended December 31, 2005, 2004 and 2003, respectively, and is included within general and administrative expenses in the accompanying consolidated statements of operations.

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Supplemental Executive Retirement Plan

      The Company has established a non-qualified Supplemental Executive Retirement Plan (SERP) in which the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees is a participant. The benefit payable under the SERP is based on a specified percentage of each participant’s average annual compensation, as defined within the plan, while employed with the Company. Participants may begin to receive SERP payments once they have attained the later of age 60 or retirement. Benefits paid under the SERP are for life with 10 years of guaranteed payments and terminate upon the participant’s death. The Company estimated the expected aggregate payout under the SERP based on life expectancy, calculated the present value of the expected aggregate payout using a discount rate of 6.5% and estimated the amount necessary to fund the SERP over the initial five years, after which it was assumed that interest income would accumulate to fund the remaining payout. The expense associated with the SERP obligation over each of the first five years was determined using an effective interest rate method. The SERP expense was $292, $307 and $431 for the years ended December 31, 2005, 2004 and 2003, respectively, and is included within general and administrative expenses in the accompanying consolidated statements of operations.

2002 Equity Incentive Plan

      The Company established the 2002 Equity Incentive Plan (Incentive Plan) that authorized the issuance of up to 3,125,000 options to purchase common shares and 1,500,000 restricted shares. The Incentive Plan was amended in 2003 to allow for the issuance of an aggregate of 11,375,000 common shares and common share equivalents. The terms and conditions of the option awards are determined by the board of trustees. Options are granted at the fair market value of the shares on the date of grant. The options vest and are exercisable over periods determined by the Company, but in no event later than 10 years from the grant date.

      The following table summarizes option activity for the Company for the period from January 1, 2003 to December 31, 2005:

				Weighted
	Number of			Average		Aggregate			Grant Price Range
	Shares Issuable			Exercise		Exercise
	Upon Exercise			Price		Price			From		To
Balance, January 1, 2003		2,812,625		$	10.06	$	28,306		$	10.00	$	11.65
Options granted		221,000			13.14		2,905			11.25		14.98
Options cancelled		(3,750	)		10.00		(38	)		10.00		10.00
Options exercised		(37,812	)		10.00		(378	)		10.00		10.00
Balance, December 31, 2003		2,992,063			10.29		30,795			10.00		14.98
Options cancelled		(23,437	)		10.00		(234	)		10.00		10.00
Options exercised		(748,946	)		10.08		(7,552	)		10.00		11.65
Balance, December 31, 2004		2,219,680			10.37		23,009			10.00		14.98
Options exercised		(186,524	)		10.00		(1,865	)		10.00		10.00
Balance, December 31, 2005		2,033,156		$	10.40	$	21,144		$	10.00	$	14.98

101

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes stock options outstanding as of December 31, 2005:

			Weighted
			Average		Weighted				Weighted
			Remaining		Average		Number of		Average
	Number of Shares		Contractual		Exercise		Options		Exercise
Range of Exercise Prices	Outstanding		Life		Price		Exercisable		Price
$10.00 to $11.65		1,812,156		6.7 years	$	10.06		1,530,297	$	10.08
$12.10 to $14.98		221,000		7.4 years	$	13.14		148,625	$	13.07

      There were no options granted during the years ended December 31, 2005 and 2004. The weighted average fair value of each option granted during the year ended December 31, 2003 ranges from $0.19 to $0.33 and was estimated on the grant date using the Black-Scholes options pricing model using the following assumptions:

Expected life (in years)	5
Risk-free interest rate	3.25% to 4.21	%
Volatility	10.00	%
Dividend yield	7.50	%

      During the years ended December 31, 2005, 2004 and 2003, compensation expense related to restricted stock grants was $10,411, $9,078 and $3,361, respectively. In addition, pursuant to the severance agreements of two senior officers and one senior officer, the Company incurred a charge of $3,029 and $1,195 during the years ended December 31, 2005 and 2004, respectively, related to the accelerated vesting of restricted stock grants and the issuance of other equity instruments. The following table summarizes restricted share grant activity for the years ended December 31, 2005, 2004 and 2003:

			Share Price
	Shares		at Grant		Vesting
Date of Grant	Granted		Date		Period(1)
July 1, 2003		1,141,000	$	12.50		3 years
September 29, 2003		219,000		14.15		3 years
October 1, 2003		28,500		14.24		4 years
January 1, 2004		149,000		16.95		3 years
January 2, 2004		442,730		16.95		4 years
March 31, 2004		27,500		16.95		3 years
June 6, 2004		12,229		14.31		4 years
January 4, 2005		520,516		15.80		4 years
April 15, 2005		16,700		15.22		4 years
April 27, 2005		16,000		15.30		4 years
May 24, 2005		19,481		15.50		3 years
June 15, 2005		11,249		15.88		3 years
October 17, 2005		6,000		13.59		3 years
		2,609,905

(1)  Restricted stock vests 33% on the one-year anniversary of the date of grant and then quarterly thereafter until fully vested for restricted share grants that have a three year vesting period. Restricted stock vests 25% on the one-year anniversary of the date of grant and then quarterly thereafter until fully vested for restricted share grants that have a four year vesting period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In May 2003, the Company’s board of trustees approved the 2003 Outperformance Plan (OPP). The OPP is performance-based, utilizing total return to shareholders as the measurement criteria. Rewards under the OPP consist of annual cash awards and a three year restricted share award. Award amounts determined under the OPP represent a percentage of the value created for shareholders in excess of established performance thresholds. The OPP is a three-year plan with an effective date of January 1, 2003. The aggregate amount of the award was determined at the end of the three-year term on January 1, 2006 to be $2,014 for the cash component and $0 for the contingent restricted stock component. The Company measured and recorded compensation expense over the service period in accordance with the provisions of APB No. 25 and FIN 28 based upon an interim estimate of the reward. No expense related to the OPP was recorded during year ended December 31, 2005. Under variable plan accounting treatment, during the year ended December 31, 2004, the Company reversed the expense related to the contingent restricted share component of the OPP of $5,238, which was recorded in the year ended December 31, 2003. During the year ended December 31, 2003, the Company recorded $2,014 of expense related to the cash component of the OPP.

(8) Net Income (Loss) Per Share

      The following is a reconciliation of the numerator and denominator of the basic and diluted net income (loss) per share computations for the years ended December 31, 2005, 2004 and 2003:

	Basic and Diluted
	Year Ended December 31,
	2005			2004			2003
Loss from continuing operations	$	(94,290	)	$	(24,511	)	$	(25,084	)
Less: Dividends on unvested restricted share awards		1,396			1,799			942
Loss from continuing operations	$	(95,686	)	$	(26,310	)	$	(26,026	)
Income from discontinued operations	$	675		$	2,266		$	6,262
Weighted average common shares and common share equivalents outstanding		121,171,897			108,117,197			74,838,001
Loss per share from continuing operations	$	(0.79	)	$	(0.24	)	$	(0.35	)
Income per share from discontinued operations	$	0.01		$	0.02		$	0.09

      Diluted income (loss) per share assumes the conversion of all common share equivalents into an equivalent number of common shares, if the effect is not dilutive. The following share options and unvested restricted shares, both computed under the treasury stock method, and the weighted average Operating Partnership units were excluded from the diluted loss per share computations as their effect would have been antidilutive for the years ended December 31, 2005, 2004 and 2003:

	Year Ended December 31,
	2005		2004		2003
Share options		574,296		711,557		727,028
Unvested restricted shares(1)		500,859		741,932		1,378,401
Operating Partnership units		3,408,526		5,234,776		4,575,660
Total shares excluded from diluted loss per share		4,483,681		6,688,265		6,681,089

(1)  Includes shares that are contingently issuable under the OPP during the year ended December 31, 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(9) Accumulated Other Comprehensive Loss

      The following table reflects components of accumulated other comprehensive loss for the years ended December 31, 2005, 2004 and 2003:

	Unrealized Gains
	(Losses) on
	Residential			Unrealized Gains			Interest Rate			Accumulated
	Mortgage Backed			(Losses) on			Hedges on			Other
	Securities and			Available for			Mortgage			Comprehensive
	Hedge			Sale Securities			Notes Payable			Loss
Balance, January 1, 2003	$	(4,345	)	$	(133	)	$	—		$	(4,478	)
Change during year		(4,060	)		(616	)		(14,799	)		(19,475	)
Reclassification adjustments into statements of operations		8,851			388			258			9,497
Minority interest		(446	)		17			665			236
Balance, December 31, 2003		—			(344	)		(13,876	)		(14,220	)
Change during year		—			(438	)		(1,436	)		(1,874	)
Reclassification adjustments into statements of operations		—			409			1,625			2,034
Minority interest		—			(18	)		(210	)		(228	)
Balance, December 31, 2004	$	—		$	(391	)	$	(13,897	)	$	(14,288	)
Change during year		—			(126	)		4,771			4,645
Reclassification adjustments into statements of operations		—			530			2,773			3,303
Minority interest		—			(13	)		(268	)		(281	)
Balance, December 31, 2005	$	—		$	—		$	(6,621	)	$	(6,621	)

(10) Discontinued Operations and Assets Held for Sale

      The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144) and separately classifies properties held for sale in the consolidated balance sheets and consolidated statements of operations. In the normal course of business, changes in the market may compel the Company to decide to classify a property as held for sale or reclassify a property that is designated as held for sale back to held for investment. In these situations, in accordance with SFAS No. 144, the property is transferred to held for sale or back to held for investment at the lesser of fair value or depreciated cost. Properties classified as held for sale as of December 31, 2005 are classified as such in the consolidated statement of operations for all periods presented for purposes of comparability.

      During the year ended December 31, 2005, the Company sold 82 properties, in separate transactions, and 48 properties in bulk transactions, for net sales proceeds of $120,778. The sales transactions resulted in a net gain of approximately $20,194, after minority interest of $562 for the year ended December 31, 2005, which was reported in discontinued operations.

      During the year ended December 31, 2004, the Company sold 48 properties, in separate transactions for net sales proceeds of $185,122. The sales transactions resulted in a net gain of approximately $11,410, after minority interest of $374. An income tax provision was not required for the year ended December 31, 2004 because the gains realized were offset by other net losses of the taxable REIT subsidiary, which was reported in discontinued operations.

      During the year ended December 31, 2003, the Company sold 38 properties in separate transactions for net sales proceeds of $33,980. The sales transactions resulted in a net gain of approximately $8,407 after minority interest of $382 and an income tax provision of $2,670, which was reported in discontinued operations.

104

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In accordance with the provisions of SFAS No. 144, the Company had classified 52 and 64 properties as held for sale as of December 31, 2005 and 2004, respectively. The following table summarizes information for these properties:

	December 31,
	2005			2004
Assets held for sale:
Real estate investments, at cost:
Land	$	45,694		$	16,105
Buildings		234,195			66,071
Equipment and fixtures		37,693			12,855
Total real estate investments, at cost		317,582			95,031
Less accumulated depreciation		(22,004	)		(2,502	)
		295,578			92,529
Intangible assets, net		35,929			4,927
Other assets, net		9,831			4,371
Total assets held for sale		341,338			101,827
Liabilities related to assets held for sale:
Mortgage notes payable		233,689			1,880
Accrued expenses		6,320			3,979
Below-market lease liabilities, net		177			1,580
Deferred revenue		3,459			445
Tenant security deposits		20			88
Total liabilities related to assets held for sale		243,665			7,972
Net assets held for sale	$	97,673		$	93,855

105

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following operating results of the properties held for sale as of December 31, 2005, 2004 and 2003 and the properties sold during the years ended December 31, 2005, 2004 and 2003 are included in discontinued operations for all periods presented:

	Year Ended December 31,
	2005			2004			2003
Operating results:
Revenues	$	42,131		$	28,592		$	22,595
Operating expenses		27,689			18,586			10,937
Impairment loss		3,441			3,614			1,551
Interest expense		16,164			5,100			3,131
Depreciation		14,317			7,573			9,219
Loss from operations before minority interest		(19,480	)		(6,281	)		(2,243	)
Minority interest		528			197			98
Loss from operations, net		(18,952	)		(6,084	)		(2,145	)
Yield maintenance fees		(583	)		(3,163	)		—
Minority interest		16			103			—
Yield maintenance fees, net		(567	)		(3,060	)		—
Gain on disposals, net of income taxes		20,756			11,784			8,789
Minority interest		(562	)		(374	)		(382	)
Gain on disposals, net		20,194			11,410			8,407
Income from discontinued operations	$	675		$	2,266		$	6,262

      Discontinued operations have not been segregated in the consolidated statements of cash flows.

(11) Leasing Agreements

      The Company’s properties are leased and subleased to tenants under operating leases with expiration dates extending to the year 2030. These leases generally contain rent increases and renewal options. Future minimum rental payments under noncancelable leases excluding reimbursements for operating expenses as of December 31, 2005 are as follows:

2006	$	409,108
2007		405,620
2008		399,466
2009		392,429
2010		374,302
2011 and thereafter		3,088,923
Total	$	5,069,848

      As of December 31, 2005, the Company leased bank branches and office buildings from third parties with expiration dates extending to the year 2085 and has various ground leases with expiration dates extending through 2087. These lease obligations generally contain rent increases and renewal options.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum lease payments under non-cancelable operating leases as of December 31, 2005 are as follows:

2006	$	17,520
2007		17,617
2008		17,402
2009		17,302
2010		16,836
2011 and thereafter		195,416
Total	$	282,093

(12) Transactions with Related Parties

      On October 31, 2005, the Company acquired the remaining 11% limited partnership minority interest in the entity that owns 123 South Broad Street property in Philadelphia, PA. The purchase price of the remaining 11% limited partnership minority interest of $3,034 was paid through the issuance of units in the Company’s Operating Partnership. The parties to the contribution agreement included Nicholas S. Schorsch, our President, Chief Executive Officer and Vice Chairman of the board of trustees, and Meadow Court Trust, a trust controlled by Mr. Schorsch’s spouse, Shelley D. Schorsch. Mr. Schorsch and Meadow Court Trust owned 5.01% and 0.81% of the limited partnership interest, respectively, and received 135,962 and 21,982 limited partnership units in the Operating Partnership, respectively, for their interests.

      The Company previously provided management and other services to entities affiliated with the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees. Total revenue received by the Company from these affiliated entities was approximately $135 for the year ended December 31, 2003. Such amounts are included in interest and other income in the accompanying consolidated statements of operations. No such services were provided by the Company to these affiliated entities during the years ended December 31, 2005 and 2004.

      The Company leases space in two office buildings from real estate partnerships controlled by the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees and his spouse. Total rent payments under these office leases were approximately $165, $156, and $111 for the years ended December 31, 2005, 2004 and 2003, respectively. One lease expires in July 2009 and has aggregate annual minimum rent of $75 and the other lease has an aggregate annual minimum rent of $99 and expires in 2008. Both leases are subject to annual rent increases of the greater of 3.0% or the change in the Consumer Price Index. These amounts are included in general and administrative expenses in the accompanying consolidated statements of operations.

      A former officer of the Company owns a one-third interest in a leasing company that provided leasing services. Leasing commissions charged to expense related to these services were approximately $241, $261, $258 for the years ended December 31, 2005, 2004 and 2003, respectively.

      On September 30, 2003, pursuant to the exercise of a purchase option, the Company acquired all of the ownership interests of First States Wilmington JV, L.P. (FSW), the beneficial owner of Three Beaver Valley. Total consideration paid by the Company for the FSW interests was $51,768, of which $44,830 consisted of the assumption of variable rate debt. The remaining consideration consisted primarily of units in the Company’s Operating Partnership and cash. Prior to the acquisition, FSW was controlled by the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees. Concurrent with this acquisition, the Company terminated the agreement with the existing property management company, which was wholly owned by the Company’s President, Chief Executive Officer and Vice Chairman of the board of trustees. The obligation resulting from this termination was approximately $150.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A former member of the Company’s board of trustees is Head of Investment Banking at Friedman Billings Ramsey & Co., Inc. (FBR). FBR served as underwriter and placement agent in connection with the Company’s September 2002 private placement and served as co-lead manager of the Company’s June 2003 initial public offering of common shares. The Company paid FBR $25.9 million and $18.8 million in connection with the private placement and initial public offering of common shares, respectively. The Company and FBR entered into an Intellectual Property Contribution and Unit Purchase Agreement as of May 24, 2002 pursuant to which FBR contributed certain intellectual property and other in-kind capital in exchange for the issuance of 750,000 Operating Partnership units. FBR Investment Management, Inc., an affiliate of FBR, received investment advisory fees based on the month-end balance invested in the residential mortgage-backed securities investment account. Total fees paid for such services were $442 for the year ended December 31, 2003. No such fees were paid during the years ended December 31, 2005 and 2004. Under the terms of an engagement letter, FBR provided customary investment banking and financial advisory services through June 30, 2004.

(13) Commitments and Contingencies

      On June 25, 2004, the Company entered into an agreement to sublease from Charles Schwab and Co., Inc. (Schwab) approximately 288,000 square feet of vacant space in Harborside, a Class A office building in Jersey City, New Jersey, and to assume certain management functions over an additional approximately 306,000 square feet of space in the same building that is also leased to Schwab but has been subleased by Schwab to third party tenants. In the event that any of the existing subtenants default on their leases (and the space thereafter becomes available), or any existing subtenants fail to renew their leases upon expiration, the Company has agreed to sublease this additional space from Schwab. All of the Company’s subleases with Schwab will terminate in September 2017, the same date that Schwab’s leases with the ultimate owner terminate. In exchange for the agreements described above, Schwab paid the Company a sublease management and standby subtenant fee of approximately $11,541. Additionally, Schwab will provide a rent credit against the Company’s initial sublease obligations, payable through December 31, 2007, totaling approximately $40,028, including $15,612 of payments made through December 31, 2005. The sublease management fee and rent credit will be ratably recognized as income and a reduction to rent expense, respectively, over the terms of the agreements. As security for the Company’s obligation under the sublease management, subtenant and standby subtenant agreements, the Company must provide Schwab with an irrevocable, standby letter of credit, which will increase concurrently with each rent credit and sublease management fee payment made by Schwab up to $51,569 and then will decrease over the term of the Company’s obligation through September 2017. As of December 31, 2005, the standby letter of credit had a face amount of $27,153.

      As of December 31, 2005, we had approximately $38,668 in pending acquisitions under contract or letters of intent and $54,119 in pending acquisitions under outstanding notifications under formulated price contracts. Since formulated price agreements require the Company, with limited exceptions, to purchase all bank branches, subject to notification, that the counter parties determine to be surplus properties, the total contractual obligation under these agreements is not quantifiable. The Company is required to purchase properties at a formulated price typically based on the fair market value of the property as determined through an independent appraisal process, which values the property based on its highest and best use and its alternative use, and then applies a negotiated discount. Under these agreements, the Company is also required to assume the rights and obligations of the financial institution under leases pursuant to which the financial institution leases surplus bank branches. The Company assumes the obligations to pay rent under these leases. In exchange, the Company receives an amount typically equal to 25% to 35% of the future rental payments due under the leasehold interest acquired. Current agreements are renewable on an annual basis, and may be terminated upon 90 days prior written notice. The purchase of these properties or assumption of the leasehold interests is done on an “as-is” basis; however, the

108

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company is not required to acquire properties with certain environmental or structural problems or with defects in title that render the property either unmarketable or uninsurable at regular rates or that materially reduce the value of the property or materially impair or restrict its contemplated use. If the Company subsequently discovers issues or problems related to the physical condition of a property, zoning, compliance with ordinances and regulations, or other significant problems, the Company typically has no recourse against the seller and the value of the property may be less than the amount paid for such property. Should the Company default on its purchase obligation, the Company would forfeit its initial deposit and any supplemental deposits made with the financial institution. In addition, with respect to the assumption of leasehold interests, the Company would be liable for any rental payments due under the leasehold interests. At December 31, 2005 and 2004, total deposits of $384 and $153, respectively, were held with financial institutions and included in prepaid expenses and other assets in the accompanying consolidated balance sheets. These deposits will be returned to the Company at the expiration date of the respective agreements.

      The Company may be subject to claims or litigation in the ordinary course of business. When identified, these matters are usually referred to the Company’s legal counsel or insurance carriers. In the opinion of management, at December 31, 2005, there are no outstanding claims against the Company that would have a material adverse effect on the Company’s financial position or results of operations.

