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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, 2007.


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		(IRS Employer
incorporation or organization)		Identification No.)
610 Old York Road, Jenkintown, PA		19046
(Address of principal executive offices)		(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,		New York Stock Exchange, Inc.
par value $0.001 per share

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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, 2007, was approximately $1,317,237,917. 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, 2007. 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 128,508,310 as of February 26, 2008

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2007 annual meeting of shareholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

Part I

Item 1. Business

General

We are a self-administered, self-managed Maryland real estate investment trust, or REIT, with a primary focus on acquiring and operating properties leased to regulated financial institutions. These institutions are, for the most part, deposit taking commercial banks, thrifts and credit unions, which we will generically refer to as “banks.” We believe we are the largest public or private real estate company with this focus. Our portfolio of wholly-owned and jointly-owned bank branches and office buildings is leased to large banks such as Bank of America, N.A., Wachovia Bank, N.A., Regions Financial Corporation and Citizens Financial Group, Inc. and to mid-sized and community banks.

As of December 31, 2007, our portfolio consisted of 929 bank branches, 377 office buildings and 14 land parcels, of which 239 bank branches and one office building were partially-owned through joint ventures. Our wholly-owned properties aggregated approximately 29.9 million rentable square feet and our partially-owned properties aggregated approximately 1.3 million rentable square feet, including 1.0 million rentable square feet in an unconsolidated joint venture. Our properties are located in 36 states and Washington, D.C., with the most aggregate square footage in the Southeast region but closely followed by the Northeast region. As of December 31, 2007, the occupancy of our wholly-owned properties was 86.5% and the occupancy of our partially-owned properties was 99.9%. Our two largest tenants are Bank of America, N.A. and Wachovia Bank, N.A. and as of December 31, 2007, they represented approximately 36% and 15%, respectively, of our portfolio’s rental income and occupied approximately 42.8% and 18.7%, respectively, of our total rentable square feet.

Since our tenants are predominately regulated financial institutions, a significant portion of our base revenue is derived from high credit quality tenants. As of December 31, 2007, 79.9% of base rent from our portfolio was derived from financial institutions in the aggregate and 74.1% was derived from entities with current credit ratings of “A” or better as reported by Standard & Poor’s. The income stream we derive from other banks that are not formally credit rated has the enhanced benefit of being derived from a closely regulated industry. Further, due to the nature of the business of our tenant base, which places a high premium on serving its customers from a well established distribution network, we typically enter into long-term triple net or bond net leases with our tenants. As of December 31, 2007, the weighted average term of our leases was 11.0 years and approximately 76.6% of our base revenue was derived from triple net and bond net leases. With in-house capabilities in acquisitions, property management and leasing, we are focused on maximizing the value of our portfolio through acquisitions and strategic sales and through effective and efficient property management and leasing operations.

We were formed as a Maryland REIT on May 23, 2002 and commenced our operations on September 10, 2002 when we completed our private offering of common shares and acquired our initial portfolio of properties from various individuals, including our founder and parties related to that founder. We completed our initial public offering of common shares on June 27, 2003.

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 held a 98.6% interest in the Operating Partnership as of December 31, 2007. We are organized so as to qualify and have elected to qualify as a REIT under the Internal Revenue Code of 1986, or the Code. If we qualify as a REIT, we generally will not be subject to Federal income tax on our taxable income that is distributed to our shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute to its shareholders at least 90% of its annual REIT taxable income (excluding net taxable gains).

Our corporate offices are located at 610 Old York Road, Suite 300, Jenkintown, Pennsylvania and our telephone number is (215) 887-2280.

Unless the context requires otherwise, all references to “we,” “our,” “us” and “Company” in this annual report means American Financial Realty Trust, a Maryland trust, and one or more of its subsidiaries, including First States Group, L.P., a Delaware limited partnership, or the Operating Partnership.

Significant 2007 Developments

In the first of half of 2007, we substantially completed our five point strategic repositioning plan that we announced on August 17, 2006. The substantial completion of this plan was capped by the sale of Fireman’s Fund Headquarters, a three building Class “A” office campus located in Novato, California for a sale price of $312.0 million before transaction costs.

On June 27, 2007, we announced the loss of our president and chief executive officer, Harold W. Pote, who died suddenly and unexpectedly while vacationing with his wife in Turkey. On November 6, 2007, we announced the appointment of David J. Nettina as President and the dissolution of the interim office of the President occupied by our three senior executives.

On November 2, 2007, we entered into an agreement to be acquired by Gramercy Capital Corp., or Gramercy. The joint proxy statement filed by us and Gramercy with the Securities and Exchange Commission on January 7, 2008 describes this merger agreement, or the Merger Agreement, and also includes the Merger Agreement in its entirety. On February 13, 2008, our shareholders approved the Merger Agreement with Gramercy.

Business Strategies

Our primary business objective is to become the preferred landlord of banks and other financial institutions, and we believe that this goal is central to our broader objectives of achieving sustainable long-term growth in operating results and maximizing shareholder value. We seek to achieve these broader objectives by assembling and managing a high quality portfolio of bank branches and offices properties leased primarily to financial institutions. Key elements of our strategy are: (i) property acquisitions — acquiring properties from financial institutions that we consider to be central to our customer relationships that offer attractive initial yields as well as future escalations in base rent or which are vacant or have low occupancy and may provide opportunities for capital appreciation; (ii) portfolio dispositions — opportunistic sales of non-strategic assets that are leased to tenants that are not considered to be central to our customer relationships and underperforming assets with low customer occupancy; (iii) leasing; and (iv) property management.

Property Acquisitions. Our acquisition strategy is based on a customer centric model. Simply stated this model is based on developing long-term relationships with our banking customers to foster repeat deal flow. We strive to achieve this objective by understanding the long-term needs of our banking tenants, which often involves structuring lease terms at the time of the acquisition that provide them needed flexibility and providing support through our customer oriented asset management program.

Transactions flow to us in one of three ways:

	•		Long-term sale-leasebacks on a triple net basis. A triple net lease provides the tenant use and occupancy of a banking facility on a long-term basis, by paying to us a rental stream of payments and all costs associated with the occupancy and management of the property. These arrangements also make the tenant responsible for the capital expenditures needed in the property over the life of the lease.

	•		Acquiring vacant surplus bank branches. We acquire vacant surplus branch properties either under negotiated long-term contracts (formulated price contracts) or on a transaction by transaction basis. These properties are then re-leased to other banks or sold to alternative users who then typically redevelop the property for a non-bank use. Banks often find leasing these properties attractive since they are in proven locations and have in place much of the physical infrastructure needed to commence banking operations. This allows another bank to save the time of permitting, construction and fixturing, while acquiring the facility through an operating lease, often at a reduced cost over a de novo branch opening. In late 2007, primarily due to current market conditions, we terminated a number of formulated price contracts, including two of our highest volume contracts, to better manage the “put” feature in these contracts which require us to purchase vacant properties at formulated prices. We are currently re-negotiating the terms and conditions of one or more of these terminated contracts.

	•		Customized or specifically tailored transactions. In specific circumstances, we will enter into customized or specifically tailored transactions, which afford our tenants significant long-term flexibility and a short-term solution to nationally adjust their real estate occupancy requirements. These transactions incorporate elements of our triple net lease structure on some properties, and often result in some properties having a mix of triple net leases and standard commercial leases (differing operating cost recovery methods) and some properties being identified as non-core and therefore slated for sale. Due to their nature, these types of customized or specifically tailored transactions occur infrequently and we cannot predict when, if at all, we will enter into any such transaction in the future.

In acquiring properties, directly or through joint ventures, we believe that we have the following advantages over our competitors: (i) our senior management’s extensive experience in structuring real estate deals with financial institutions and the insight that they have on the real estate needs of financial institutions; (ii) our existing relationships with national and regional banks; (iii) our ability to structure acquisitions creatively for the mutual benefit of our customers and the Company; and (iv) our ability to provide customized lease structures to meet the needs of our customers who lease multiple bank branches and office properties.