(14) Summary Quarterly Results (Unaudited)

      The following is a summary of interim financial information as previously reported (in thousands, except per share data):

Year Ended December 31, 2005	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total revenues	$	124,764		$	133,224		$	146,572		$	141,364
Net loss		(22,142	)		(25,151	)		(25,359	)		(20,964	)
Loss allocated to common shares		(22,142	)		(25,151	)		(25,359	)		(20,964	)
Basic and diluted loss per share	$	(0.20	)	$	(0.21	)	$	(0.20	)	$	(0.17	)

Year Ended December 31, 2004	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
Total revenues	$	62,965		$	72,381		$	81,739		$	121,797
Net loss		(4,255	)		(1,689	)		(9,955	)		(6,346	)
Loss allocated to common shares		(4,255	)		(1,689	)		(9,955	)		(6,346	)
Basic and diluted loss per share	$	(0.05	)	$	(0.02	)	$	(0.09	)	$	(0.06	)

      During the second quarter of 2004 the Company reversed a previously recorded expense of approximately $4,263 related to the contingent restricted share component of the 2003 OPP.

(15) Subsequent Events

      In February 2006, the Company entered into an agreement of sale to sell five 100% occupied, net leased properties for a sale price of $301,000, before transactions and closing costs. The properties to be sold by the Company include 215 Fremont Street, San Francisco, California, which is leased to Charles Schwab & Co., Inc., Condominium Unit #1 at 123 S. Broad Street, Philadelphia Pennsylvania, which is leased to Wachovia Bank, N.A. and three operations centers located in Meridian, Idaho, Louisville, Kentucky and McLeansville, North Carolina, which are leased to Citicorp North America, Inc. These five properties are classified as held for sale in the accompanying consolidated balance sheets and statements of operations at December 31, 2005. The transaction is expected to close early in the second quarter 2006.

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SCHEDULE III
Real Estate Investments
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Abington		PA		8/19/1998	$	795	$	82	$	494	$	19	$	84	$	511	$	595	$	(118	)		35
Avondale		PA		8/20/1998		728		99		515		22		101		535		636		(112	)		37
Berkeley Height		NJ		8/20/1998		585		84		386		15		85		400		485		(80	)		37
Cambelltown		PA		8/20/1998		193		40		185		8		41		192		233		(40	)		36
Cherry Hill		NJ		8/20/1998		554		72		337		11		73		347		420		(64	)		37
Edison Twp		NJ		8/20/1998		698		104		473		19		106		490		596		(95	)		37
Emmaus		PA		8/20/1998		789		111		492		18		113		508		621		(93	)		37
Feasterville		PA		8/20/1998		1,041		125		566		10		126		575		701		(78	)		39
Hamilton Square		NJ		8/20/1998		686		113		490		24		116		511		627		(100	)		37
Highland Park		NJ		8/20/1998		486		67		347		10		68		356		424		(61	)		38
Hightstown		NJ		8/20/1998		652		78		346		11		80		355		435		(61	)		38
Kendall Park		NJ		8/20/1998		618		64		288		5		64		293		357		(44	)		38
Kenilworth		NJ		8/20/1998		479		60		267		8		61		274		335		(48	)		38
Kennett Square		PA		8/20/1998		1,335		174		728		30		175		757		932		(109	)		39
Lawrenceville		NJ		8/20/1998		841		113		518		17		115		533		648		(94	)		37
Linden		NJ		8/20/1998		1,123		147		606		32		148		637		785		(102	)		39
Linden		NJ		8/20/1998		1,037		135		563		9		136		571		707		(79	)		39
Manasquan		NJ		8/20/1998		713		83		377		9		84		385		469		(61	)		38
Millburn		NJ		8/20/1998		976		127		572		19		129		589		718		(105	)		37
Moosic		PA		8/20/1998		322		36		148		4		36		152		188		(24	)		38
North Plainfiel		NJ		8/20/1998		(f)		26		130		6		27		135		162		(29	)		36
Phoenixville		PA		8/20/1998		1,032		133		547		7		134		553		687		(65	)		39
Point Pleasant		NJ		8/20/1998		—		78		388		11		80		397		477		(66	)		38
Pottstown		PA		8/20/1998		199		32		135		4		33		138		171		(20	)		39
Runnemede		NJ		8/20/1998		—		20		110		7		20		117		137		(41	)		31
Scotch Plains		NJ		8/20/1998		668		86		380		10		87		389		476		(60	)		38
Somerdale		NJ		8/20/1998		281		49		220		5		49		225		274		(36	)		38

110

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
South Plainfield		NJ		8/20/1998		596		80		357		11		81		367		448		(64	)		38
Spring Lake		NJ		8/20/1998		—		56		304		9		57		312		369		(53	)		38
Ventnor		NJ		8/20/1998		430		55		261		9		56		269		325		(50	)		37
Warminster		PA		8/20/1998		789		111		530		13		112		542		654		(87	)		38
West Chester		PA		1/28/1999		3,519		374		3,569		123		374		3,692		4,066		(982	)		37
Upper Dublin		PA		6/17/1999		876		352		956		—		352		956		1,308		(326	)		32
Collingswood		NJ		8/6/1999		374		52		272		—		52		272		324		(80	)		34
Pennington		NJ		8/6/1999		664		92		531		37		92		568		660		(191	)		34
Philadelphia		PA		8/6/1999		816		70		333		—		70		333		403		(69	)		37
Boyertown		PA		12/14/1999		355		57		300		—		57		300		357		(86	)		34
Jenkintown		PA		7/11/2000		14,837		2,357		19,654		6,281		2,314		25,978		28,292		(6,160	)		34
Bensalem		PA		9/20/2000		653		76		409		—		76		409		485		(109	)		35
Philadelphia		PA		9/26/2000		50,918		8,064		66,629		1,237		8,051		67,879		75,930		(16,102	)		34
Charleston		SC		12/29/2000		9,654		1,425		11,981		676		1,425		12,657		14,082		(3,335	)		33
Little Rock		AR		12/11/2001		—		29		146		—		29		146		175		(28	)		36
Aurora		MO		2/28/2002		—		77		419		—		77		419		496		(87	)		34
Little Rock		AR		2/28/2002		—		35		192		—		35		192		227		(40	)		33
Cary		NC		12/10/2002		1,424		185		1,051		—		185		1,051		1,236		(134	)		35
Charlotte		NC		12/10/2002		1,302		214		1,212		—		214		1,212		1,426		(154	)		35
Charlotte		NC		12/10/2002		1,133		97		548		—		97		548		645		(70	)		35
Cornelius		NC		12/10/2002		1,068		187		1,061		—		187		1,061		1,248		(135	)		35
Dalton		GA		12/10/2002		—		143		813		—		143		813		956		(104	)		35
Florence		SC		12/10/2002		(f)		109		617		—		109		617		726		(79	)		35
Hickory		NC		12/10/2002		—		102		578		—		102		578		680		(74	)		35
Hilton Head		SC		12/10/2002		3,255		311		1,760		—		311		1,760		2,071		(224	)		35
Hilton Head		SC		12/10/2002		2,186		252		1,430		20		252		1,450		1,702		(183	)		35
Huntersville		NC		12/10/2002		—		158		893		—		158		893		1,051		(114	)		35

111

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Raleigh		NC		12/10/2002		1,502		170		961		—			170		961		1,131		(122	)		35
Rock Hill		SC		12/10/2002		(f)		97		549		—			97		549		646		(70	)		35
Fort Myers		FL		12/16/2002		2,043		225		1,278		160			225		1,438		1,663		(197	)		35
Gainesville		FL		12/16/2002		(f)		350		1,985		6			350		1,991		2,341		(250	)		35
Nassau Bay		FL		12/16/2002		2,471		404		2,277		—			404		2,277		2,681		(291	)		35
Port St. Lucie		FL		12/16/2002		—		774		4,388		909			773		5,298		6,071		(654	)		35
Reno		NV		12/16/2002		1,663		779		4,440		34			779		4,474		5,253		(622	)		35
Waycross		GA		12/16/2002		(f)		144		868		—			144		868		1,012		(106	)		36
Arlington		VA		1/9/2003		(a)		370		2,484		—			370		2,484		2,854		(320	)		35
Baltimore		MD		1/9/2003		(a)		3,030		23,279		—			3,030		23,279		26,309		(3,032	)		35
Baltimore		MD		1/9/2003		(a)		8,550		55,550		20			8,550		55,570		64,120		(7,117	)		35
College Park		GA		1/9/2003		(a)		2,182		14,237		(52	)		2,130		14,237		16,367		(1,825	)		35
Columbia		SC		1/9/2003		(a)		517		3,508		—			517		3,508		4,025		(453	)		35
Greensboro		NC		1/9/2003		(a)		3,585		21,688		—			3,585		21,688		25,273		(2,744	)		35
Norfolk		VA		1/9/2003		(a)		3,316		22,990		1,513			3,316		24,503		27,819		(3,062	)		35
Norfolk		VA		1/9/2003		(a)		3,624		24,023		—			3,624		24,023		27,647		(3,088	)		35
Richmond		VA		1/9/2003		(a)		7,054		46,626		1,395			7,054		48,021		55,075		(6,072	)		35
Richmond		VA		1/9/2003		(a)		5,505		34,061		—			5,505		34,061		39,566		(4,327	)		35
Silver Springs		MD		1/9/2003		(a)		331		2,154		27			331		2,181		2,512		(276	)		35
Tucker		GA		1/9/2003		(a)		2,310		15,118		—			2,310		15,118		17,428		(1,936	)		35
Washington		DC		1/9/2003		(a)		3,913		25,082		—			3,913		25,082		28,995		(3,196	)		35
Clemmons		NC		2/5/2003		1,346		172		974		(56	)		116		974		1,090		(118	)		35
Clover		SC		2/5/2003		—		51		291		—			51		291		342		(35	)		35
Pembroke Pines		FL		2/19/2003		1,568		124		705		—			124		705		829		(83	)		35
Plantation		FL		2/19/2003		—		139		789		—			139		789		928		(93	)		35
Winter Park		FL		2/19/2003		1,140		126		714		—			126		714		840		(84	)		35
Winter Park		FL		2/19/2003		783		127		718		—			127		718		845		(85	)		35

112

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Advance		NC		3/31/2003		249		40		242		—			40		242		282		(31	)		35
Atlanta		GA		3/31/2003		721		88		522		—			88		522		610		(60	)		35
Atlanta		GA		3/31/2003		2,506		369		2,160		—			369		2,160		2,529		(249	)		35
Augusta		GA		3/31/2003		1,229		165		969		—			165		969		1,134		(112	)		35
Augusta		GA		3/31/2003		1,407		162		957		(39	)		123		957		1,080		(110	)		35
Blowing Rock		NC		3/31/2003		190		45		265		—			45		265		310		(33	)		35
Boca Raron		FL		3/31/2003		845		105		618		—			105		618		723		(71	)		35
Breman		GA		3/31/2003		—		54		349		3			54		352		406		(51	)		35
Brevard		NC		3/31/2003		520		137		804		—			137		804		941		(99	)		35
Callahan		FL		3/31/2003		1,144		183		1,084		—			183		1,084		1,267		(136	)		35
Canton		NC		3/31/2003		—		15		103		2			15		105		120		(16	)		35
Cary		NC		3/31/2003		189		43		256		—			43		256		299		(32	)		35
Charlotte		NC		3/31/2003		494		62		365		—			62		365		427		(42	)		35
Charlotte		NC		3/31/2003		317		67		399		—			67		399		466		(50	)		35
China Grove		NC		3/31/2003		446		96		567		—			96		567		663		(71	)		35
Clearwater		FL		3/31/2003		1,203		217		1,285		—			217		1,285		1,502		(160	)		35
Clemmons		NC		3/31/2003		550		77		457		—			77		457		534		(53	)		35
Conover		NC		3/31/2003		433		79		472		—			79		472		551		(60	)		35
Davie		FL		3/31/2003		730		145		856		—			145		856		1,001		(106	)		35
Daytona Beach		FL		3/31/2003		988		174		1,029		—			174		1,029		1,203		(129	)		35
East Point		GA		3/31/2003		726		180		1,052		—			180		1,052		1,232		(129	)		35
Eustis		FL		3/31/2003		1,891		316		1,871		—			316		1,871		2,187		(234	)		35
Fayetteville		FL		3/31/2003		1,325		273		1,663		—			273		1,663		1,936		(220	)		35
Forest City		NC		3/31/2003		791		180		1,060		—			180		1,060		1,240		(132	)		35
Ft. Lauderdale		FL		3/31/2003		1,604		310		1,837		—			310		1,837		2,147		(229	)		35
Gastonia		NC		3/31/2003		288		63		371		—			63		371		434		(46	)		35
Goldsboro		NC		3/31/2003		—		30		191		2			30		193		223		(27	)		35

113

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Graham		NC		3/31/2003		—		54		346		3		54		349		403		(50	)		35
Green Cove		FL		3/31/2003		1,421		188		1,121		—		188		1,121		1,309		(143	)		35
Greensboro		NC		3/31/2003		—		128		741		3		128		744		872		(89	)		35
Hapeville		GA		3/31/2003		2,043		229		1,357		—		229		1,357		1,586		(157	)		35
Harrisburg		NC		3/31/2003		337		67		400		—		67		400		467		(50	)		35
HIckory		NC		3/31/2003		704		90		534		—		90		534		624		(62	)		35
Jacksonville		FL		3/31/2003		5,134		1,620		9,777		5		1,620		9,782		11,402		(1,273	)		35
Jacksonville		FL		3/31/2003		2,080		282		1,654		—		282		1,654		1,936		(191	)		35
Jacksonville		FL		3/31/2003		669		88		520		—		88		520		608		(60	)		35
Jacksonville		FL		3/31/2003		2,805		366		2,149		—		366		2,149		2,515		(248	)		35
Jacksonville		FL		3/31/2003		633		152		884		—		152		884		1,036		(108	)		35
Jacksonville		FL		3/31/2003		1,325		374		2,280		—		374		2,280		2,654		(303	)		35
Jefferson		NC		3/31/2003		—		20		136		2		20		138		158		(22	)		35
Kannapolis		NC		3/31/2003		349		75		443		—		75		443		518		(55	)		35
King		NC		3/31/2003		587		78		462		—		78		462		540		(53	)		35
Knightdale		NC		3/31/2003		(f)		27		157		3		27		160		187		(20	)		35
Lakeland		FL		3/31/2003		559		63		372		—		63		372		435		(43	)		35
Lantana		FL		3/31/2003		1,131		137		804		—		137		804		941		(93	)		35
Largo		FL		3/31/2003		263		44		257		—		44		257		301		(32	)		35
Lexington		NC		3/31/2003		1,605		354		2,087		—		354		2,087		2,441		(260	)		35
Mabletown		GA		3/31/2003		1,187		342		2,098		—		342		2,098		2,440		(281	)		35
Macon		GA		3/31/2003		1,615		144		911		—		144		911		1,055		(129	)		35
Marietta		GA		3/31/2003		379		71		416		—		71		416		487		(52	)		35
Marietta		GA		3/31/2003		592		105		620		—		105		620		725		(77	)		35
Marion		NC		3/31/2003		901		113		668		—		113		668		781		(77	)		35
Martinez		GA		3/31/2003		865		198		1,158		—		198		1,158		1,356		(142	)		35
Morganton		NC		3/31/2003		1,948		204		1,259		72		204		1,331		1,535		(175	)		35

114

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
New Port Richey		FL		3/31/2003		553		67		393		—		67		393		460		(45	)		35
Newnan		NC		3/31/2003		2,127		507		2,965		—		507		2,965		3,472		(363	)		35
Newton		NC		3/31/2003		590		148		867		—		148		867		1,015		(107	)		35
Norcross		GA		3/31/2003		514		78		462		—		78		462		540		(58	)		35
Norcross		GA		3/31/2003		924		150		889		—		150		889		1,039		(112	)		35
Norcross		GA		3/31/2003		1,064		260		1,517		—		260		1,517		1,777		(186	)		35
North Port		FL		3/31/2003		1,155		203		1,195		—		203		1,195		1,398		(149	)		35
North Wilkesboro		NC		3/31/2003		4,624		1,968		11,947		—		1,968		11,947		13,915		(1,572	)		35
Orlando		FL		3/31/2003		809		135		798		—		135		798		933		(100	)		35
Palatka		FL		3/31/2003		3,231		124		805		43		124		848		972		(121	)		35
Rockingham		NC		3/31/2003		—		78		473		2		78		475		553		(62	)		35
Rockledge		FL		3/31/2003		670		79		469		—		79		469		548		(54	)		35
Rocky Mount		NC		3/31/2003		1,108		141		855		—		141		855		996		(112	)		35
Rome		GA		3/31/2003		1,549		394		2,455		—		394		2,455		2,849		(338	)		35
Rome		GA		3/31/2003		—		34		202		3		34		205		239		(27	)		35
Roswell		GA		3/31/2003		—		116		679		3		116		682		798		(84	)		35
Roxboro		NC		3/31/2003		1,376		171		1,016		—		171		1,016		1,187		(117	)		35
Savannah		GA		3/31/2003		—		26		156		3		26		159		185		(22	)		35
Savannah		GA		3/31/2003		758		92		544		—		92		544		636		(63	)		35
Sparta		NC		3/31/2003		—		17		116		2		17		118		135		(19	)		35
St. Petersburg		FL		3/31/2003		366		68		398		—		68		398		466		(49	)		35
Tampa		FL		3/31/2003		1,891		600		3,599		—		600		3,599		4,199		(463	)		35
Valdese		NC		3/31/2003		1,156		154		915		—		154		915		1,069		(106	)		35
Vidalia		GA		3/31/2003		—		117		736		2		117		738		855		(103	)		35
Waynesboro		GA		3/31/2003		—		36		274		3		36		277		313		(50	)		35
Waynesville		NC		3/31/2003		952		106		636		—		106		636		742		(74	)		35
West Jefferson		NC		3/31/2003		—		30		188		2		30		190		220		(26	)		35

115

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Wilkesboro		NC		3/31/2003		608		73		437		—		73		437		510		(51	)		35
Apex		NC		4/15/2003		—		32		166		—		32		166		198		(24	)		35
Graham		NC		4/15/2003		—		140		724		—		140		724		864		(108	)		35
Havelock		NC		4/15/2003		—		37		193		—		37		193		230		(28	)		35
Morehead City		NC		4/15/2003		—		86		446		—		86		446		532		(66	)		35
New Bern		NC		4/15/2003		—		170		877		—		170		877		1,047		(130	)		35
Plymouth		NC		4/15/2003		—		126		653		—		126		653		779		(97	)		35
Wilson		NC		4/15/2003		—		1,218		6,285		481		1,698		6,286		7,984		(934	)		35
Wilson		NC		4/15/2003		—		915		4,726		—		915		4,726		5,641		(732	)		35
Wilson		NC		4/15/2003		—		409		2,113		—		409		2,113		2,522		(314	)		35
Cayce		SC		5/8/2003		—		52		296		—		52		296		348		(33	)		35
Harrisonburg		VA		6/6/2003		(f)		128		725		—		128		725		853		(78	)		35
Wilmington		NC		6/6/2003		801		132		748		—		132		748		880		(80	)		35
Aberdeen		WA		6/30/2003		(b)		145		820		—		145		820		965		(85	)		35
Aiken		SC		6/30/2003		(b)		241		1,381		—		241		1,381		1,622		(143	)		35
Albuquerque		NM		6/30/2003		(b)		534		3,059		—		534		3,059		3,593		(316	)		35
Albuquerque		NM		6/30/2003		(b)		189		1,071		—		189		1,071		1,260		(111	)		35
Annapolis		MD		6/30/2003		(b)		570		3,267		19		575		3,281		3,856		(339	)		35
Aransas Pass		TX		6/30/2003		(b)		209		1,184		7		209		1,191		1,400		(124	)		35
Auburn		CA		6/30/2003		(b)		283		1,623		260		283		1,883		2,166		(209	)		35
Austin		TX		6/30/2003		(b)		228		1,293		5		233		1,293		1,526		(135	)		35
Bakersfield		CA		6/30/2003		(b)		220		1,249		6		220		1,255		1,475		(130	)		35
Bakersfield		CA		6/30/2003		(b)		205		1,160		9		205		1,169		1,374		(121	)		35
Baltimore		MD		6/30/2003		(b)		128		727		—		128		727		855		(76	)		35
Bellingham		WA		6/30/2003		(b)		443		2,537		—		443		2,537		2,980		(262	)		35
Bremerton		WA		6/30/2003		(b)		238		1,363		—		238		1,363		1,601		(141	)		35
Brownwood		TX		6/30/2003		(b)		129		734		—		129		734		863		(80	)		35