Property Dispositions. We continuously evaluate our properties to identify which are most suitable to meet our long-term earnings growth objectives and contribute to our goal of fostering customer relationships. Properties that are leased to tenants who are not central to our customer relationships and which do not meet our long-term earnings growth objectives are generally considered for disposition. In 2007, we substantially completed the disposition component of our five point repositioning plan.

Leasing. We seek to capitalize on our knowledge of the market for bank branches and office properties occupied by financial institutions by applying a proactive approach to leasing, which includes: (i) identifying the most attractive and efficient use of vacant or low occupancy properties; (ii) renegotiating below market leases to achieve longer lease terms at market rates; (iii) using market research; and (iv) utilizing a broad network of third-party brokers. We also seek to provide customers who lease multiple properties from us with specialized lease structures such as substitution and relocation rights and in some cases shorter lease terms in selected properties within a portfolio.

Property Management. We seek to capitalize on our knowledge of our portfolio and the needs of our multi-property tenants by applying a customer-focused, hands-on approach to property management, which includes: (i) focusing on tenant satisfaction by providing quality tenant services at affordable rental rates; and (ii) hiring and closely overseeing third party property managers.

Market Opportunity

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.

	•		Intensified Pressure on Earnings and Efficient Capital Utilization. We believe that banks and other financial institutions will continue to experience intense pressures to maintain and grow their earnings which require them to more efficiently utilize their capital. As a result of these pressures, we believe that banks and other financial institutions are attracted to the benefits of selling their properties and entering into long-term leases with the acquirer. The potential benefits of this type of transaction to the banks and financial institutions include: (i) re-deployment of the proceeds from these sales into their primary business; (ii) increased earnings and key financial ratios; and (ii) improved efficiency of capital utilization.

	•		Surplus Property Disposition. We anticipate that banks and other financial institutions will have a continuing need to dispose of surplus properties resulting from industry consolidation and periodic initiatives to drive more efficient real estate utilization. The sale of surplus bank properties due to these factors represents a significant acquisition opportunity.

According to the FDIC, commercial banks and savings institutions in the U.S. that are FDIC-insured owned approximately $115.8 billion in operating real estate as of June 30, 2007. 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 9,613 as of December 31, 2001 to 8,605 as of June 30, 2007 (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 77,270 to 97,272. 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 2001 through June 30, 2007 as reported by the FDIC:


	12/31/2001		12/31/2002		12/31/2003		12/31/2004		12/31/2005		6/30/2006		06/30/2007
Commercial Banks and Savings Institutions		9,613		9,354		9,182		8,988		8,855		8,767		8,605
Bank Branches		77,270		77,872		79,141		81,947		82,928		94,752		97,272

Financing Strategies

We pursue a capitalization strategy aimed at maintaining a flexible capital structure in order to facilitate consistent growth and performance in the face of differing market conditions. Key components of our policy are set forth below:

Debt Strategy. We utilize three fundamental debt structures in our business:

	•		Acquisition financing: We use floating rate acquisition facilities to initially acquire assets which may not be fully stabilized, or require relatively short closing times. A property or portfolio of properties is considered stabilized when it is 90% or more occupied and when all of the properties in that portfolio are considered to be held for investment. Properties or portfolios which require a high degree of lease-up, non-core property dispositions, or prime tenant occupancy repositioning cannot be efficiently financed until these issues are reasonably addressed. The latter type assets are best financed on a short-term basis. The primary source of this acquisition capital comes from our secured acquisition credit facility, which currently provides us up to $400 million in acquisition capacity. As of December 31, 2007, $169.6 million of capacity was available under this facility. We also have used deal specific acquisition and bridge financing facilities. These facilities are generally paid off with the proceeds from the permanent financing of the acquired assets once they are stabilized and/or the proceeds from the sale of certain assets acquired and initially financed on these facilities.