116

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Cape Girardeau		MO		6/30/2003		(b)		205		1,160		—		205		1,160		1,365		(121	)		35
Carrollton		TX		6/30/2003		(b)		166		939		—		166		939		1,105		(98	)		35
Cartersville		GA		6/30/2003		(b)		142		807		—		142		807		949		(84	)		35
Charlotte		NC		6/30/2003		(b)		4,100		48,997		433		4,124		49,406		53,530		(5,661	)		36
Charlottesville		VA		6/30/2003		(b)		504		2,915		23		504		2,938		3,442		(328	)		35
Chicago		IL		6/30/2003		(b)		14,189		88,621		2,854		14,219		91,445		105,664		(9,270	)		35
Clearwater		FL		6/30/2003		(b)		270		1,544		—		270		1,544		1,814		(160	)		35
Clermont		FL		6/30/2003		(b)		56		316		135		56		451		507		(51	)		35
Coeur D’alene		ID		6/30/2003		(b)		215		1,227		—		215		1,227		1,442		(134	)		35
Columbia		MO		6/30/2003		(b)		232		1,327		31		232		1,358		1,590		(140	)		35
Compton		CA		6/30/2003		(b)		127		720		5		127		725		852		(75	)		35
Coronado		CA		6/30/2003		(b)		611		3,500		30		612		3,529		4,141		(367	)		35
Dalhart		TX		6/30/2003		(b)		141		813		33		141		846		987		(97	)		35
Deland		FL		6/30/2003		—		581		3,328		231		581		3,559		4,140		(379	)		35
Denison		TX		6/30/2003		(b)		135		774		—		135		774		909		(85	)		35
Dumas		TX		6/30/2003		(b)		158		895		—		158		895		1,053		(93	)		35
El Segundo		CA		6/30/2003		(b)		247		1,416		46		247		1,462		1,709		(152	)		35
Escondido		CA		6/30/2003		(b)		346		1,982		13		346		1,995		2,341		(209	)		35
Florissant		MO		6/30/2003		(b)		189		1,073		84		194		1,152		1,346		(122	)		35
Forks		WA		6/30/2003		(b)		112		635		161		112		796		908		(76	)		35
Fort Worth		TX		6/30/2003		(b)		202		1,142		—		202		1,142		1,344		(119	)		35
Fresno		CA		6/30/2003		(b)		180		1,020		17		180		1,037		1,217		(107	)		35
Fresno		CA		6/30/2003		(b)		214		1,215		6		212		1,223		1,435		(127	)		35
Fresno		CA		6/30/2003		(b)		324		1,855		3		324		1,858		2,182		(192	)		35
Gardena		CA		6/30/2003		(b)		794		4,500		—		794		4,500		5,294		(468	)		35
Glendale		CA		6/30/2003		(b)		939		5,384		—		939		5,384		6,323		(557	)		35
Hallandale		FL		6/30/2003		(b)		570		3,264		275		570		3,539		4,109		(339	)		35

117

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Hampton		VA		6/30/2003		(b)		149		868		12		149		880		1,029		(112	)		35
Henderson		NV		6/30/2003		(b)		189		1,073		—		189		1,073		1,262		(112	)		35
Hialeah		FL		6/30/2003		(b)		159		903		30		159		933		1,092		(95	)		35
Hollywood		FL		6/30/2003		(b)		239		1,355		—		239		1,355		1,594		(141	)		35
Houston		TX		6/30/2003		(b)		534		3,057		12		546		3,057		3,603		(316	)		35
Independence		KS		6/30/2003		(b)		131		741		7		131		748		879		(78	)		35
Independence		MO		6/30/2003		(b)		187		1,063		—		187		1,063		1,250		(111	)		35
Inglewood		CA		6/30/2003		(b)		418		2,396		5		418		2,401		2,819		(248	)		35
Jacksonville		FL		6/30/2003		(b)		3,893		22,317		—		3,893		22,317		26,210		(2,311	)		35
Jacksonville		FL		6/30/2003		(b)		2,067		11,840		—		2,067		11,840		13,907		(1,225	)		35
Jacksonville		FL		6/30/2003		(b)		1,957		11,211		—		1,957		11,211		13,168		(1,160	)		35
Jacksonville		FL		6/30/2003		(b)		3,052		17,486		—		3,052		17,486		20,538		(1,809	)		35
Jacksonville		FL		6/30/2003		(b)		2,020		11,569		327		2,020		11,896		13,916		(1,197	)		35
Jacksonville		FL		6/30/2003		(b)		5,103		29,228		35		5,103		29,263		34,366		(3,024	)		35
Jacksonville		FL		6/30/2003		(b)		2,051		11,749		—		2,051		11,749		13,800		(1,215	)		35
Jacksonville		FL		6/30/2003		(b)		401		2,320		131		401		2,451		2,852		(247	)		35
Jacksonville		FL		6/30/2003		(b)		1		4		—		1		4		5		—			35
Jacksonville		FL		6/30/2003		(b)		409		2,341		33		409		2,374		2,783		(251	)		35
Jacksonville		FL		6/30/2003		(b)		173		982		—		173		982		1,155		(102	)		35
La Jolla		CA		6/30/2003		(b)		935		5,363		768		935		6,131		7,066		(561	)		35
Las Vegas		NV		6/30/2003		(b)		330		1,889		—		330		1,889		2,219		(195	)		35
Lexington		MO		6/30/2003		(b)		68		385		9		68		394		462		(42	)		35
LighthousePoint		FL		6/30/2003		(b)		363		2,104		55		363		2,159		2,522		(234	)		35
Long Beach		CA		6/30/2003		(b)		173		983		5		173		988		1,161		(102	)		35
Long Beach		CA		6/30/2003		(b)		814		4,663		22		814		4,685		5,499		(484	)		35
Long Beach		CA		6/30/2003		(b)		142		806		5		142		811		953		(84	)		35
Los Angeles		CA		6/30/2003		(b)		174		985		7		174		992		1,166		(103	)		35

118

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Los Angeles		CA		6/30/2003		(b)		110		622		—		110		622		732		(65	)		35
Lynwood		CA		6/30/2003		(b)		159		904		4		159		908		1,067		(94	)		35
Merced		CA		6/30/2003		—		470		2,693		4		470		2,697		3,167		(279	)		35
Mesa		AZ		6/30/2003		(b)		283		1,621		—		283		1,621		1,904		(168	)		35
Mexico		MO		6/30/2003		(b)		215		1,230		16		215		1,246		1,461		(142	)		35
Miami Lakes		FL		6/30/2003		(b)		2,123		12,161		5		2,128		12,161		14,289		(1,258	)		35
Miami Lakes		FL		6/30/2003		(b)		2,190		12,546		116		2,190		12,662		14,852		(1,314	)		35
Mission		TX		6/30/2003		(b)		113		642		—		113		642		755		(67	)		35
Mission Hills		CA		6/30/2003		(b)		205		1,179		6		205		1,185		1,390		(136	)		35
Moses Lake		WA		6/30/2003		(b)		216		1,222		14		216		1,236		1,452		(129	)		35
Moultrie		GA		6/30/2003		(b)		135		763		5		140		763		903		(79	)		35
Mt. Pleasant		TX		6/30/2003		(b)		131		740		28		131		768		899		(80	)		35
Murfreesboro		TN		6/30/2003		(b)		189		1,073		—		189		1,073		1,262		(112	)		35
Muskogee		OK		6/30/2003		(b)		212		1,204		51		212		1,255		1,467		(130	)		35
Newport Beach		CA		6/30/2003		(b)		439		2,517		3		439		2,520		2,959		(260	)		35
North Hollywood		CA		6/30/2003		(b)		367		2,105		3		367		2,108		2,475		(218	)		35
North Kansas City		MO		6/30/2003		(b)		328		1,881		102		328		1,983		2,311		(208	)		35
Norton		VA		6/30/2003		(b)		80		452		14		80		466		546		(49	)		35
Ocala		FL		6/30/2003		(b)		299		1,715		—		299		1,715		2,014		(177	)		35
Ontario		CA		6/30/2003		(b)		721		4,127		3		721		4,130		4,851		(427	)		35
Orlando		FL		6/30/2003		(b)		1,023		5,857		11		1,018		5,873		6,891		(607	)		35
Overland Park		KS		6/30/2003		(b)		244		1,395		—		244		1,395		1,639		(144	)		35
Palmdale		CA		6/30/2003		(b)		158		895		20		158		915		1,073		(94	)		35
Palmetto		FL		6/30/2003		(b)		109		624		8		109		632		741		(72	)		35
Pasadena		CA		6/30/2003		(b)		689		3,950		39		689		3,989		4,678		(420	)		35
Pasco		WA		6/30/2003		(b)		168		954		—		168		954		1,122		(99	)		35
Pensacola		FL		6/30/2003		(b)		323		1,851		297		323		2,148		2,471		(199	)		35

119

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Phoenix		AZ		6/30/2003		(b)		96		542		—		96		542		638		(56	)		35
Phoenix		AZ		6/30/2003		(b)		972		5,566		—		972		5,566		6,538		(576	)		35
Phoenix		AZ		6/30/2003		(b)		2,123		12,163		350		2,123		12,513		14,636		(1,294	)		35
Phoenix		AZ		6/30/2003		(b)		892		5,152		12		904		5,152		6,056		(541	)		35
Phoenix		AZ		6/30/2003		(b)		970		5,556		—		970		5,556		6,526		(575	)		35
Phoenix		AZ		6/30/2003		(b)		2,020		11,572		—		2,020		11,572		13,592		(1,197	)		35
Pomona		CA		6/30/2003		(b)		471		2,699		3		471		2,702		3,173		(279	)		35
Port Angeles		WA		6/30/2003		(b)		159		902		—		159		902		1,061		(94	)		35
Port Charlotte		FL		6/30/2003		(b)		198		1,125		24		198		1,149		1,347		(120	)		35
Red Bluff		CA		6/30/2003		(b)		330		1,888		180		330		2,068		2,398		(197	)		35
Redding		CA		6/30/2003		(b)		548		3,142		3		548		3,145		3,693		(325	)		35
Richland		MO		6/30/2003		(b)		106		602		—		106		602		708		(63	)		35
Richland		WA		6/30/2003		(b)		372		2,131		—		372		2,131		2,503		(220	)		35
Riverside		CA		6/30/2003		(b)		611		3,500		4		611		3,504		4,115		(362	)		35
Roanoke		VA		6/30/2003		(b)		299		1,713		107		299		1,820		2,119		(183	)		35
Rolla		MO		6/30/2003		(b)		86		487		—		86		487		573		(51	)		35
Sacramento		CA		6/30/2003		(b)		220		1,250		—		220		1,250		1,470		(130	)		35
Sacramento		CA		6/30/2003		(b)		174		984		5		174		989		1,163		(102	)		35
Salinas		CA		6/30/2003		(b)		330		1,888		5		330		1,893		2,223		(195	)		35
San Antonio		TX		6/30/2003		(b)		1,068		6,115		58		1,068		6,173		7,241		(637	)		35
San Bernadino		CA		6/30/2003		(b)		345		1,979		92		345		2,071		2,416		(219	)		35
Santa Barbara		CA		6/30/2003		(b)		1,408		8,069		91		1,408		8,160		9,568		(837	)		35
Santa Maria		CA		6/30/2003		(b)		334		1,916		—		334		1,916		2,250		(198	)		35
Savannah		GA		6/30/2003		(b)		386		2,210		—		386		2,210		2,596		(229	)		35
Seattle		WA		6/30/2003		(b)		333		1,905		—		333		1,905		2,238		(197	)		35
South Boston		VA		6/30/2003		(b)		114		649		27		114		676		790		(72	)		35
Spokane		WA		6/30/2003		(b)		4,808		33,675		1,190		4,832		34,841		39,673		(3,843	)		36

120

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Spokane		WA		6/30/2003		(b)		1,499		8,584		—			1,499		8,584		10,083		(888	)		35
Springfield		MO		6/30/2003		(b)		138		779		—			138		779		917		(81	)		35
Springfield		MO		6/30/2003		(b)		283		1,620		—			283		1,620		1,903		(168	)		35
St. Louis		MO		6/30/2003		(b)		217		1,244		33			217		1,277		1,494		(149	)		35
St. Louis		MO		6/30/2003		(b)		221		1,250		131			221		1,381		1,602		(143	)		35
Stockton		CA		6/30/2003		(b)		587		3,364		52			587		3,416		4,003		(358	)		35
Stuart		FL		6/30/2003		(b)		485		2,783		24			485		2,807		3,292		(298	)		35
Sunnyvale		CA		6/30/2003		(b)		627		3,590		2			627		3,592		4,219		(371	)		35
Tacoma		WA		6/30/2003		(b)		1,166		6,715		469			1,166		7,184		8,350		(792	)		35
Tampa		FL		6/30/2003		(b)		1,189		7,401		(286	)		1,189		7,115		8,304		(711	)		35
Tampa		FL		6/30/2003		(b)		426		2,442		—			426		2,442		2,868		(253	)		35
Torrance		CA		6/30/2003		(b)		222		1,258		10			222		1,268		1,490		(131	)		35
Tulsa		OK		6/30/2003		(b)		142		807		52			142		859		1,001		(86	)		35
Valdosta		GA		6/30/2003		(b)		259		1,487		68			259		1,555		1,814		(157	)		35
Ventura		CA		6/30/2003		(b)		355		2,032		5			355		2,037		2,392		(210	)		35
Waco		TX		6/30/2003		(b)		268		1,534		—			268		1,534		1,802		(159	)		35
Walla Walla		WA		6/30/2003		(b)		206		1,169		38			206		1,207		1,413		(129	)		35
Wenatchee		WA		6/30/2003		(b)		159		903		—			159		903		1,062		(94	)		35
Whittier		CA		6/30/2003		(b)		470		2,694		4			470		2,698		3,168		(279	)		35
Winder		GA		6/30/2003		(b)		96		541		3			96		544		640		(58	)		35
Winter Park		FL		6/30/2003		(b)		348		1,993		48			360		2,029		2,389		(209	)		35
Yakima		WA		6/30/2003		(b)		269		1,542		—			269		1,542		1,811		(159	)		35
Yuba City		CA		6/30/2003		(b)		302		1,733		76			302		1,809		2,111		(186	)		35
Fort Dodge		IA		7/10/2003		—		253		1,464		—			253		1,464		1,717		(153	)		35
Hickory		NC		8/8/2003		—		124		—		—			124		—		124		—			—
Bethel		OH		8/22/2003		—		51		314		—			51		314		365		(30	)		35
San Rafael		CA		8/28/2003		(f)		420		2,381		15			420		2,396		2,816		(231	)		35

121

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Abingdon		VA		8/29/2003		(f)		131		741		8		131		749		880		(73	)		35
Irvington		NJ		8/29/2003		(f)		131		741		—		131		741		872		(72	)		35
Wilkesboro		NC		8/29/2003		(f)		46		263		—		46		263		309		(26	)		35
Ashtabula		OH		9/12/2003		(f)		285		1,646		—		285		1,646		1,931		(165	)		35
Beachwood		OH		9/12/2003		(f)		232		1,363		—		232		1,363		1,595		(141	)		35
Bedford		OH		9/12/2003		(f)		96		609		—		96		609		705		(71	)		35
Berea		OH		9/12/2003		(f)		189		1,136		2		189		1,138		1,327		(123	)		35
Cincinnati		OH		9/12/2003		(f)		60		371		—		60		371		431		(42	)		35
Cincinnati		OH		9/12/2003		(f)		74		446		—		74		446		520		(48	)		35
Cleveland		OH		9/12/2003		(f)		73		452		—		73		452		525		(51	)		35
Cleveland		OH		9/12/2003		(f)		392		2,272		—		392		2,272		2,664		(230	)		35
Cleveland		OH		9/12/2003		(f)		80		491		—		80		491		571		(55	)		35
Cleveland		OH		9/12/2003		(f)		137		842		—		137		842		979		(94	)		35
Cleveland		OH		9/12/2003		(f)		67		446		—		67		446		513		(55	)		35
Cleveland		OH		9/12/2003		(f)		116		720		—		116		720		836		(81	)		35
Cleveland		OH		9/12/2003		(f)		131		805		—		131		805		936		(90	)		35
Conneaut		OH		9/12/2003		(f)		106		653		—		106		653		759		(74	)		35
Euclid		OH		9/12/2003		(f)		102		659		—		102		659		761		(79	)		35
Euclid		OH		9/12/2003		(f)		103		615		—		103		615		718		(65	)		35
Garfield Height		OH		9/12/2003		(f)		71		439		—		71		439		510		(50	)		35
Geneva		OH		9/12/2003		(f)		134		836		—		134		836		970		(96	)		35
Jefferson		OH		9/12/2003		(f)		130		819		—		130		819		949		(95	)		35
Kent		OH		9/12/2003		(f)		43		248		—		43		248		291		(25	)		35
Mason		OH		9/12/2003		(f)		58		345		—		58		345		403		(37	)		35
Medina		OH		9/12/2003		(f)		100		606		—		100		606		706		(66	)		35
Mentor		OH		9/12/2003		(f)		98		588		—		98		588		686		(63	)		35
Mentor		OH		9/12/2003		(f)		152		903		—		152		903		1,055		(96	)		35

122

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Milford		OH		9/12/2003		(f)		108		675		—		108		675		783		(78	)		35
Pepper Pike		OH		9/12/2003		(f)		167		978		—		167		978		1,145		(101	)		35
Rock Creek		OH		9/12/2003		(f)		45		273		—		45		273		318		(30	)		35
Shaker Heights		OH		9/12/2003		(f)		241		1,442		2		241		1,444		1,685		(154	)		35
Springfield Twp		OH		9/12/2003		(f)		64		383		—		64		383		447		(41	)		35
Strongsville		OH		9/12/2003		(f)		103		654		—		103		654		757		(77	)		35
Asheville		NC		9/24/2003		—		505		2,923		—		505		2,923		3,428		(275	)		35
Asheville		NC		9/24/2003		—		60		350		—		60		350		410		(33	)		35
Asheville		NC		9/24/2003		(c)		64		374		—		64		374		438		(35	)		35
Black Mountain		NC		9/24/2003		(f)		30		194		—		30		194		224		(25	)		35
Boone		NC		9/24/2003		(c)		112		655		—		112		655		767		(62	)		35
Brevard		NC		9/24/2003		(f)		50		314		—		50		314		364		(39	)		35
Burgaw		NC		9/24/2003		(c)		63		369		—		63		369		432		(35	)		35
Burlington		NC		9/24/2003		(c)		210		1,215		6		210		1,221		1,431		(115	)		35
Burlington		NC		9/24/2003		(c)		95		552		—		95		552		647		(52	)		35
Calabash		NC		9/24/2003		(f)		69		414		—		69		414		483		(46	)		35
Candler		NC		9/24/2003		(c)		74		430		—		74		430		504		(40	)		35
Carolina Beach		NC		9/24/2003		(c)		154		895		—		154		895		1,049		(84	)		35
Cary		NC		9/24/2003		(c)		81		472		—		81		472		553		(44	)		35
Charlotte		NC		9/24/2003		—		79		462		—		79		462		541		(44	)		35
Charlotte		NC		9/24/2003		(c)		101		587		—		101		587		688		(55	)		35
Charlotte		NC		9/24/2003		(c)		87		505		—		87		505		592		(48	)		35
Charlotte		NC		9/24/2003		(c)		95		554		—		95		554		649		(52	)		35
Charlotte		NC		9/24/2003		(c)		178		1,035		—		178		1,035		1,213		(98	)		35
Charlotte		NC		9/24/2003		(c)		230		1,338		—		230		1,338		1,568		(126	)		35
Charlotte		NC		9/24/2003		(c)		166		965		—		166		965		1,131		(91	)		35
Charlotte		NC		9/24/2003		(c)		142		826		—		142		826		968		(78	)		35

123

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Charlotte		NC		9/24/2003		(c)		172		1,003		—			172		1,003		1,175		(94	)		35
Cherryville		NC		9/24/2003		(c)		73		427		—			73		427		500		(40	)		35
Columbus		NC		9/24/2003		(c)		48		281		—			48		281		329		(26	)		35
Cornelius		NC		9/24/2003		(c)		259		1,510		3			259		1,513		1,772		(143	)		35
Dallas		NC		9/24/2003		(c)		64		372		—			64		372		436		(35	)		35
Denver		NC		9/24/2003		(c)		54		312		—			54		312		366		(29	)		35
Dunn		NC		9/24/2003		(f)		166		1,052		—			166		1,052		1,218		(135	)		35
Durham		NC		9/24/2003		(c)		79		463		—			79		463		542		(44	)		35
Durham		NC		9/24/2003		(c)		95		551		—			95		551		646		(52	)		35
Eden		NC		9/24/2003		(f)		30		184		—			30		184		214		(21	)		35
Eden		NC		9/24/2003		—		93		526		(52	)		93		474		567		(48	)		35
Eden		NC		9/24/2003		(c)		144		834		—			144		834		978		(78	)		35
Elizabethtown		NC		9/24/2003		(c)		86		499		—			86		499		585		(47	)		35
Farmville		NC		9/24/2003		(c)		128		747		—			128		747		875		(70	)		35
Fayetteville		NC		9/24/2003		(c)		92		535		—			92		535		627		(50	)		35
Fayetteville		NC		9/24/2003		(c)		86		502		—			86		502		588		(47	)		35
Fayetteville		NC		9/24/2003		(c)		88		513		—			88		513		601		(48	)		35
Garner		NC		9/24/2003		(c)		103		601		—			103		601		704		(57	)		35
Gastonia		NC		9/24/2003		(c)		81		472		—			81		472		553		(44	)		35
Gastonia		NC		9/24/2003		(c)		396		2,276		—			396		2,276		2,672		(214	)		35
Gastonia		NC		9/24/2003		(c)		188		1,087		—			188		1,087		1,275		(102	)		35
Greensboro		NC		9/24/2003		(c)		128		745		—			128		745		873		(70	)		35
Greensboro		NC		9/24/2003		(c)		102		594		—			102		594		696		(56	)		35
Greenville		NC		9/24/2003		—		88		497		—			88		497		585		(47	)		35
Greenville		NC		9/24/2003		—		499		2,831		2			499		2,833		3,332		(265	)		35
Greenville		NC		9/24/2003		(c)		137		799		—			137		799		936		(75	)		35
Greenville		NC		9/24/2003		(c)		91		530		—			91		530		621		(50	)		35

124

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Havelock		NC		9/24/2003		(f)		81		515		—		81		515		596		(66	)		35
Henderson		NC		9/24/2003		(c)		68		390		—		68		390		458		(37	)		35
Henderson		NC		9/24/2003		(c)		22		129		672		123		700		823		(66	)		35
High Point		NC		9/24/2003		(c)		74		429		—		74		429		503		(40	)		35
High Point		NC		9/24/2003		(c)		131		762		—		131		762		893		(72	)		35
Hillsborough		NC		9/24/2003		(c)		39		225		—		39		225		264		(21	)		35
Kenansville		NC		9/24/2003		(c)		72		418		—		72		418		490		(39	)		35
Kinston		NC		9/24/2003		(f)		60		363		—		60		363		423		(41	)		35
Kinston		NC		9/24/2003		(c)		150		876		—		150		876		1,026		(82	)		35
Lincolnton		NC		9/24/2003		—		397		2,303		—		397		2,303		2,700		(265	)		35
Lincolnton		NC		9/24/2003		(c)		96		561		—		96		561		657		(53	)		35
Marion		NC		9/24/2003		(c)		197		1,148		3		197		1,151		1,348		(108	)		35
Monroe		NC		9/24/2003		(c)		155		907		—		155		907		1,062		(85	)		35
Mooresville		NC		9/24/2003		(c)		122		708		—		122		708		830		(67	)		35
Mount Olive		NC		9/24/2003		(c)		90		519		—		90		519		609		(49	)		35
Mt. Airy		NC		9/24/2003		(c)		63		369		—		63		369		432		(35	)		35
New Bern		NC		9/24/2003		(c)		84		489		—		84		489		573		(46	)		35
North Wilkesboro		NC		9/24/2003		(f)		73		439		—		73		439		512		(49	)		35
Pinehurst		NC		9/24/2003		(c)		105		610		—		105		610		715		(57	)		35
Pleasant Garden		NC		9/24/2003		(c)		44		257		—		44		257		301		(24	)		35
Raleigh		NC		9/24/2003		(c)		140		819		—		140		819		959		(77	)		35
Raleigh		NC		9/24/2003		(c)		120		699		—		120		699		819		(66	)		35
Raleigh		NC		9/24/2003		(c)		84		490		—		84		490		574		(46	)		35
Raleigh		NC		9/24/2003		(c)		258		1,491		—		258		1,491		1,749		(140	)		35
Reidsville		NC		9/24/2003		(c)		94		541		—		94		541		635		(51	)		35
Richlands		NC		9/24/2003		(f)		53		328		—		53		328		381		(41	)		35
Salisbury		NC		9/24/2003		(c)		170		994		—		170		994		1,164		(94	)		35

125

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Salisbury		NC		9/24/2003		(c)		65		379		—		65		379		444		(36	)		35
Southern Piens		NC		9/24/2003		(c)		142		829		—		142		829		971		(78	)		35
Spring Lake		NC		9/24/2003		(c)		155		907		—		155		907		1,062		(85	)		35
Spruce Pine		NC		9/24/2003		(c)		126		719		—		126		719		845		(67	)		35
Stanley		NC		9/24/2003		—		76		440		—		76		440		516		(41	)		35
Statesville		NC		9/24/2003		(c)		135		784		—		135		784		919		(74	)		35
Statesville		NC		9/24/2003		(c)		337		1,927		—		337		1,927		2,264		(181	)		35
Swansboro		NC		9/24/2003		(c)		47		273		—		47		273		320		(26	)		35
Tarboro		NC		9/24/2003		(f)		42		237		—		42		237		279		(22	)		35
Tarboro		NC		9/24/2003		(f)		120		733		—		120		733		853		(86	)		35
Troutman		NC		9/24/2003		(c)		86		499		—		86		499		585		(47	)		35
Tryon		NC		9/24/2003		(c)		147		856		—		147		856		1,003		(81	)		35
Washington		NC		9/24/2003		(f)		70		417		—		70		417		487		(46	)		35
Washington		NC		9/24/2003		(c)		111		636		—		111		636		747		(60	)		35
Wilmington		NC		9/24/2003		—		57		321		—		57		321		378		(30	)		35
Wilmington		NC		9/24/2003		(c)		186		1,086		—		186		1,086		1,272		(102	)		35
Wilmington		NC		9/24/2003		(c)		155		903		—		155		903		1,058		(85	)		35
Winston-Salem		NC		9/24/2003		(c)		223		1,301		—		223		1,301		1,524		(123	)		35
Winston-Salem		NC		9/24/2003		(c)		95		555		—		95		555		650		(52	)		35
High Point		NC		9/30/2003		(f)		106		601		—		106		601		707		(56	)		35
Wilmington		DE		9/30/2003		42,150		4,900		38,163		4,674		4,900		42,837		47,737		(5,302	)		33
St. Louis		MO		12/15/2003		60,235		10,153		66,654		1,463		10,134		68,136		78,270		(7,129	)		35
Wilmington		NC		12/22/2003		—		115		696		—		115		696		811		(58	)		35
Boston		MA		2/17/2004		551,488		68,300		411,909		117		68,300		412,026		480,326		(35,773	)		35
Arlington		TX		2/20/2004		1,716		237		1,522		4		237		1,526		1,763		(121	)		35
Ennis		TX		2/20/2004		1,798		226		1,486		124		226		1,610		1,836		(131	)		35
Hillsboro		TX		2/20/2004		792		100		681		64		100		745		845		(74	)		35

126

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Paris		TX		2/20/2004		1,122		138		908		5		138		913		1,051		(75	)		35
Stephenville		TX		2/20/2004		1,452		190		1,243		—		190		1,243		1,433		(102	)		35
Sylvania		GA		4/1/2004		(f)		100		568		—		100		568		668		(41	)		35
Leesburg		VA		6/25/2004		(f)		505		3,065		2		505		3,067		3,572		(192	)		35
Charlotte		NC		7/29/2004		78,836		12,259		77,057		458		12,259		77,515		89,774		(6,276	)		35
Charlotte		NC		9/1/2004		(f)		136		768		—		136		768		904		(43	)		35
Dunwoody		GA		9/1/2004		—		144		817		—		144		817		961		(45	)		35
Marietta		GA		9/1/2004		—		109		615		—		109		615		724		(34	)		35
York		PA		9/1/2004		(f)		57		324		—		57		324		381		(18	)		35
Alexandria		VA		9/22/2004		(d)		72		445		—		72		445		517		(26	)		35
Alexandria		VA		9/22/2004		(d)		443		1,075		16		443		1,091		1,534		(64	)		35
Amherst		VA		9/22/2004		(d)		24		166		—		24		166		190		(9	)		35
Anderson		SC		9/22/2004		(d)		49		344		—		49		344		393		(19	)		35
Asheville		NC		9/22/2004		(d)		348		2,853		—		348		2,853		3,201		(146	)		35
Atlanta		GA		9/22/2004		(d)		1,777		15,215		—		1,777		15,215		16,992		(780	)		35
Baltimore		MD		9/22/2004		(d)		199		1,370		—		199		1,370		1,569		(98	)		35
Basset		VA		9/22/2004		(d)		108		640		8		108		648		756		(34	)		35
Beaufort		SC		9/22/2004		(d)		90		565		—		90		565		655		(30	)		35
Belle Glade		FL		9/22/2004		(d)		48		303		59		48		362		410		(21	)		35
Belmont		NC		9/22/2004		(d)		8		71		69		8		140		148		(4	)		35
Bennettsville		SC		9/22/2004		(d)		48		289		—		48		289		337		(15	)		35
Blacksburg		VA		9/22/2004		(d)		36		250		—		36		250		286		(16	)		35
Boynton Beach		FL		9/22/2004		(d)		108		635		18		108		653		761		(34	)		35
Brick		NJ		9/22/2004		(d)		355		2,248		—		355		2,248		2,603		(112	)		35
Bristol		PA		9/22/2004		(d)		78		467		—		78		467		545		(25	)		35
Brookneal		VA		9/22/2004		(d)		36		230		—		36		230		266		(12	)		35
Burlington		NC		9/22/2004		(d)		216		1,524		50		216		1,574		1,790		(80	)		35

127

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Camden		SC		9/22/2004		(d)		48		291		—			48		291		339		(15	)		35
Cape Canaveral		FL		9/22/2004		(d)		114		671		—			114		671		785		(35	)		35
Charleston		SC		9/22/2004		(d)		408		3,014		—			408		3,014		3,422		(153	)		35
Charlottesville		VA		9/22/2004		(d)		423		3,085		35			423		3,120		3,543		(175	)		35
Christiansburg		VA		9/22/2004		(d)		72		456		—			72		456		528		(24	)		35
Clintwood		VA		9/22/2004		(d)		48		311		—			48		311		359		(17	)		35
Cocoa		FL		9/22/2004		(d)		96		572		—			96		572		668		(30	)		35
Colombia		SC		9/22/2004		(d)		568		6,490		—			568		6,490		7,058		(340	)		35
Columbus		GA		9/22/2004		(d)		348		2,720		19			348		2,739		3,087		(141	)		35
Crandford		NJ		9/22/2004		(d)		236		1,367		2			236		1,369		1,605		(71	)		35
Dade City		FL		9/22/2004		(d)		48		272		7			48		279		327		(14	)		35
Dalton		GA		9/22/2004		(d)		144		962		27			144		989		1,133		(52	)		35
Daytona Beach		FL		9/22/2004		(d)		192		1,152		(69	)		192		1,083		1,275		(61	)		35
Deland		FL		9/22/2004		(d)		192		1,163		—			192		1,163		1,355		(61	)		35
Delray Beach		FL		9/22/2004		(d)		144		857		—			144		857		1,001		(45	)		35
Dillon		SC		9/22/2004		(d)		48		290		—			48		290		338		(15	)		35
Doylestown		PA		9/22/2004		(d)		168		977		19			168		996		1,164		(55	)		35
Dunedin		FL		9/22/2004		(d)		216		1,457		—			216		1,457		1,673		(77	)		35
East Haven		CT		9/22/2004		(d)		56		334		—			56		334		390		(18	)		35
Fort Myers		FL		9/22/2004		(d)		396		2,723		—			396		2,723		3,119		(156	)		35
Franklin		NC		9/22/2004		(d)		12		98		—			12		98		110		(5	)		35
Glen Allen		VA		9/22/2004		(d)		863		6,538		194			863		6,732		7,595		(332	)		35
Glen Allen		VA		9/22/2004		(d)		1,019		7,680		—			1,019		7,680		8,699		(388	)		35
Goldsboro		NC		9/22/2004		(d)		228		1,694		10			228		1,704		1,932		(148	)		35
Hadden Twnship		NJ		9/22/2004		(d)		467		3,872		414			467		4,286		4,753		(197	)		35
Hanover		PA		9/22/2004		(d)		144		857		—			144		857		1,001		(45	)		35
Harrisinburg		VA		9/22/2004		(d)		144		899		—			144		899		1,043		(48	)		35

128

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Hendersonville		NC		9/22/2004		(d)		120		745		—		120		745		865		(39	)		35
Hillside		NJ		9/22/2004		(d)		144		830		—		144		830		974		(43	)		35
Hollywood		FL		9/22/2004		(d)		72		434		12		72		446		518		(24	)		35
Jenkintown		PA		9/22/2004		(d)		204		1,221		—		204		1,221		1,425		(66	)		35
Kingston		NY		9/22/2004		(d)		70		419		—		70		419		489		(22	)		35
Lakeland		FL		9/22/2004		(d)		228		1,590		—		228		1,590		1,818		(80	)		35
Lancaster		PA		9/22/2004		(d)		683		4,953		23		683		4,976		5,659		(253	)		35
Lebanon		PA		9/22/2004		(d)		36		233		—		36		233		269		(15	)		35
Madison		FL		9/22/2004		(d)		48		298		—		48		298		346		(16	)		35
Media		PA		9/22/2004		(d)		216		1,252		—		216		1,252		1,468		(65	)		35
Melbourne		FL		9/22/2004		(d)		144		855		—		144		855		999		(45	)		35
Milford		PA		9/22/2004		(d)		42		255		—		42		255		297		(13	)		35
Morristown		NJ		9/22/2004		(d)		638		4,333		—		638		4,333		4,971		(217	)		35
Mount Carmel		PA		9/22/2004		(d)		18		120		—		18		120		138		(6	)		35
Mt. Penn		PA		9/22/2004		(d)		39		244		—		39		244		283		(13	)		35
Naples		FL		9/22/2004		(d)		216		1,242		—		216		1,242		1,458		(65	)		35
Naples		FL		9/22/2004		(d)		132		766		—		132		766		898		(40	)		35
New Haven		CT		9/22/2004		(d)		76		445		—		76		445		521		(23	)		35
New Paltz		NY		9/22/2004		(d)		204		1,196		—		204		1,196		1,400		(63	)		35
New Port Richey		FL		9/22/2004		(d)		108		632		—		108		632		740		(33	)		35
New Smyrna Beach		FL		9/22/2004		(d)		96		578		—		96		578		674		(30	)		35
Norfolk		VA		9/22/2004		(d)		48		307		—		48		307		355		(16	)		35
Norristown		PA		9/22/2004		(d)		240		1,550		—		240		1,550		1,790		(79	)		35
North Brunswick		NJ		9/22/2004		(d)		—		261		—		—		261		261		(16	)		35
North Brunswick		NJ		9/22/2004		(d)		1,140		9,485		—		1,140		9,485		10,625		(481	)		35
Norwalk		CT		9/22/2004		(d)		192		1,350		—		192		1,350		1,542		(69	)		35
Paterson		NJ		9/22/2004		(d)		180		1,079		—		180		1,079		1,259		(57	)		35

129

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Pennington		NJ		9/22/2004		(d)		229		1,327		—		229		1,327		1,556		(69	)		35
Pensacola		FL		9/22/2004		(d)		156		937		169		156		1,106		1,262		(61	)		35
Perry		FL		9/22/2004		(d)		48		304		—		48		304		352		(16	)		35
Perth Amboy		NJ		9/22/2004		(d)		78		593		5		78		598		676		(33	)		35
Petersburg		VA		9/22/2004		(d)		36		233		—		36		233		269		(12	)		35
Phoenixville		PA		9/22/2004		(d)		120		716		4		120		720		840		(38	)		35
Philadelphia		PA		9/22/2004		(d)		276		1,762		—		276		1,762		2,038		(88	)		35
Philadelphia		PA		9/22/2004		(d)		132		782		40		132		822		954		(45	)		35
Philadelphia		PA		9/22/2004		(d)		1,335		11,570		262		1,335		11,832		13,167		(618	)		35
Pittston		PA		9/22/2004		(d)		24		158		—		24		158		182		(8	)		35
Port Richey		FL		9/22/2004		(d)		204		1,259		12		204		1,271		1,475		(67	)		35
Pottstown		PA		9/22/2004		(d)		24		158		—		24		158		182		(8	)		35
Raleigh		NC		9/22/2004		(d)		3,200		25,480		231		3,200		25,711		28,911		(1,316	)		35
Red Bank		NJ		9/22/2004		(d)		544		3,686		—		544		3,686		4,230		(185	)		35
Richlands		VA		9/22/2004		(d)		24		161		—		24		161		185		(9	)		35
Roanoke		VA		9/22/2004		(d)		3,440		26,788		192		3,440		26,980		30,420		(1,378	)		35
Scotch Plains		NJ		9/22/2004		(d)		156		901		—		156		901		1,057		(47	)		35
Scranton		PA		9/22/2004		(d)		45		456		218		45		674		719		(43	)		35
Sebring		FL		9/22/2004		(d)		72		559		220		72		779		851		(75	)		35
Shelton		CT		9/22/2004		(d)		348		2,448		8		348		2,456		2,804		(123	)		35
Smithfield		NC		9/22/2004		(d)		48		302		—		48		302		350		(16	)		35
Spartanburg		SC		9/22/2004		(d)		188		1,244		39		188		1,283		1,471		(67	)		35
Succasunna		NJ		9/22/2004		(d)		204		1,188		—		204		1,188		1,392		(62	)		35
Sumter		SC		9/22/2004		(d)		108		649		—		108		649		757		(34	)		35
Tampa		FL		9/22/2004		(d)		132		778		—		132		778		910		(41	)		35
Thomasville		NC		9/22/2004		(d)		84		504		—		84		504		588		(27	)		35
Titusville		FL		9/22/2004		(d)		144		852		189		144		1,041		1,185		(53	)		35

130

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Toms River		NJ		9/22/2004		(d)		300		2,308		—		300		2,308		2,608		(117	)		35
Trenton		NJ		9/22/2004		(d)		147		888		—		147		888		1,035		(47	)		35
Union		NJ		9/22/2004		(d)		228		1,314		—		228		1,314		1,542		(69	)		35
Vienna		VA		9/22/2004		(d)		320		739		—		320		739		1,059		(43	)		35
Virginia Beach		VA		9/22/2004		(d)		156		1,227		—		156		1,227		1,383		(63	)		35
Warrenton		VA		9/22/2004		(d)		60		359		99		60		458		518		(21	)		35
Washington		NJ		9/22/2004		(d)		60		367		—		60		367		427		(19	)		35
Waterbury		CT		9/22/2004		(d)		168		1,632		17		168		1,649		1,817		(84	)		35
West Chester		PA		9/22/2004		(d)		240		1,586		—		240		1,586		1,826		(80	)		35
West Palm Beach		FL		9/22/2004		(d)		180		1,106		284		180		1,390		1,570		(84	)		35
West Palm Beach		FL		9/22/2004		(d)		719		4,745		551		719		5,296		6,015		(317	)		35
West Palm Beach		FL		9/22/2004		(d)		48		294		30		48		324		372		(19	)		35
West Palm Beach		FL		9/22/2004		(d)		755		5,219		217		755		5,436		6,191		(274	)		35
Williamsburg		VA		9/22/2004		(d)		108		649		—		108		649		757		(34	)		35
Williamston		NC		9/22/2004		(d)		48		303		—		48		303		351		(16	)		35
Wind Gap		PA		9/22/2004		(d)		24		149		—		24		149		173		(8	)		35
Winstom Salem		NC		9/22/2004		(d)		6,832		22,876		387		6,832		23,263		30,095		(1,761	)		35
Winstom Salem		NC		9/22/2004		(d)		1,258		13,128		—		1,258		13,128		14,386		(683	)		35
Winstom Salem		NC		9/22/2004		(d)		851		7,583		17		851		7,600		8,451		(391	)		35
Winter Garden		FL		9/22/2004		(d)		84		502		—		84		502		586		(26	)		35
Winterville		NC		9/22/2004		(d)		947		7,265		15		947		7,280		8,227		(369	)		35
Woodbridge		CT		9/22/2004		(d)		108		625		—		108		625		733		(33	)		35
York		PA		9/22/2004		(d)		216		1,605		121		216		1,726		1,942		(94	)		35
Abingdon		VA		10/1/2004		(e)		91		550		—		91		550		641		(30	)		35
Albany		NY		10/1/2004		(e)		966		7,642		3		966		7,645		8,611		(402	)		35
Albany		NY		10/1/2004		(e)		1,296		9,934		129		1,296		10,063		11,359		(622	)		35
Arnold		CA		10/1/2004		(e)		106		601		—		106		601		707		(31	)		35

131

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Auburn		ME		10/1/2004		(e)		77		438		—		77		438		515		(23	)		35
Auburn		NY		10/1/2004		(e)		426		3,034		4		426		3,038		3,464		(159	)		35
Austin		TX		10/1/2004		(e)		67		409		—		67		409		476		(22	)		35
Bakersfield		CA		10/1/2004		(e)		125		730		—		125		730		855		(38	)		35
Baldwin		NY		10/1/2004		(e)		68		388		—		68		388		456		(20	)		35
Ballwin		MO		10/1/2004		(e)		111		666		—		111		666		777		(36	)		35
Batesville		AR		10/1/2004		(e)		57		350		—		57		350		407		(19	)		35
Beaumont		TX		10/1/2004		(e)		67		379		—		67		379		446		(20	)		35
Belleair Bluffs		FL		10/1/2004		(e)		90		1,171		—		180		1,081		1,261		(57	)		35
Belton		MO		10/1/2004		(e)		106		641		3		106		644		750		(35	)		35
Benton		AR		10/1/2004		(e)		80		508		—		80		508		588		(30	)		35
Bergenfield		NJ		10/1/2004		(e)		88		496		—		88		496		584		(26	)		35
Blountstown		FL		10/1/2004		(e)		80		486		—		80		486		566		(26	)		35
Bradenton		FL		10/1/2004		(e)		92		555		16		92		571		663		(30	)		35
Bradentown		FL		10/1/2004		(e)		131		818		—		131		818		949		(44	)		35
Bridgewater		NJ		10/1/2004		(e)		879		6,109		271		879		6,380		7,259		(323	)		35
Broken Arrow		OK		10/1/2004		(e)		74		470		10		74		480		554		(37	)		35
Brooksville		FL		10/1/2004		(e)		117		738		—		117		738		855		(40	)		35
Buffalo		NY		10/1/2004		—		1,215		8,258		3		1,215		8,261		9,476		(503	)		35
Burbank		CA		10/1/2004		(e)		142		830		—		142		830		972		(43	)		35
Burlingame		CA		10/1/2004		(e)		122		779		—		122		779		901		(42	)		35
Camas		WA		10/1/2004		(e)		72		430		—		72		430		502		(23	)		35
Canoga Park		CA		10/1/2004		(e)		108		611		—		108		611		719		(32	)		35
Cape Coral		FL		10/1/2004		(e)		95		574		—		95		574		669		(31	)		35
Catoosa		OK		10/1/2004		(e)		85		506		53		85		559		644		(28	)		35
Charlotte		NC		10/1/2004		(e)		2,828		21,587		73		2,828		21,660		24,488		(1,160	)		35
Clarkson		WA		10/1/2004		(e)		91		558		—		91		558		649		(30	)		35

132

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Clarksville		TN		10/1/2004		(e)		111		672		66		111		738		849		(39	)		35
Cocoa		FL		10/1/2004		(f)		108		710		—		108		710		818		(43	)		35
Columbia		TN		10/1/2004		(e)		87		518		—		87		518		605		(28	)		35
Crystal River		FL		10/1/2004		(e)		99		613		—		99		613		712		(33	)		35
Daytona Beach		FL		10/1/2004		(e)		144		917		—		144		917		1,061		(49	)		35
Decatur		GA		10/1/2004		(e)		93		564		—		93		564		657		(26	)		35
Dinuba		CA		10/1/2004		(e)		105		592		—		105		592		697		(31	)		35
Duncanville		TX		10/1/2004		(e)		45		279		—		45		279		324		(15	)		35
East Brunswick		NJ		10/1/2004		(e)		149		872		—		149		872		1,021		(45	)		35
East Brunswick		NJ		10/1/2004		(e)		111		631		—		111		631		742		(33	)		35
East Meadow		NY		10/1/2004		(e)		76		431		—		76		431		507		(22	)		35
East Point		GA		10/1/2004		(e)		114		687		—		114		687		801		(40	)		35
Edmonds		WA		10/1/2004		(e)		84		515		—		84		515		599		(28	)		35
Enid		OK		10/1/2004		(e)		63		376		—		63		376		439		(20	)		35
Eureka		CA		10/1/2004		(e)		124		725		—		124		725		849		(37	)		35
Eustis		FL		10/1/2004		(e)		108		613		—		108		613		721		(32	)		35
Fairfax		VA		10/1/2004		(e)		161		941		—		161		941		1,102		(48	)		35
Farmington		CT		10/1/2004		(e)		1,266		9,598		14		1,266		9,612		10,878		(511	)		35
Fitzgerald		GA		10/1/2004		(e)		60		340		—		60		340		400		(18	)		35
Florence		SC		10/1/2004		(e)		119		707		—		119		707		826		(38	)		35
Folsum		CA		10/1/2004		(e)		112		1,191		—		112		1,191		1,303		(47	)		35
Forsyth		MO		10/1/2004		(e)		82		490		—		82		490		572		(26	)		35
Fort Bragg		CA		10/1/2004		(e)		85		480		—		85		480		565		(25	)		35
Freehold		NJ		10/1/2004		(e)		177		1,362		15		177		1,377		1,554		(73	)		35
Fresno		CA		10/1/2004		(e)		114		648		—		114		648		762		(34	)		35
Ft Walton Beach		FL		10/1/2004		(e)		112		669		28		112		697		809		(38	)		35
Ft. Lauderdale		FL		10/1/2004		(e)		103		621		11		103		632		735		(34	)		35

133

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Ft. Myers Beach		FL		10/1/2004		(e)		91		548		—		91		548		639		(30	)		35
Grants Pass		OR		10/1/2004		(e)		62		392		—		62		392		454		(22	)		35
Great Neck		NY		10/1/2004		(e)		75		425		—		75		425		500		(22	)		35
Greenwich		CT		10/1/2004		(e)		256		2,092		—		256		2,092		2,348		(131	)		35
Greenwood		SC		10/1/2004		(e)		59		373		—		59		373		432		(21	)		35
Gresham		OR		10/1/2004		(e)		115		735		—		115		735		850		(40	)		35
Hammonton		NJ		10/1/2004		(e)		272		2,038		—		272		2,038		2,310		(109	)		35
Hampton		VA		10/1/2004		(e)		129		817		—		129		817		946		(49	)		35
Hanford		CA		10/1/2004		(e)		96		599		—		96		599		695		(33	)		35
Hartford		CT		10/1/2004		(e)		162		4,283		—		162		4,283		4,445		(440	)		35
Hartwell		GA		10/1/2004		(e)		78		440		—		78		440		518		(23	)		35
Healdsburg		CA		10/1/2004		(e)		111		630		—		111		630		741		(33	)		35
Helmet		CA		10/1/2004		(e)		178		1,040		—		178		1,040		1,218		(53	)		35
Hendersonville		NC		10/1/2004		(e)		90		548		—		90		548		638		(30	)		35
Hilton Head		SC		10/1/2004		(e)		141		866		—		141		866		1,007		(46	)		35
Homestead		FL		10/1/2004		(e)		106		686		14		106		700		806		(38	)		35
Horsham		PA		10/1/2004		(e)		955		7,227		2		955		7,229		8,184		(385	)		35
Houston		TX		10/1/2004		(e)		110		699		—		110		699		809		(48	)		35
Independence		MO		10/1/2004		(e)		97		597		—		97		597		694		(33	)		35
Inverness		FL		10/1/2004		(e)		127		783		—		127		783		910		(42	)		35
Jamaica		NY		10/1/2004		(e)		99		560		—		99		560		659		(29	)		35
Jay		FL		10/1/2004		(e)		65		392		—		65		392		457		(21	)		35
Jesup		GA		10/1/2004		(e)		75		458		—		75		458		533		(25	)		35
Kansas City		KS		10/1/2004		—		61		346		—		61		346		407		(18	)		35
Kansas City		MO		10/1/2004		(e)		100		598		—		100		598		698		(32	)		35
Kansas City		MO		10/1/2004		(e)		147		896		—		147		896		1,043		(47	)		35
Keene		NH		10/1/2004		(e)		141		873		—		141		873		1,014		(49	)		35

134

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Kennewick		WA		10/1/2004		(e)		115		699		—		115		699		814		(38	)		35
Lake City		FL		10/1/2004		—		87		521		—		87		521		608		(28	)		35
Lakeland		FL		10/1/2004		(e)		81		482		—		81		482		563		(26	)		35
Lakewood		NJ		10/1/2004		(e)		134		782		8		134		790		924		(41	)		35
Lancaster		CA		10/1/2004		(e)		140		816		—		140		816		956		(42	)		35
Largo		FL		10/1/2004		(e)		176		1,065		—		176		1,065		1,241		(56	)		35
Largo		FL		10/1/2004		(e)		90		537		—		90		537		627		(29	)		35
Las Cruces		NM		10/1/2004		(e)		95		622		—		95		622		717		(45	)		35
Las Vegas		NV		10/1/2004		(e)		974		7,368		2		974		7,370		8,344		(392	)		35
Lebanon		TN		10/1/2004		(e)		92		553		—		92		553		645		(30	)		35
Lemoore		CA		10/1/2004		(e)		83		473		—		83		473		556		(25	)		35
Levittown		NY		10/1/2004		(e)		116		678		—		116		678		794		(35	)		35
Linden		NJ		10/1/2004		(e)		166		970		12		166		982		1,148		(51	)		35
Live Oak		FL		10/1/2004		(e)		61		368		—		61		368		429		(20	)		35
Livermore		CA		10/1/2004		(e)		176		1,029		—		176		1,029		1,205		(53	)		35
Lodi		NJ		10/1/2004		(e)		100		564		30		100		594		694		(30	)		35
Long Beach		NY		10/1/2004		(e)		102		580		7		102		587		689		(30	)		35
Longwood		FL		10/1/2004		(e)		64		388		—		64		388		452		(21	)		35
Los Angeles		CA		10/1/2004		(e)		122		713		—		122		713		835		(37	)		35
Los Angeles		CA		10/1/2004		(e)		137		803		—		137		803		940		(41	)		35
Lynden		WA		10/1/2004		(e)		70		419		—		70		419		489		(23	)		35
Malden		MA		10/1/2004		(e)		94		531		—		94		531		625		(28	)		35
Malden		MA		10/1/2004		(e)		3,095		23,448		5		3,095		23,453		26,548		(1,247	)		35
Malverne		NY		10/1/2004		(e)		107		606		—		107		606		713		(32	)		35
Maplewood		NJ		10/1/2004		(e)		154		898		—		154		898		1,052		(52	)		35
Marshall		MO		10/1/2004		—		46		290		—		46		290		336		(16	)		35
Marysville		CA		10/1/2004		(e)		79		448		—		79		448		527		(23	)		35

135

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Melville		NY		10/1/2004		(e)		183		1,208		—		183		1,208		1,391		(66	)		35
Merrick		NY		10/1/2004		(e)		194		1,470		11		194		1,481		1,675		(83	)		35
Miami		FL		10/1/2004		(e)		172		1,002		—		172		1,002		1,174		(52	)		35
Miami		FL		10/1/2004		(e)		140		892		—		140		892		1,032		(48	)		35
Miami Shores		FL		10/1/2004		(e)		138		832		—		138		832		970		(44	)		35
Miami Shores		FL		10/1/2004		(e)		84		508		—		84		508		592		(28	)		35
Montrose		CA		10/1/2004		(e)		109		616		—		109		616		725		(32	)		35
Morrisville		PA		10/1/2004		(e)		99		564		—		99		564		663		(29	)		35
Mountain Home		AR		10/1/2004		(e)		97		598		—		97		598		695		(33	)		35
Nashua		NH		10/1/2004		(e)		365		2,720		17		365		2,737		3,102		(162	)		35
Nederland		TX		10/1/2004		(e)		74		420		—		74		420		494		(22	)		35
New Port Richey		FL		10/1/2004		(e)		68		413		—		68		413		481		(22	)		35
Newark		DE		10/1/2004		(e)		1,217		9,182		26		1,217		9,208		10,425		(490	)		35
Newman		GA		10/1/2004		(e)		92		557		—		92		557		649		(33	)		35
Niagara Falls		NY		10/1/2004		(e)		204		1,301		—		204		1,301		1,505		(70	)		35
North Kingstown		RI		10/1/2004		(e)		93		612		—		93		612		705		(35	)		35
Northfield		NJ		10/1/2004		(e)		124		705		—		124		705		829		(37	)		35
Norwalk		CT		10/1/2004		—		144		838		—		144		838		982		(43	)		35
Oak Ridge		TN		10/1/2004		(e)		127		788		—		127		788		915		(42	)		35
O’Fallon		MO		10/1/2004		(e)		49		299		—		49		299		348		(16	)		35
Oklahoma City		OK		10/1/2004		(e)		169		1,057		—		169		1,057		1,226		(57	)		35
Ontario		CA		10/1/2004		(e)		127		743		—		127		743		870		(38	)		35
Orange		VA		10/1/2004		(e)		136		818		—		136		818		954		(45	)		35
Orangevale		CA		10/1/2004		(e)		121		688		—		121		688		809		(36	)		35
Oroville		CA		10/1/2004		(e)		79		449		—		79		449		528		(23	)		35
Palatka		FL		10/1/2004		(e)		46		281		—		46		281		327		(15	)		35
Pampa		TX		10/1/2004		—		59		375		12		59		387		446		(26	)		35

136

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Peachtree City		GA		10/1/2004		(e)		135		874		—		135		874		1,009		(52	)		35
Pennsauken		NJ		10/1/2004		(e)		171		1,183		—		171		1,183		1,354		(66	)		35
Philadelphia		PA		10/1/2004		(e)		186		1,090		—		186		1,090		1,276		(56	)		35
Plantation		FL		10/1/2004		(e)		139		878		—		139		878		1,017		(47	)		35
Plantation		FL		10/1/2004		(e)		119		711		—		119		711		830		(38	)		35
Pleasanton		CA		10/1/2004		(e)		113		642		—		113		642		755		(33	)		35
Port Charlotte		FL		10/1/2004		(e)		98		590		—		98		590		688		(36	)		35
Port Townsend		WA		10/1/2004		(e)		77		435		—		77		435		512		(23	)		35
Porterville		CA		10/1/2004		(e)		103		644		—		103		644		747		(35	)		35
Portland		OR		10/1/2004		(e)		128		787		—		128		787		915		(42	)		35
Portsmouth		NH		10/1/2004		(e)		142		829		—		142		829		971		(43	)		35
Providence		RI		10/1/2004		(e)		1,320		10,438		2		1,320		10,440		11,760		(603	)		35
Quincy		WA		10/1/2004		(e)		88		517		—		88		517		605		(28	)		35
Redding		CA		10/1/2004		(e)		95		538		4		95		542		637		(28	)		35
Redmond		OR		10/1/2004		(e)		36		225		—		36		225		261		(12	)		35
Reedley		CA		10/1/2004		(e)		85		483		—		85		483		568		(25	)		35
Reseda		CA		10/1/2004		(e)		110		625		—		110		625		735		(33	)		35
Richmond		VA		10/1/2004		(e)		163		1,020		—		163		1,020		1,183		(55	)		35
Ridgecrest		CA		10/1/2004		(e)		104		590		—		104		590		694		(31	)		35
Ridgewood		NJ		10/1/2004		(e)		250		1,662		—		250		1,662		1,912		(85	)		35
Rochester		NY		10/1/2004		(e)		809		6,552		2		809		6,554		7,363		(325	)		35
Rock Hill		SC		10/1/2004		(e)		157		972		—		157		972		1,129		(54	)		35
San Antonio		TX		10/1/2004		(e)		142		827		—		142		827		969		(43	)		35
San Antonio		TX		10/1/2004		(e)		110		661		—		110		661		771		(36	)		35
San Francisco		CA		10/1/2004		(e)		123		722		—		123		722		845		(37	)		35
San Jose		CA		10/1/2004		(e)		100		568		—		100		568		668		(30	)		35
San Leandro		CA		10/1/2004		(e)		125		731		—		125		731		856		(38	)		35

137

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Santa Clara		CA		10/1/2004		(e)		194		1,127		—		194		1,127		1,321		(58	)		35
Santa Fe		NM		10/1/2004		(e)		299		1,734		—		299		1,734		2,033		(89	)		35
Sarasota		FL		10/1/2004		(f)		92		585		—		92		585		677		(38	)		35
Schenectady		NY		10/1/2004		(e)		300		2,255		—		300		2,255		2,555		(170	)		35
Seaside		CA		10/1/2004		(e)		91		518		—		91		518		609		(27	)		35
Seattle		WA		10/1/2004		(e)		86		523		—		86		523		609		(28	)		35
Seattle		WA		10/1/2004		(e)		106		628		—		106		628		734		(33	)		35
Seattle		WA		10/1/2004		(e)		193		1,172		—		193		1,172		1,365		(62	)		35
Sequim		WA		10/1/2004		(e)		127		786		—		127		786		913		(42	)		35
Sherman Oaks		CA		10/1/2004		(e)		106		598		—		106		598		704		(31	)		35
South Orange		NJ		10/1/2004		(e)		61		344		—		61		344		405		(18	)		35
South Portland		ME		10/1/2004		(e)		214		1,691		—		214		1,691		1,905		(91	)		35
Sparks		NV		10/1/2004		(e)		369		2,598		1		369		2,599		2,968		(135	)		35
Spotswood		NJ		10/1/2004		(e)		117		664		—		117		664		781		(35	)		35
Springfield		VA		10/1/2004		(e)		225		1,378		—		225		1,378		1,603		(81	)		35
St. Helena		CA		10/1/2004		(e)		126		737		—		126		737		863		(38	)		35
St. Petersburg		FL		10/1/2004		(e)		103		611		—		103		611		714		(33	)		35
Stockton		CA		10/1/2004		(e)		128		747		—		128		747		875		(38	)		35
Stockton		CA		10/1/2004		(e)		119		694		—		119		694		813		(36	)		35
Summit		NJ		10/1/2004		(e)		131		903		—		131		903		1,034		(51	)		35
Summit		NJ		10/1/2004		(e)		149		873		—		149		873		1,022		(45	)		35
Sun City		AZ		10/1/2004		(e)		130		825		—		130		825		955		(44	)		35
Sunnyvale		CA		10/1/2004		(e)		231		1,348		—		231		1,348		1,579		(69	)		35
Susanville		CA		10/1/2004		(e)		89		505		—		89		505		594		(26	)		35
Tarpon Springs		FL		10/1/2004		(e)		93		567		—		93		567		660		(31	)		35
Tavernier		FL		10/1/2004		(e)		71		439		—		71		439		510		(24	)		35
Troy		MO		10/1/2004		(e)		48		296		—		48		296		344		(16	)		35

138

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Tulsa		OK		10/1/2004		(e)		107		646		—		107		646		753		(35	)		35
Tulsa		OK		10/1/2004		(e)		64		388		16		64		404		468		(22	)		35
Turlock		CA		10/1/2004		(e)		102		637		—		102		637		739		(35	)		35
Union City		NJ		10/1/2004		(e)		116		678		—		116		678		794		(35	)		35
Utica		NY		10/1/2004		(e)		482		3,487		48		482		3,535		4,017		(187	)		35
Uvalde		TX		10/1/2004		(e)		35		225		—		35		225		260		(12	)		35
Vacaville		CA		10/1/2004		(e)		146		855		—		146		855		1,001		(44	)		35
Vernon		CA		10/1/2004		(e)		136		80		—		136		80		216		(23	)		35
W. Los Angeles		CA		10/1/2004		(e)		154		902		—		154		902		1,056		(46	)		35
Waltham		MA		10/1/2004		(e)		2,818		21,352		3		2,818		21,355		24,173		(1,136	)		35
Wantagh		NY		10/1/2004		(e)		59		336		—		59		336		395		(18	)		35
Wenatchee		WA		10/1/2004		(e)		118		740		—		118		740		858		(40	)		35
West Hempstead		NY		10/1/2004		(e)		319		2,440		1		319		2,441		2,760		(129	)		35
West Palm Beach		FL		10/1/2004		(e)		142		977		—		142		977		1,119		(55	)		35
West Seneca		NY		10/1/2004		(e)		886		6,700		2		886		6,702		7,588		(357	)		35
Wheaton		MD		10/1/2004		(e)		85		538		—		85		538		623		(39	)		35
Wichita Falls		TX		10/1/2004		(e)		116		700		—		116		700		816		(38	)		35
Wood Ridge		NJ		10/1/2004		(e)		109		617		—		109		617		726		(32	)		35
Woodland		CA		10/1/2004		(e)		147		900		—		147		900		1,047		(48	)		35
Richmond		VA		10/8/2004		—		93		528		—		93		528		621		(27	)		35
Springfield		GA		11/16/2004		—		133		760		—		133		760		893		(37	)		35
Kansas City		MO		11/18/2004		—		2,378		17,687		14		2,378		17,701		20,079		(944	)		35
Pensacola		FL		12/22/2004		—		64		365		—		64		365		429		(15	)		35
Southampton		PA		1/13/2005		(f)		154		871		—		154		871		1,025		(36	)		35
Clinton		NC		1/26/2005		—		47		268		—		47		268		315		(10	)		35
Harrisonburg		VA		1/26/2005		—		110		624		—		110		624		734		(24	)		35
Highland Sprngs		VA		1/26/2005		—		115		649		—		115		649		764		(25	)		35

139

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Midlothian		VA		1/26/2005		—		148		838		—			148		838		986		(32	)		35
Richmond		VA		1/26/2005		(f)		139		788		—			139		788		927		(30	)		35
Cleveland		OH		1/28/2005		6,428		1,474		10,625		—			1,474		10,625		12,099		(526	)		35
Delray Beach		FL		2/24/2005		—		154		871		—			154		871		1,025		(30	)		35
Las Vegas		NV		3/15/2005		16,857		3,007		18,240		—			3,007		18,240		21,247		(887	)		35
San Francisco		CA		4/8/2005		19,000		4,718		27,862		—			4,718		27,862		32,580		(1,014	)		35
Philadelphia		PA		4/20/2005		42,541		7,665		48,609		—			7,665		48,609		56,274		(1,675	)		35
Oklahoma City		OK		5/24/2005		17,425		2,290		15,763		—			2,290		15,763		18,053		(593	)		35
Landing		NJ		5/26/2005		—		140		793		—			140		793		933		(19	)		35
Midland		NC		5/27/2005		(f)		72		408		—			72		408		480		(10	)		35
Addison		IL		6/7/2005		—		51		288		(90	)		37		212		249		(5	)		35
Bennington		VT		6/7/2005		—		48		271		—			48		271		319		(7	)		35
Buffalo Grove		IL		6/7/2005		—		76		431		—			76		431		507		(10	)		35
Chicago		IL		6/7/2005		(f)		579		3,627		7			579		3,634		4,213		(93	)		35
Chicago		IL		6/7/2005		—		273		1,772		—			273		1,772		2,045		(47	)		35
Cleveland		OH		6/7/2005		(f)		112		648		—			112		648		760		(16	)		35
Countyside		IL		6/7/2005		—		83		473		—			83		473		556		(11	)		35
Evanston		IL		6/7/2005		—		234		1,476		—			234		1,476		1,710		(38	)		35
Forest Park		IL		6/7/2005		—		105		594		—			105		594		699		(14	)		35
Homewood		IL		6/7/2005		—		151		927		5			151		932		1,083		(22	)		35
Lansing		IL		6/7/2005		—		173		1,090		10			173		1,100		1,273		(28	)		35
Middletown		NY		6/7/2005		—		72		410		7			72		417		489		(10	)		35
Richton Park		IL		6/7/2005		—		30		172		10			30		182		212		(4	)		35
Toledo		OH		6/7/2005		(f)		258		1,860		12			258		1,872		2,130		(61	)		35
Toledo		OH		6/7/2005		(f)		75		465		—			75		465		540		(11	)		35
Aiken		SC		6/15/2005		(f)		74		565		—			74		565		639		(14	)		35
Albertville		AL		6/15/2005		(f)		20		114		2			20		116		136		(3	)		35

140

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Andalusia		AL		6/15/2005		(f)		64		361		—			64		361		425		(9	)		35
Anniston		AL		6/15/2005		(f)		132		1,043		—			132		1,043		1,175		(26	)		35
Athens		AL		6/15/2005		(f)		31		279		—			31		279		310		(8	)		35
Batesville		AR		6/15/2005		(f)		60		527		—			60		527		587		(17	)		35
Bedford		IN		6/15/2005		(f)		76		487		—			76		487		563		(13	)		35
Beebe		AR		6/15/2005		(f)		27		205		—			27		205		232		(6	)		35
Belle Chasse		LA		6/15/2005		(f)		110		849		—			110		849		959		(22	)		35
Belleville		IL		6/15/2005		(f)		176		1,400		—			176		1,400		1,576		(35	)		35
Bloomington		IL		6/15/2005		(f)		52		458		—			52		458		510		(12	)		35
Carrolton		GA		6/15/2005		(f)		54		369		—			54		369		423		(10	)		35
Centralia		IL		6/15/2005		(f)		69		636		—			69		636		705		(17	)		35
Chalmette		LA		6/15/2005		(f)		240		1,718		(948	)		240		770		1,010		(33	)		35
Clarksdale		MS		6/15/2005		(f)		79		658		2			79		660		739		(17	)		35
Columbia		TN		6/15/2005		(f)		46		291		—			46		291		337		(8	)		35
Conway		AR		6/15/2005		(f)		106		893		—			106		893		999		(23	)		35
Cookeville		TN		6/15/2005		(f)		93		745		—			93		745		838		(19	)		35
Cornelia		GA		6/15/2005		(f)		99		763		—			99		763		862		(19	)		35
Dallas		GA		6/15/2005		(f)		29		201		—			29		201		230		(5	)		35
Dalton		GA		6/15/2005		(f)		99		795		—			99		795		894		(20	)		35
Decatur		IL		6/15/2005		(f)		95		874		—			95		874		969		(28	)		35
DeFuniak Spring		FL		6/15/2005		(f)		17		98		—			17		98		115		(2	)		35
East Alton		IL		6/15/2005		(f)		36		285		—			36		285		321		(8	)		35
El Dorado		AR		6/15/2005		(f)		93		735		—			93		735		828		(25	)		35
Enterprise		AL		6/15/2005		(f)		41		318		—			41		318		359		(9	)		35
Fayetteville		TN		6/15/2005		(f)		40		311		—			40		311		351		(9	)		35
Frankfort		IN		6/15/2005		(f)		119		922		—			119		922		1,041		(28	)		35
Franklin		TN		6/15/2005		(f)		46		325		—			46		325		371		(9	)		35

141

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Goodlettsville		TN		6/15/2005		(f)		214		1,559		—		214		1,559		1,773		(43	)		35
Greenville		MS		6/15/2005		(f)		109		810		—		109		810		919		(20	)		35
Hapeville		GA		6/15/2005		(f)		106		801		—		106		801		907		(29	)		35
Harriman		TN		6/15/2005		(f)		52		386		—		52		386		438		(11	)		35
Hialeah		FL		6/15/2005		(f)		39		275		—		39		275		314		(8	)		35
Hot Springs		AR		6/15/2005		(f)		300		2,289		—		300		2,289		2,589		(65	)		35
Houma		LA		6/15/2005		(f)		90		648		—		90		648		738		(16	)		35
Huntsville		AL		6/15/2005		(f)		51		492		—		51		492		543		(13	)		35
Huntsville		AL		6/15/2005		(f)		132		1,032		—		132		1,032		1,164		(26	)		35
Indianola		IA		6/15/2005		(f)		112		867		—		112		867		979		(26	)		35
Inverness		FL		6/15/2005		(f)		131		1,023		—		131		1,023		1,154		(26	)		35
Jefferson		GA		6/15/2005		(f)		71		530		—		71		530		601		(13	)		35
Jonesboro		AR		6/15/2005		(f)		181		1,653		—		181		1,653		1,834		(65	)		35
Kilgore		TX		6/15/2005		(f)		51		475		—		51		475		526		(12	)		35
Lexington		TN		6/15/2005		(f)		35		265		—		35		265		300		(7	)		35
Lincoln		IL		6/15/2005		(f)		71		594		—		71		594		665		(22	)		35
Longview		TX		6/15/2005		(f)		111		970		—		111		970		1,081		(25	)		35
Lufkin		TX		6/15/2005		(f)		66		621		—		66		621		687		(16	)		35
Lutcher		LA		6/15/2005		(f)		50		348		—		50		348		398		(9	)		35
Marianna		FL		6/15/2005		(f)		65		434		2		65		436		501		(12	)		35
Memphis		TN		6/15/2005		(f)		392		2,737		—		392		2,737		3,129		(80	)		35
Minden		LA		6/15/2005		(f)		63		524		—		63		524		587		(13	)		35
Mobile		AL		6/15/2005		(f)		54		505		—		54		505		559		(13	)		35
Monroe		LA		6/15/2005		(f)		149		1,180		2		149		1,182		1,331		(30	)		35
Monticello		IA		6/15/2005		(f)		80		610		—		80		610		690		(15	)		35
Mount Olive		MS		6/15/2005		(f)		18		105		—		18		105		123		(3	)		35
Munford		TN		6/15/2005		(f)		67		425		—		67		425		492		(11	)		35

142

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Nacogdoches		TX		6/15/2005		(f)		100		880		—		100		880		980		(23	)		35
Nacogdoches		TX		6/15/2005		(f)		33		237		—		33		237		270		(6	)		35
Nashville		IL		6/15/2005		(f)		32		221		—		32		221		253		(6	)		35
New Smyrna Bch		FL		6/15/2005		(f)		122		938		—		122		938		1,060		(23	)		35
Norcross		GA		6/15/2005		(f)		50		327		—		50		327		377		(9	)		35
Paris		TN		6/15/2005		(f)		59		494		—		59		494		553		(13	)		35
Pensacola		FL		6/15/2005		(f)		40		226		—		40		226		266		(5	)		35
Robertsdale		AL		6/15/2005		(f)		132		924		—		132		924		1,056		(22	)		35
Robinson		IL		6/15/2005		(f)		44		324		—		44		324		368		(9	)		35
Russellville		AR		6/15/2005		(f)		52		515		—		52		515		567		(14	)		35
Selma		AL		6/15/2005		(f)		52		530		—		52		530		582		(22	)		35
Sesser		IL		6/15/2005		(f)		12		70		—		12		70		82		(2	)		35
Shelbyville		TN		6/15/2005		(f)		54		485		—		54		485		539		(15	)		35
Sparta		IL		6/15/2005		(f)		48		347		—		48		347		395		(10	)		35
Springfield		MO		6/15/2005		(f)		117		903		—		117		903		1,020		(37	)		35
Texarkana		AR		6/15/2005		(f)		178		1,246		—		178		1,246		1,424		(30	)		35
Toccoa		GA		6/15/2005		(f)		55		365		—		55		365		420		(10	)		35
Tyler		TX		6/15/2005		(f)		41		281		—		41		281		322		(8	)		35
Villa Rica		GA		6/15/2005		(f)		153		1,134		—		153		1,134		1,287		(33	)		35
Vincennes		IN		6/15/2005		(f)		227		1,910		—		227		1,910		2,137		(49	)		35
West Memphis		AR		6/15/2005		(f)		20		116		—		20		116		136		(3	)		35
West Monroe		LA		6/15/2005		(f)		44		248		—		44		248		292		(6	)		35
Wood River		IL		6/15/2005		(f)		44		439		—		44		439		483		(12	)		35
Lawrenceville		GA		6/16/2005		—		219		1,240		—		219		1,240		1,459		(26	)		35
Middletown		DE		6/16/2005		—		122		689		—		122		689		811		(14	)		35
Canton		OH		6/28/2005		(f)		486		3,130		15		486		3,145		3,631		(72	)		35
Elmhurst		IL		6/28/2005		—		202		1,293		—		202		1,293		1,495		(29	)		35

143

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Rutland		VT		6/28/2005		(f)		98		736		7		98		743		841		(21	)		35
Sioux Falls		SD		7/8/2005		15,640		2,503		15,770		15		2,503		15,785		18,288		(381	)		35
Novato		CA		8/5/2005		189,822		35,835		213,736		—		35,835		213,736		249,571		(3,858	)		35
Christiana		PA		8/17/2005		—		59		337		—		59		337		396		(5	)		35
Augusta		GA		9/15/2005		—		480		—		—		480		—		480		—			—
Lawrenceville		GA		9/15/2005		—		163		926		—		163		926		1,089		(13	)		35
Nashville		TN		9/15/2005		—		63		357		—		63		357		420		(5	)		35
Clallam Bay		WA		9/20/2005		—		19		107		—		19		107		126		(1	)		35
Holiday		FL		9/20/2005		(f)		266		1,509		—		266		1,509		1,775		(16	)		35
Loretto		TN		9/20/2005		—		45		253		—		45		253		298		(3	)		35
Milton		FL		9/20/2005		—		109		620		—		109		620		729		(6	)		35
N. Little Rock		AR		9/20/2005		—		80		451		—		80		451		531		(5	)		35
New Smyrna Beac		FL		9/20/2005		(f)		95		537		—		95		537		632		(6	)		35
Okanogan		WA		9/20/2005		—		106		599		—		106		599		705		(6	)		35
Ormond Beach		FL		9/20/2005		—		232		1,317		—		232		1,317		1,549		(14	)		35
Simpsonville		SC		9/20/2005		—		90		511		—		90		511		601		(5	)		35
Snoqualmie		WA		9/20/2005		—		99		563		—		99		563		662		(6	)		35
St. Augustine		FL		9/20/2005		—		98		556		—		98		556		654		(6	)		35
Volusia		FL		9/20/2005		—		88		496		—		88		496		584		(5	)		35
Harriman		TN		10/12/2005		—		69		394		—		69		394		463		(4	)		35
Orange City		FL		10/12/2005		—		138		780		—		138		780		918		(8	)		35
Providence		RI		10/21/2005		51,255		7,520		45,979		—		7,520		45,979		53,499		(418	)		35
Alpharetta		GA		11/10/2005		(f)		145		822		—		145		822		967		(6	)		35
Altamont Spring		FL		11/10/2005		(f)		146		829		—		146		829		975		(6	)		35
Amelia Island		FL		11/10/2005		—		149		845		—		149		845		994		(6	)		35
Atlanta		GA		11/10/2005		(f)		161		910		—		161		910		1,071		(6	)		35
Atlanta		GA		11/10/2005		—		143		811		—		143		811		954		(6	)		35

144

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Atlanta		GA		11/10/2005		—		840		—		—		840		—		840		—			—
Augusta		GA		11/10/2005		—		366		—		—		366		—		366		—			—
Bonita Springs		FL		11/10/2005		(f)		192		1,090		—		192		1,090		1,282		(8	)		35
Bradenton		FL		11/10/2005		(f)		247		1,398		—		247		1,398		1,645		(10	)		35
Bradenton		FL		11/10/2005		(f)		144		817		—		144		817		961		(6	)		35
Brandon		FL		11/10/2005		(f)		94		533		—		94		533		627		(4	)		35
Brandon		FL		11/10/2005		(f)		106		599		—		106		599		705		(4	)		35
Canton		GA		11/10/2005		—		840		—		—		840		—		840		—			—
Cape Coral		FL		11/10/2005		(f)		114		646		—		114		646		760		(4	)		35
Cary		NC		11/10/2005		(f)		143		809		—		143		809		952		(6	)		35
Cary		NC		11/10/2005		—		654		—		—		654		—		654		—			—
Charleston		SC		11/10/2005		—		1,617		—		—		1,617		—		1,617		—			—
Charleston		SC		11/10/2005		—		105		596		—		105		596		701		(4	)		35
Charleston		SC		11/10/2005		—		117		663		—		117		663		780		(5	)		35
Charlotte		NC		11/10/2005		—		137		777		—		137		777		914		(5	)		35
Charlotte		NC		11/10/2005		(f)		195		1,105		—		195		1,105		1,300		(8	)		35
Chester		VA		11/10/2005		—		56		318		—		56		318		374		(2	)		35
Columbia		SC		11/10/2005		(f)		116		656		—		116		656		772		(5	)		35
Columbus		GA		11/10/2005		(f)		36		204		—		36		204		240		(1	)		35
Concord		NC		11/10/2005		—		122		693		—		122		693		815		(5	)		35
De Soto		TX		11/10/2005		—		1,109		—		—		1,109		—		1,109		—			—
Deerfield Beach		FL		11/10/2005		(f)		351		1,992		—		351		1,992		2,343		(14	)		35
Delray Beach		FL		11/10/2005		—		1,821		—		—		1,821		—		1,821		—			—
Deltona		FL		11/10/2005		—		279		1,582		—		279		1,582		1,861		(11	)		35
Durham		NC		11/10/2005		—		674		—		—		674		—		674		—			—
Eustis		FL		11/10/2005		—		98		555		—		98		555		653		(4	)		35
Fort Bend		TX		11/10/2005		—		928		—		—		928		—		928		—			—

145

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Fort Lauderdale		FL		11/10/2005		(f)		254		1,437		—		254		1,437		1,691		(10	)		35
Gainesville		GA		11/10/2005		—		505		—		—		505		—		505		—			—
Garner		NC		11/10/2005		(f)		126		712		—		126		712		838		(5	)		35
Gastonia		NC		11/10/2005		—		314		—		—		314		—		314		—			—
Grand Pairie		TX		11/10/2005		—		544		—		—		544		—		544		—			—
Greensboro		NC		11/10/2005		—		124		701		—		124		701		825		(5	)		35
Greensboro		NC		11/10/2005		—		126		716		—		126		716		842		(5	)		35
Greensboro		NC		11/10/2005		(f)		116		659		—		116		659		775		(5	)		35
Greenville		SC		11/10/2005		—		85		480		—		85		480		565		—			35
Grove City		FL		11/10/2005		—		100		566		—		100		566		666		(4	)		35
Hampton		VA		11/10/2005		(f)		172		976		—		172		976		1,148		(7	)		35
Holly Hill		FL		11/10/2005		(f)		95		536		—		95		536		631		(4	)		35
Houston		TX		11/10/2005		—		566		—		—		566		—		566		—			—
Houston		TX		11/10/2005		—		757		—		—		757		—		757		—			—
Houston		TX		11/10/2005		—		833		—		—		833		—		833		—			—
Houston		TX		11/10/2005		—		1,888		—		—		1,888		—		1,888		—			—
Houston		TX		11/10/2005		—		1,833		—		—		1,833		—		1,833		—			—
Hudson		FL		11/10/2005		(f)		175		993		—		175		993		1,168		(7	)		35
Irmo		SC		11/10/2005		(f)		132		750		—		132		750		882		(5	)		35
Irving		TX		11/10/2005		—		813		—		—		813		—		813		—			—
Kennesaw		GA		11/10/2005		—		660		—		—		660		—		660		—			—
Kennesaw		GA		11/10/2005		—		1,087		—		—		1,087		—		1,087		—			—
Largo		FL		11/10/2005		(f)		145		824		—		145		824		969		(6	)		35
Lilburn		GA		11/10/2005		(f)		128		726		—		128		726		854		(5	)		35
Loganville		GA		11/10/2005		—		965		—		—		965		—		965		—			—
Lutz		FL		11/10/2005		(f)		151		857		—		151		857		1,008		(6	)		35
Manakin-Sabot		VA		11/10/2005		(f)		83		469		—		83		469		552		(3	)		35

146

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Marco Island		FL		11/10/2005		—		281		1,591		—		281		1,591		1,872		(11	)		35
Marietta		GA		11/10/2005		—		126		714		—		126		714		840		(5	)		35
Marietta		GA		11/10/2005		—		127		722		—		127		722		849		(5	)		35
Marietta		GA		11/10/2005		—		600		—		—		600		—		600		—			—
Montgomery		AL		11/10/2005		—		23		129		—		23		129		152		(1	)		35
Norfolk		VA		11/10/2005		—		161		910		—		161		910		1,071		(6	)		35
Ocala		FL		11/10/2005		(f)		101		570		—		101		570		671		(4	)		35
Opp		AL		11/10/2005		(f)		54		—		—		54		—		54		—			—
Palm Coast		FL		11/10/2005		(f)		171		971		—		171		971		1,142		(7	)		35
Pensacola		FL		11/10/2005		—		124		704		—		124		704		828		(5	)		35
Petersburg		VA		11/10/2005		—		52		293		—		52		293		345		(2	)		35
Pinellas Park		FL		11/10/2005		—		279		1,583		—		279		1,583		1,862		(11	)		35
Plantation		FL		11/10/2005		(f)		209		1,187		—		209		1,187		1,396		(8	)		35
Port Charlotte		FL		11/10/2005		—		88		497		—		88		497		585		(3	)		35
Raleigh		NC		11/10/2005		(f)		148		837		—		148		837		985		(6	)		35
Roswell		GA		11/10/2005		—		905		—		—		905		—		905		—			—
Salisbury		NC		11/10/2005		—		58		328		—		58		328		386		(2	)		35
Snellville		GA		11/10/2005		—		150		850		—		150		850		1,000		(6	)		35
Tampa		FL		11/10/2005		(f)		204		1,158		—		204		1,158		1,362		(8	)		35
Tampa		FL		11/10/2005		—		72		410		—		72		410		482		(3	)		35
Tucker		GA		11/10/2005		(f)		208		1,179		—		208		1,179		1,387		(8	)		35
Vero Beach		FL		11/10/2005		(f)		144		814		—		144		814		958		(6	)		35
Virginia Beach		VA		11/10/2005		—		79		447		—		79		447		526		(3	)		35
Virginia Beach		VA		11/10/2005		(f)		183		1,038		—		183		1,038		1,221		(7	)		35
Winter Haven		FL		11/10/2005		—		63		355		—		63		355		418		(2	)		35
Fort Dodge		IA		11/16/2005		—		67		379		—		67		379		446		(1	)		35
Newton		KS		11/16/2005		—		95		540		—		95		540		635		(2	)		35

147

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Glen Allen		VA		11/30/2005		21,250		3,427		21,062		—			3,427		21,062		24,489		(96	)		35
Chalotte		NC		12/21/2005		—		1,031		—		—			1,031		—		1,031		—			—
Clear Lake		TX		12/21/2005		—		1,115		—		—			1,115		—		1,115		—			—
Morrow		GA		12/21/2005		—		56		315		—			56		315		371		—			35
Panama City		FL		12/21/2005		—		763		—		—			763		—		763		—			—
Sarasota		FL		12/21/2005		— 1,320,747		162 499,416		916 3,012,975		— 34,908			162 500,020		916 3,047,279	1,078 3,547,299			— (259,358	)		35
Assets held for sale:		PA		9/26/2000		35,094		4,760		40,067		—			4,760		40,067		44,827		(9,976	)		34
Philadelphia		VA		2/5/2003		—		78		443		(45	)		78		398		476		(17	)		35
Virginia Beach		NC		4/15/2003		—		32		167		—			32		167		199		(19	)		35
Charlotte		AR		6/30/2003		(b)		144		818		37			144		855		999		(81	)		35
Harrison		FL		6/30/2003		—		600		3,400		—			600		3,400		4,000		(330	)		35
Jacksonville		CA		6/30/2003		(b)		830		4,705		—			830		4,705		5,535		(457	)		35
Pleasant Hill		CA		6/30/2003		(b)		799		4,525		—			799		4,525		5,324		(440	)		35
Pleasant Hill		CA		6/30/2003		(b)		814		4,615		12			826		4,615		5,441		(448	)		35
Pleasant Hill		NC		9/24/2003		—		179		1,015		(856	)		179		159		338		(88	)		35
Thomasville		NC		9/24/2003		—		55		312		(157	)		55		155		210		(29	)		35
Washington		NC		9/30/2003		—		193		1,096		(944	)		193		152		345		(95	)		35
Gastonia		CA		6/24/2004		131,313		19,200		99,574		—			19,200		99,574		118,774		(6,119	)		35
San Francisco		SC		9/22/2004		(d)		360		2,038		—			360		2,038		2,398		(92	)		35
Columbia		FL		9/22/2004		(d)		2,829		19,144		—			2,829		19,144		21,973		(837	)		35
Jacksonville		NJ		9/22/2004		—		42		257		—			42		257		299		(12	)		35
South Amboy		FL		9/22/2004		(d)		472		2,709		—			472		2,709		3,181		(127	)		35
St. Petersburg		FL		9/22/2004		(d)		288		2,107		659			288		2,766		3,054		(128	)		35
West Palm Beach		GA		10/1/2004		—		29		158		—			29		158		187		—			35
Dublin

148

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
													Gross Amount at Which Carried
							Initial Costs						December 31, 2005(1)
											Net Improvements
											(Retirements)								Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since				Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition		Land		Improvements		Total		12/31/05(2)			Life
Kingsport		TN		10/1/2004		—		52		269		—		52		269		321		(15	)		35
Spartansburg		SC		10/1/2004		(e)		138		866		—		138		866		1,004		(46	)		35
Tulsa		OK		10/1/2004		(e)		147		856		—		147		856		1,003		(41	)		35
Louisville		KY		1/21/2005		22,787		3,553		21,917		—		3,553		21,917		25,470		(877	)		35
McLeansville		NC		1/21/2005		21,797		3,274		20,333		—		3,274		20,333		23,607		(818	)		35
Meridian		ID		1/21/2005		21,797		3,269		20,658		—		3,269		20,658		23,927		(838	)		35
Fayetteville		GA		1/26/2005		—		159		902		—		159		902		1,061		(28	)		35
Netcong		NJ		5/26/2005		—		108		611		—		108		611		719		(11	)		35
Cleveland		OH		6/7/2005		—		61		347		—		61		347		408		—			35
Franklin Park		IL		6/7/2005		—		132		800		—		132		800		932		(16	)		35
Kingston		NY		6/7/2005		—		80		451		—		80		451		531		—			35
Matteson		IL		6/7/2005		—		144		826		—		144		826		970		(14	)		35
Oak Park		IL		6/7/2005		—		87		495		—		87		495		582		—			35
Owosso		MI		6/7/2005		—		43		245		—		43		245		288		—			35
Columbia		IL		6/15/2005		—		49		323		—		49		323		372		—			35
Cordele		GA		6/15/2005		—		62		349		—		62		349		411		—			35
Decatur		AL		6/15/2005		—		105		678		—		105		678		783		—			35
Decatur		IL		6/15/2005		—		517		3,325		—		517		3,325		3,842		—			35
Decatur		TN		6/15/2005		—		48		307		—		48		307		355		—			35
La Marque		TX		6/15/2005		—		70		394		—		70		394		464		—			35
Lancaster		TX		6/15/2005		—		162		919		—		162		919		1,081		—			35
Marion		IN		6/15/2005		—		8		44		2		8		46		54		—			35
Martin		TN		6/15/2005		—		57		371		—		57		371		428		—			35
Meridian		MS		6/15/2005		—		67		419		—		67		419		486		—			35
Montgomery		AL		6/15/2005		—		264		1,494		—		264		1,494		1,758		—			35
Montgomery		AL		6/15/2005		—		149		845		—		149		845		994		—			35
New Iberia		LA		6/15/2005		—		168		1,094		—		168		1,094		1,262		—			35

149

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments (continued)
(In thousands)
														Gross Amount at Which Carried
							Initial Costs							December 31, 2005(1)
											Net Improvements
											(Retirements)									Accumulated			Average
			Acquisition		Encumbrances at				Building and		Since					Building and				Depreciation			Depreciable
City	State		Date		December 31, 2005		Land		Improvements		Acquisition			Land		Improvements		Total		12/31/05(2)			Life
Scottsboro		AL		6/15/2005		—		103		585		—			103		585		688		—			35
South Houston		TX		6/15/2005		—		97		551		—			97		551		648		—			35
Tupelo		MS		6/15/2005		—		72		472		—			72		472		544		—			35
Rochester		NY		6/28/2005		—		260		1,601		11			260		1,612		1,872		—			35
Gainesville		FL		11/10/2005		—		123		699		—			123		699		822		(5	)		35
Cleveland		OH		12/5/2005		—		312		1,769		—			312		1,769		2,081		—			35
Toledo		OH		12/7/2005		—		38		216		—			38		216		254		—			35
						232,788		45,682		273,181		(1,281	)		45,694		271,888		317,582		(22,004	)
					$	1,553,535	$	545,098	$	3,286,156	$	33,627		$	545,714	$	3,319,167	$	3,864,881	$	(281,362	)

(a)  These properties collateralize a $180.0 million mortgage note payable of which $180.0 million was outstanding at December 31, 2005.

(b)  These properties collateralize a $440.0 million mortgage note payable of which $391.2 million was outstanding at December 31, 2005.

(c)  These properties collateralize a $65.0 million mortgage note payable of which $58.3 million was outstanding at December 31, 2005.

(d)  These properties collateralize a $234.0 million mortgage note payable of which $216.4 million was outstanding at December 31, 2005.

(e)  These properties collateralize a $304.0 million mortgage note payable of which $298.9 million was outstanding at December 31, 2005.

(f)  These properties collateralize a secured credit facility of which $171.3 million was outstanding at December 31, 2005.

150

AMERICAN FINANCIAL REALTY TRUST

SCHEDULE III

Real Estate Investments

(In thousands)

(1) Reconciliation of Real Estate:

      The following table reconciles the real estate investments for the years ended December 31, 2005 and 2004 (in thousands):

	2005(A)			2004(A)
Balance, beginning of period	$	3,049,560		$	1,649,606
Change in assets held for sale		(222,551	)		(18,016	)
Additions:
Acquisitions		828,266			1,589,390
Dispositions		(107,976	)		(171,420	)
Balance, end of period	$	3,547,299		$	3,049,560

(A)  Amounts do not include leasehold interests as reflected in the accompanying consolidated balance sheets.

(2) Reconciliation of Accumulated Depreciation:

      The following table reconciles the accumulated depreciation on real estate investments for the years ended December 31, 2005 and 2004 (in thousands):

	2005(B)			2004(B)
Balance, beginning of period	$	145,840		$	56,699
Depreciation expense		136,382			92,236
Change in assets held for sale		(19,502	)		(1,223	)
Dispositions		(3,362	)		(1,872	)
Balance, end of period	$	259,358		$	145,840

(B)  Amounts do not include accumulated amortization relating to leasehold interests as reflected in the accompanying consolidated balance sheets.

151

BANK OF AMERICA CORPORATION AND SUBSIDIARIES

STATE STREET CORPORATION

HISTORICAL FINANCIAL INFORMATION OF LEASE GUARANTORS

As of December 31, 2005

      Bank of America Corporation is the guarantor of the long-term lease agreements that its subsidiary, Bank of America, N.A., has with the Company relating to properties acquired in January 2003 from a wholly owned subsidiary of Dana Commercial Credit Corporation and properties acquired from Bank of America, N.A. in June 2003 and October 2004. State Street Corporation is the guarantor of the long-term lease agreement that its subsidiary SSB Realty LLC, has with the Company relating to State Street Financial Center. The financial information of Bank of America Corporation and State Street Corporation has been included herein because of the significant credit concentration the Company has with these guarantors.

      Financial information as of December 31, 2005 and 2004 and for the years ended December 31, 2005 and 2004 has been derived from the audited financial statements of Bank of America Corporation and Subsidiaries furnished to the Securities and Exchange Commission on their Current Report on Form 8-K.

      Financial information as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 has been derived from the audited financial statements of State Street Corporation as filed with the Securities and Exchange Commission on their Annual Report on Form 10-K for the year ended December 31, 2005.

152

BANK OF AMERICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Dollars in millions)

	December 31,			December 31,
	2005			2004
Assets
Cash and cash equivalents	$	36,999		$	28,936
Time deposits placed and other short-term investments		12,800			12,361
Federal funds sold and securities purchased under agreements to resell		149,785			91,360
Trading account assets		131,707			93,587
Derivative assets		23,712			30,235
Securities:
Available-for-sale		221,556			194,743
Held-to-maturity, at cost		47			330
Total securities		221,603			195,073
Loans and leases		573,782			521,837
Allowance for loan and lease losses		(8,045	)		(8,626	)
Loans and leases, net of allowance		565,737			513,211
Premises and equipment, net		7,786			7,517
Mortgage servicing rights		2,807			2,482
Goodwill		45,354			45,262
Core deposit intangibles and other intangibles		3,194			3,887
Other assets		90,311			86,546
Total assets	$	1,291,795		$	1,110,457
Liabilities
Deposits in domestic offices:
Noninterest-bearing	$	179,571		$	163,833
Interest-bearing		384,155			396,645
Deposits in foreign offices:
Noninterest-bearing		7,165			6,066
Interest-bearing		63,779			52,026
Total deposits		634,670			618,570
Federal funds purchased and securities sold under agreements to repurchase		240,655			119,741
Trading account liabilities		50,890			36,654
Derivative liabilities		15,000			17,928
Commercial paper and other short-term borrowings		116,269			78,598
Accrued expenses and other liabilities (includes $395, $390 and $402 of reserve for unfunded lending commitments)		31,749			41,243
Long-term debt		101,338			98,078
Total liabilities		1,190,571			1,010,812
Shareholders’ equity
Preferred stock, $0.01 par value; authorized — 100,000,000 shares; issued and outstanding — 1,090,189 shares		271			271
Common stock and additional paid-in capital, $0.01 par value; authorized — 7,500,000,000 shares; issued and outstanding — 3,999,688,491; 4,013,063,444 and 4,046,546,212 shares		41,693			44,236
Retained earnings		67,205			58,006
Accumulated other comprehensive income (loss)		(7,518	)		(2,587	)
Other		(427	)		(281	)
Total shareholders’ equity		101,224			99,645
Total liabilities and shareholders’ equity	$	1,291,795		$	1,110,457

153

BANK OF AMERICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

	Year Ended December 31,
	2005		2004
Interest income
Interest and fees on loans and leases	$	34,934	$	28,213
Interest and dividends on securities		10,949		7,262
Federal funds sold and securities purchased under agreements to resell		4,979		2,043
Trading account assets		5,743		4,016
Other interest income		2,091		1,690
Total interest income		58,696		43,224
Interest expense
Deposits		9,295		6,275
Short-term borrowings		11,798		4,434
Trading account liabilities		2,364		1,317
Long-term debt		4,083		2,404
Total interest expense		27,540		14,430
Net interest income		31,156		28,794
Noninterest income
Service charges		7,704		6,989
Investment and brokerage services		4,184		3,614
Mortgage banking income		805		414
Investment banking income		1,856		1,886
Equity investment gains		2,040		863
Card income		5,753		4,592
Trading account profits		1,812		869
Other income		1,456		858
Total noninterest income		25,610		20,085
Total revenue		56,766		48,879
Provision for credit losses		4,014		2,769
Gains on sales of debt securities		1,084		2,123
Noninterest expense
Personnel		15,054		13,435
Occupancy		2,588		2,379
Equipment		1,199		1,214
Marketing		1,255		1,349
Professional fees		930		836
Amortization of intangibles		809		664
Data processing		1,487		1,330
Telecommunications		827		730
Other general operating		4,120		4,457
Merger and restructuring charges		412		618
Total noninterest expense		28,681		27,012
Income before income taxes		25,155		21,221
Income tax expense		8,269		7,078
Net income	$	16,886	$	14,143
Net income available to common shareholders	$	16,868	$	14,127
Per common share information
Earnings	$	4.21	$	3.76
Diluted earnings	$	4.15	$	3.69
Dividends paid	$	1.90	$	1.70
Average common shares issued and outstanding		4,008,688		3,758,507
Average diluted common shares issued and outstanding		4,068,140		3,823,943

154

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF CONDITION

(Dollars in millions)

As of December 31,	2005			2004
Assets
Cash and due from banks	$	2,684		$	2,035
Interest-bearing deposits with banks		11,275			20,634
Securities purchased under resale agreements		8,679			12,878
Federal funds sold		—			5,450
Trading account assets		764			745
Investment securities available for sale (including securities pledged of $26,573 and $27,273)		54,979			36,171
Investment securities held to maturity (fair value of $4,815 and $1,389)		4,891			1,400
Loans (less allowance of $18 and $18)		6,464			4,611
Premises and equipment (net of accumulated depreciation of $2,149 and $1,923)		1,453			1,444
Accrued income receivable		1,364			1,204
Goodwill		1,337			1,497
Other intangible assets		459			494
Other assets		3,619			5,477
Total assets	$	97,968		$	94,040
Liabilities
Deposits:
Noninterest-bearing	$	9,402		$	13,671
Interest-bearing — U.S.		2,379			2,843
Interest-bearing — Non-U.S.		47,865			38,615
Total deposits		59,646			55,129
Securities sold under repurchase agreements		20,895			21,881
Federal funds purchased		1,204			435
Other short-term borrowings		1,219			1,343
Accrued taxes and other expenses		2,632			2,603
Other liabilities		3,346			4,032
Long-term debt		2,659			2,458
Total liabilities		91,601			87,881
Commitments and contingencies (Note 9)
Shareholders’ Equity
Preferred stock, no par: authorized 3,500,000 shares; issued none
Common stock, $1 par: authorized 500,000,000 shares; issued 337,126,000 and 337,126,000 shares		337			337
Surplus		266			289
Retained earnings		6,189			5,590
Accumulated other comprehensive (loss) income		(231	)		92
Treasury stock, at cost (3,501,000 and 3,481,000 shares)		(194	)		(149	)
Total shareholders’ equity		6,367			6,159
Total liabilities and shareholders’ equity	$	97,968		$	94,040

155

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(Dollars in millions, except per share data or where otherwise indicated)

Years Ended December 31,	2005			2004			2003
Fee Revenue:
Servicing fees	$	2,474		$	2,263		$	1,950
Management fees		751			623			533
Trading services		694			595			529
Securities finance		330			259			245
Processing fees and other		302			308			299
Total fee revenue		4,551			4,048			3,556
Net Interest Revenue:
Interest revenue		2,930			1,787			1,539
Interest expense		2,023			928			729
Net interest revenue		907			859			810
Provision for loan losses		—			(18	)		—
Net interest revenue after provision for loan losses		907			877			810
(Losses) gains on sales of available-for-sale investment securities, net		(1	)		26			23
Gain on sale of Private Asset Management business, net of exit and other associated costs		16			—			285
Gain on sale of Corporate Trust business		—			—			60
Total revenue		5,473			4,951			4,734
Operating Expenses:
Salaries and employee benefits		2,231			1,957			1,731
Information systems and communications		486			527			551
Transaction processing services		449			398			314
Occupancy		391			363			300
Merger, integration and divestiture costs		—			62			110
Restructuring costs		—			21			296
Other		484			431			320
Total operating expenses		4,041			3,759			3,622
Income from continuing operations before income tax expense		1,432			1,192			1,112
Income tax expense from continuing operations		487			394			390
Income from continuing operations		945			798			722
Loss from discontinued operations		(165	)		—			—
Income tax benefit from discontinued operations		(58	)		—			—
Net loss from discontinued operations		(107	)		—			—
Net income	$	838		$	798		$	722
Earnings Per Share From Continuing Operations:
Basic	$	2.86		$	2.38		$	2.18
Diluted		2.82			2.35			2.15
Loss Per Share From Discontinued Operations:
Basic	$	(.33	)	$	—		$	—
Diluted		(.32	)		—			—
Earnings Per Share:
Basic	$	2.53		$	2.38		$	2.18
Diluted		2.50			2.35			2.15
Average Shares Outstanding (in thousands):
Basic		330,361			334,606			331,692
Diluted		334,636			339,605			335,326

156 EX-10.54 2 w18443exv10w54.htm CONTRIBUTION AGREEMENT, EFFECTIVE AS OF OCTOBER 26, 2005

Exhibit 10.54

CONTRIBUTION AGREEMENT

Between

FIRST STATES GROUP, L.P.

And

THE PARTNERS IN

FIRST STATES PARTNERS II, LP

Dated as of October 26, 2005

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SECURITIES REFERENCED HEREIN HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME

1

CONTRIBUTION AGREEMENT

     THIS CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of the 26^th day of October, 2005 (the “Contract Date”), by and among each holder of a partnership interest in FIRST STATES PARTNERS II, LP, a Delaware limited partnership (the “Owner”), as named on Exhibit A hereto (each such holder is a “Contributor” and, collectively, are the “Contributors”) and FIRST STATES GROUP, L.P., a Delaware limited partnership (the “FSG”).

Background

     A. Owner is the owner of a property commonly referred to as 123 S. Broad St., Philadelphia, Pennsylvania.

     B. By letter dated October 14, 2005, FSG made on an offer to each Contributor to purchase all of the limited partnership interest in the Owner that it did not already own (the “Contributed Interests”).

     C. FSG and the Contributors desire to enter into this Agreement relating to the contribution and conveyance of the Contributed Interests to FSG in exchange for OP Units (as defined below).

Agreement

     NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, the parties agree as follows:

1. DEFINITIONS.

          All terms which are not otherwise defined in this Agreement shall have the meaning set forth in this Section 1.

     1.1 “Accredited Investor” shall have the meaning set forth in Regulation D promulgated under the Securities Act of 1933, as amended.

     1.2 “General Partner” shall mean First States Group, LLC, the sole general partner of FSG, the operating partnership of the REIT.

     1.3 “Partnership Agreement” shall mean the Amended and Restated Agreement of Limited Partnership of FSG dated September 10, 2002, as amended from time to time prior to and including the Contract Date.

     1.4 “REIT” means American Financial Realty Trust, a publicly-traded Maryland real estate investment trust.

     1.5 “SEC” shall mean the Securities and Exchange Commission.

1

     1.6 “Securities Act” shall mean the Securities Act of 1933, as amended.

2. CONTRIBUTION.

          The Contributors agree to contribute and convey to FSG, and FSG shall accept and take from the Contributors, on the terms and conditions set forth in this Agreement, all of the Contributor’s right, title and interest in and to the Contributed Interests.

3. PURCHASE PRICE.

     3.1 Payment of Purchase Price. In consideration of the contribution of the Contributed Interests to FSG, and subject to the terms of this Agreement, FSG shall pay the total purchase price of 303,425 units of limited partnership interest in FSG (“OP Units”) to the Contributors (the “Purchase Price”) for all of the Contributed Interests.

          3.1.1 The payment of the Purchase Price by FSG shall be made through the issuance to each Contributor the number of OP Units set forth on Exhibit A next to the name of such Contributor in exchange for their contribution to the FSG of the portion of the Contributed Interests that they own. FSG and the Contributors stipulate and agree that a true and correct calculation of the Purchase Price is set forth on Exhibit A hereto.

4. OP UNITS; INVESTOR MATERIALS.

     4.1 OP Units.

          4.1.1 The OP Units shall be redeemable for shares of beneficial interest of the REIT or cash (or a combination thereof) at the discretion of the General Partner and in accordance with the procedures described herein and in the Partnership Agreement.

          4.1.2 Each Contributor hereby directs FSG to deliver the OP Units as a book entry in its stock ledger issued in the names of, and for distribution to, those Contributors set forth on Exhibit A attached hereto. Each Contributor shall receive the number and type of OP Units set forth on said Exhibit.

          4.1.3 Each Contributor shall provide or cause to be provided to FSG any information and documentation as may reasonably be requested by the FSG in furtherance of the issuance of the OP Units as contemplated hereby, including any representation letter affirming the Contributor’s status as an Accredited Investor (the “Investor Materials”).

          4.1.4 Each Contributor hereby covenants and agrees that it shall deliver or shall cause each of its partners, shareholders and members to deliver to FSG, or

2

to any other party designated by FSG, any documentation that may be required under the Partnership Agreement or any charter document of the REIT, and such other information and documentation as may reasonably be requested by FSG, at such time as any OP Units are redeemed for common shares of beneficial interest of the REIT (“Conversion Shares”).

     4.2 Certain Informational Materials. Each Contributor hereby acknowledges and agrees that the ownership of OP Units by them and their respective rights and obligations as limited partners of FSG (including their right to transfer, encumber, pledge and exchange OP Units) shall be subject to all of the express limitations, terms, provisions and restrictions set forth in this Agreement and in the Partnership Agreement. In that regard, each Contributor hereby covenants and agrees that it shall execute any and all documentation reasonably required by FSG and the REIT to formally memorialize the foregoing. Each Contributor acknowledges that it has received and reviewed copies of the Partnership Agreement, as amended to date, the declaration of trust and bylaws of the REIT and the REIT’s Annual Report to Shareholders for the year ended December 31, 2004. Each Contributor also acknowledges that Form 10-Qs for the quarters ended March 31, 2005 and June 30, 2005, all Form 8-Ks that have been filed by the REIT with the SEC since June 25, 2003 and copies of all material press releases, proxy statements and reports to shareholders issued since June 25, 2003 have been made available through the REIT’s website at www.afrt.com and the SEC’s website at www.sec.gov, and has otherwise had an opportunity to conduct a due diligence review of the affairs of FSG and the REIT and has been afforded the opportunity to ask questions of, and receive additional information from, the REIT regarding the business, operations, conditions (financial or otherwise) and the current prospects of the REIT and FSG.

     4.3 Transfer Requirements. Each Contributor may only sell, transfer, assign, pledge or encumber, or otherwise convey any or all of the OP Units delivered to it and, if applicable, any Conversion Shares, in strict compliance with this Agreement, the Partnership Agreement, the charter documents of the REIT, the Securities Act (and the rules promulgated thereunder), any state securities laws and the rules of the New York Stock Exchange, in each case as may be applicable. A legend may be placed on the face of the certificates evidencing the Conversion Shares to notify the holder of the restrictions on transfer under applicable federal or state securities laws.

5. CONTRIBUTORS’ DELIVERIES. Each Contributor shall make available to FSG, at reasonable times and upon reasonable notice, all documents, contracts, information, Records and exhibits that are in the possession of, or under the control of, Contributor that are pertinent to the transaction that is the subject of this Agreement.

3

6. REPRESENTATIONS AND WARRANTIES OF CONTRIBUTORS.

     6.1 Each Contributor confirms that there exists no financing statements, tax liens (or other liens), encumbrances or judgments against such Contributor encumbering the Contributed Interests which will not be released on or prior to October 26, 2005.

7. REPRESENTATIONS AS TO SECURITIES AND RELATED MATTERS.

     7.1 Contributors. Each Contributor represents and warrants to FSG that the following matters are true and correct as of the date of this Agreement, and covenant as follows:

          7.1.1 Each Contributor represents that its OP Units are being acquired by it with the present intention of holding such OP Units for purposes of investment, and not with a view towards sale or any other distribution. Each Contributor recognizes that it may be required to bear the economic risk of an investment in the OP Units for an indefinite period of time. Each Contributor is an Accredited Investor. Each Contributor has such knowledge and experience in financial and business matters so as to be fully capable of evaluating the merits and risks of an investment in the OP Units. No OP Units will be issued, delivered or distributed to any person or entity who is other than an Accredited Investor. Each Contributor has been furnished with the informational materials described in Section 4.2 above (collectively, the “Informational Materials”), and has read and reviewed the Informational Materials and understands the contents thereof. The Contributors have been afforded the opportunity to ask questions of those persons they consider appropriate and to obtain any additional information they desire in respect of the OP Units and the business, operations, conditions (financial and otherwise) and current prospects of FSG and the REIT. The Contributors have consulted their own financial, legal and tax advisors with respect to the economic, legal and tax consequences of delivery of the OP Units and have not relied on the Informational Materials, FSG, the REIT or any of their officers, directors, affiliates or professional advisors for such advice as to such consequences. No Contributor requires the consent of any other party to consummate the transactions contemplated by this Agreement. Exhibit A accurately sets forth the direct ownership interest of each Contributor in the Owner.

     7.2 FSG. FSG represents and warrants to Contributor that the following matters are true and correct as of the date of this Agreement:

          7.2.1 FSG is a limited partnership duly authorized and validly existing under Delaware law. The performance of this Agreement by FSG has been duly authorized by the General Partner in accordance with the Partnership Agreement, this Agreement will be binding on FSG and enforceable against it in accordance with its terms. FSG has been at all times, and presently intends to continue to be, classified as a partnership or a publicly traded partnership taxable as a partnership for federal income

4

tax purposes and not an association taxable as a corporation or a publicly traded partnership taxable as a corporation.

          7.2.2 The General Partner is a limited liability company duly authorized and validly existing under Delaware law. The performance of this Agreement by the General Partner, as general partner of FSG, has been duly authorized by the REIT, and this Agreement is binding on the General Partner, as general partner of FSG, and enforceable against it, as general partner of FSG, in accordance with its terms.

8. FSG COVENANTS. Each Contributor acknowledges that is has received a copy of the Partnership Agreement, and upon receipt of the OP Units agrees to be subject to and bound by all of the provisions of the Partnership Agreement, including those provisions of the Partnership Agreement applicable to limited partners. In accordance with Section 9.03(a)(v) of the Partnership Agreement and upon receipt of the OP Units, each Contributor irrevocably appoints the General Partner as its true and lawful attorney-in-fact, who may act for each Contributor and in its name, place and stead, and for its use and benefit, to sign, acknowledge, swear to, deliver, file or record, at the appropriate public offices, any and all documents, certificates and instruments as may be deemed necessary or desirable by the General Partner to carry out fully the provisions of the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act in accordance with their terms, including amendments thereto. This provision for power of attorney is coupled with an interest and shall survive the dissolution of the Contributor, or the transfer by the Contributor of any part or all of its OP Units.

9. SUCCESSORS AND ASSIGNS. The terms, conditions and covenants of this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective nominees, successors, beneficiaries and permitted assigns. Neither party hereto shall have any right to assign this Agreement or its rights hereunder; provided, however, that FSG shall have the right to designate one or more subsidiaries or affiliate entities to take title to the Project.

10. NO BROKERAGE. FSG and the Contributors represent to the other that it has not dealt with any broker or agent in connection with this transaction.

11. MISCELLANEOUS.

     11.1 Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the transaction contemplated herein, and all prior or contemporaneous oral agreements, understandings, representations and statements, and all prior written agreements, understandings, letters of intent and proposals are merged into this Agreement. Neither this Agreement nor any provisions hereof may be waived, modified, amended, discharged or terminated except by an instrument in writing signed by the party against which the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

5

     11.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

     11.3 Partial Invalidity. The provisions hereof shall be deemed independent and severable, and the invalidity or partial invalidity or enforceability of any one provision shall not affect the validity of enforceability of any other provision hereof.

     11.4 Expenses. Except and to the extent as otherwise expressly provided to the contrary herein, each party shall each bear its own respective costs and expenses relating to the transactions contemplated hereby, including fees and expenses of legal counsel or other representatives for the services used, hired or connected with the proposed transactions mentioned above.

     11.5 Counterparts. This Agreement may be executed in any number of identical counterparts, any of which may contain the signatures of less than all parties, and all of which together shall constitute a single agreement.

     11.6 Partial Execution. If this Agreement is executed by FSG and one or more, but less than all, of the Contributors, this Agreement shall nevertheless be effective and binding upon FSG and such Contributors as are parties to this Agreement as to the Contributed Interests held by such Contributors, and the lack of joinder by one or more non-executing Contributors shall not alter or impair the effectiveness of this Agreement upon the executing parties.

6

     IN WITNESS WHEREOF, the parties hereto have caused this Contribution Agreement to be executed as of the day and year first above written.

FSG:
FIRST STATES GROUP, L.P.
By:	FIRST STATES GROUP, LLC, its general partner
	By:
		Edward J. Matey Jr., Executive Vice President and General Counsel
CONTRIBUTORS:
Nicholas S. Schorsch
Irvin G. Schorsch, III
Peter A. Schorsch
Jeffrey C. Kahn
Charles Kahn

7

Jeffrey Perelman

Allen Spivak

MEADOW COURT TRUST

By:

Name:

Its:

IRREVOCABLE AGREEMENT OF TRUST OF ROGER R. KEHR

By:

Name:

Its:

ESTATE OF HENRY FAULKNER, III

By:

Name:

Its:

L.D.D. INVESTMENT COMPANY

By:

Name:

Its:

8

HIDDEN GLEN TRUST

By:

Name:

Its:

ARLINGTON CEMETERY GROUP

By:

Name:

Its:

9

Exhibit A

	Purchase Price per Contribution Agreement, net of True-Up								$24,549,815
	Partnership			Percent of			Allocation of						Conversion to
	Interest			Retained Interest			Purchase Price		Multiplier		Cash Value		OP Units (at $10.00)
Nicholas S. Schorsch		5.01	%		45.50	%	$	11,171,169		0.1235955	$	1,380,706.30		138,071
Meadow Court Trust		0.81	%		7.36	%		1,806,117		0.1235955		223,227.96		22,323
Irvin G. Schorsch		0.43	%		3.91	%		958,803		0.1235955		118,503.73		11,850
Peter A. Schorsch		0.39	%		3.54	%		869,612		0.1235955		107,480.13		10,748
Irrevocable Agreement of Trust of Roger R. Kehr		0.72	%		6.54	%		1,605,437		0.1235955		198,424.86		19,842
Estate of Henry Faulkner, III		0.74	%		6.72	%		1,650,033		0.1235955		203,936.66		20,394
Jeffrey C. Kahn		0.48	%		4.36	%		1,070,292		0.1235955		132,283.24		13,228
Charles Kahn		0.32	%		2.91	%		713,528		0.1235955		88,188.83		8,819
L.D.D. Investment Company		0.25	%		2.27	%		557,444		0.1235955		68,897.52		6,890
Hidden Glen Trust		0.73	%		6.63	%		1,627,735		0.1235955		201,180.76		20,118
Jeffrey Perelman		0.20	%		1.82	%		445,955		0.1235955		55,118.02		5,512
Allen Spivak		0.63	%		5.72	%		1,404,758		0.1235955		173,621.75		17,362
Arlington Cemetery Group		0.30	%		2.72	%		668,932		0.1235955		82,677.02		8,268
		11.01	%		100.00	%	$	24,549,815			$	3,034,247		303,425

EX-10.54

exv10w54

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

	State of
Subsidiaries	Formation
First States Investors 62, LLC	AR
First States Investors 63, LLC	AR
American Financial TRS, Inc.	DE
First States Charleston, L.P.	DE
First States Group, LP	DE
First States Holdings, LP	DE
First States Investors, LP	DE
First States Investors 104, L.P.	DE
First States Investors 225, LLC	DE
First States Investors 228, LLC	DE
First States Investors 229, LLC	DE
First States Investors 232, LLC	DE
First States Investors 233, LLC	DE
First States Investors 234, LLC	DE
First States Investors 235, LLC	DE
First States Investors 239, LLC	DE
First States Investors 240, LLC	DE
First States Investors 2208, LLC	DE
First States Investors 2211, LLC	DE
First States Investors 2212, LLC	DE
First States Investors 2213, LLC	DE
First States Investors 2550, LLC	DE
First States Investors 2550A, LLC	DE
First States Investors 3300, LLC	DE
First States Investors 3500, LLC	DE
First States Investors 3500A, LLC	DE
First States Investors 4000A, L.P.	DE
First States Investors 4000B, LLC	DE
First States Investors 4000C, LLC	DE
First States Investors 4000D, LLC	DE
First States Investors 4000E, LLC	DE
First States Investors 4000F, LLC	DE
First States Investors 4100, LLC	DE
First States Investors 4100A, L.P.	DE
First States Investors 4100B, L.P.	DE

	State of
Subsidiaries	Formation
First States Investors 4100C, L.P.	DE
First States Investors 4100D, L.P.	DE
First States Investors 4100E, L.P.	DE
First States Investors 4200, LLC	DE
First States Investors 5000, LLC	DE
First States Investors 5000A, LLC	DE
First States Investors 5000B, LLC	DE
First States Investors 5200, LLC	DE
First States Investors 5300, LLC	DE
First States Investors Realty, LLC	DE
First States Management, LLC	DE
First States Partners 123 S. Broad I, LLC	DE
First States Partners 123 S. Broad I, LP	DE
First States Partners 123 S. Broad II, LLC	DE
First States Partners 123 S. Broad II, LP	DE
First States Partners III LP	DE
First States Wilmington JV, LP	DE
First States Investors 65, Limited Partnership	FL
First States Investors 73, Limited Partnership	FL
First States Investors 77, Limited Partnership	FL
First States Investors 3004, Limited Partnership	FL
First States Investors 3006, Limited Partnership	FL
First States Investors 3008, Limited Partnership	FL
First States Investors 3009, Limited Partnership	FL
First States Investors 81, LLC	GA
First States Investors 3010, LLC	GA
First States Investors 3014, LLC	GA
First States Investors 69, LLC	IA
First States Investors 40, LLC	MO
First States Investors 2100, L.P.	NC
First States Investors 2101, L.P.	NC
First States Investors 2102, L.P.	NC
First States Investors 2103, L.P.	NC
First States Investors 2104, L.P.	NC
First States Investors 2105, L.P.	NC
First States Investors 2106, L.P.	NC
First States Investors 2107, L.P.	NC
First States Investors 2108, L.P.	NC
First States Investors 3016, L.P.	NC
First States Investors 3017, L.P.	NC
First States Investors 3018, L.P.	NC

	State of
Subsidiaries	Formation
First States Investors 3022, L.P.	NC
First States Investors 3024, L.P.	NC
First States Investors 3027, L.P.	NC
First States Investors 3028, L.P.	NC
First States Investors 3030, L.P.	NC
First States Investors 3031, L.P.	NC
First States Investors 3032, L.P.	NC
First States Investors 3033, L.P.	NC
First States Partners No. 203, LLC	NJ
First States Partners No. 213, LLC	NJ
First States Investors 72, LLC	NV
American Financial Realty Abstract, LLC	PA
Chester Court Realty LP	PA
Dresher Court Realty LP	PA
First States Management Corp., L.P.	PA
First States Partners II, LP	PA
First States Partners No. 201, LP	PA
First States Partners No. 203, LLC	PA
First States Partners No. 216, LP	PA
First States Partners No. 236, LP	PA
First States Partners, LP	PA
First States Properties Jenkins Court, LP	PA
First States Properties LP	PA
First States Properties No. 9, LLC	PA
First States Properties No. 12, LLC	PA
First States Properties No. 14, LLC	PA
First States Properties No. 15, LLC	PA
First States Properties No. 19, LLC	PA
First States Properties No. 26, LLC	PA
First States Properties No. 31, LLC	PA
First States Properties No. 33, LLC	PA
First States Properties No. 34, LLC	PA
First States Properties No. 35, LLC	PA
First States Properties No. 36, LLC	PA
First States Properties No. 37, LLC	PA
First States Properties No. 41, LLC	PA
First States Properties No. 43, LLC	PA
First States Properties No. 45, LLC	PA
First States Properties No. 48, LLC	PA
First States Properties No. 49, LLC	PA
First States Properties No. 51, LLC	PA

	State of
Subsidiaries	Formation
First States Properties No. 52, LLC	PA
First States Properties No. 56, LLC	PA
First States Properties No. 59, LLC	PA
First States Properties No. 62, LLC	PA
First States Properties No. 63, LLC	PA
First States Properties No. 67, LLC	PA
First States Properties No. 69, LLC	PA
First States Properties No. 71, LLC	PA
First States Properties No. 73, LLC	PA
First States Properties No. 75, LLC	PA
First States Properties No. 76, LLC	PA
First States Realty Corp., LLC	PA
First States Realty, LP	PA
First States Investors 3034, LLC	SC
First States Investors 3035, LLC	SC
First States Investors 3038, LLC	SC
First States Investors 3039, LLC	SC
First States Investors 3040, LLC	SC
First States Investors 3043, LLC	SC
First States Investors 74, Limited Partnership	TX
First States Investors 3048, LLC	VA
First States Investors 3056, LLC	VA

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees of
American Financial Realty Trust:

We consent to the incorporation by reference in the registration statements (Nos. 333-119602, 333-104000 and 333-118918) on Form S-3 and in the registration statement (No. 333-109754) on Form S-8 of American Financial Realty Trust of our reports dated March 14, 2006, with respect to the consolidated balance sheets of American Financial Realty Trust as of December 31, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2005, and related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of American Financial Realty Trust.

Our report dated March 14, 2006, on management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting as of December 31, 2005, expresses our opinion that American Financial Realty Trust did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of a material weakness on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states there was a material weakness relating to the Company’s accounting for income taxes.

KPMG LLP

Philadelphia, Pennsylvania
March 14, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Nicholas S. Schorsch, certify that:

      1. I have reviewed this annual report on Form 10-K of American Financial Realty 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 Exchange Act Rules 13a-15(f) and 15d-15(f)) or 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 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 the 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.

/s/ NICHOLAS S. SCHORSCH

Nicholas S. Schorsch

Vice Chairman of the Board of Trustees, President and Chief Executive Officer (Principal Executive Officer)

Date: March 15, 2006

119 EX-31.2 6 w18443exv31w2.htm CERTIFICATE OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A)

Exhibit 31.2

CERTIFICATIONS

I, David J. Nettina, certify that:

      1. I have reviewed this annual report on Form 10-K of American Financial Realty 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 Exchange Act Rules 13a-15(f) and 15d-15(f)) or 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 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 the 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.

/s/ DAVID J. NETTINA

_______________________________________
David J. Nettina

Executive Vice President and Chief Financial

Officer (Principal Financial Officer)

Date: March 15, 2006

120 EX-32.1 7 w18443exv32w1.htm CERTIFICATE OF CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(B)

Exhibit 32.1

Written Statement of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      The undersigned, the Chief Executive Officer of American Financial Realty Trust (the “Company”), hereby certifies that, to his knowledge on the date hereof:

      (a) the Form 10-K of the Company for the year ended December 31, 2005 filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (b) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ NICHOLAS S. SCHORSCH

Nicholas S. Schorsch

Vice Chairman of the Board of Trustees,

President and Chief Executive Officer

(Principal Executive Officer)

March 15, 2006

121 EX-32.2 8 w18443exv32w2.htm CERTIFICATE OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(B)

Exhibit 32.2

Written Statement of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

      The undersigned, the Chief Financial Officer of American Financial Realty Trust (the “Company”), hereby certifies that, to his knowledge on the date hereof:

      (a) the Form 10-K of the Company for the year ended December 31, 2005 filed on the date hereof with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (b) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DAVID J. NETTINA

David J. Nettina

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

March 15, 2006

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