	•		Secured permanent debt: We use long-term fixed rate secured non-recourse mortgage financing to permanently finance our investment or core real estate assets (stabilized assets intended for a long-term hold). Assets may be financed on a permanent basis at the time of acquisition or after they have been stabilized. We generally seek to match the maturity of this debt to the lease term on the property securing the debt or tie the maturity of such financings to particular anticipated events occurring at the property or property portfolio being financed (such as the rollover of certain tenancy). Given the high credit or near high credit quality of much of our income and long-term nature of many of our leases we believe that this strategy enhances the stability of our cash flow.

	•		Balance sheet financing: From time to time, we evaluate market conditions and assess where the most flexible instrument and lowest cost of funds can be secured to finance our business needs. Sometimes balance sheet level financing, as contrasted by property level secure financing, is a better alternative. These types of financings bring with them a general obligation for the Company to honor the aspects of the debt agreement as contrasted with property level financing, which relies on the value and income stream of the underlying asset. Our Convertible Senior Notes are an example of a general corporate obligation. Funds obtained from this type of financing can be used to repay any corporate or property level debt, provide new investment capital for acquisitions or fund general operations. These particular notes may be repayable in cash or stock under various conditions.

Equity Strategy. When conditions warrant, we may issue common and other forms of equity. We also seek to maximize the benefits of our Operating Partnership’s organizational structure by utilizing, where appropriate, the issuance of units in our Operating Partnership as an equity source to finance our property acquisition program. This strategy provides prospective property sellers the ability to defer taxable gains by receiving our partnership units in lieu of cash and reduces the need for us to access the equity and debt markets.

Offerings and Financings

On September 10, 2002 and October 7, 2002, we completed the private offering of 40,263,441 common shares and 501,800 common shares, respectively, which offerings resulted in net proceeds of approximately $378.9 million, after deducting underwriters’ discount, commissions and offering expenses.

On June 27, 2003, we completed an initial public offering of 64,342,500 common shares priced at $12.50 per share. We raised net proceeds of approximately $740.9 million pursuant to this initial public offering, after deducting underwriters’ discount, commissions and offering expenses.

In 2004, we sold an aggregate of $450.0 million of our 4.375% Convertible Senior Notes due 2024.

On May 9, 2005, we completed a second public offering of 16,750,000 common shares priced at $14.60 per share. We raised net proceeds of approximately $242.8 million pursuant to this second public offering, after deducting underwriters’ discount, commissions and offering expenses.

Industry Segments

We are a REIT that acquires, owns, manages and leases bank branches and office properties primarily to regulated financial institutions. We operate solely within this industry segment.

Competition

The commercial real estate market is highly competitive. We compete for the purchase of bank branches and office properties with many entities, including other publicly-traded commercial REITs. Many of our competitors have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If our competitors prevent us from buying properties that we have targeted for acquisition, we may not be able to meet our property acquisition goals.

We also compete with numerous commercial properties for tenants. Some of the properties competing with ours may be newer or have more desirable locations or the competing properties’ owners may be willing to accept lower rents than are acceptable to us. In addition, the competitive environment for leasing is affected considerably by a number of factors including, among other things, changes in economic factors and supply and demand of space. These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to meeting our short-term capital needs.

On September 10, 2007, a newly formed REIT founded by our former president and chief executive officer, Nicholas S. Schorsch, filed a registration statement with the Securities and Exchange Commission for a public offering of securities. Based on the disclosures in such registration statement, it is expected that this REIT, if successful in raising capital, will compete with us for similar properties and tenants. On November 6, 2007, Mr. Schorsch’s non-compete obligation with the Company was terminated.

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 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 result 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.

Insurance

We carry comprehensive liability, casualty and rental loss insurance covering substantially all of the properties in our portfolio. On properties leased to single tenants with good or acceptable credit ratings, we often rely on our tenant’s insurance. In addition, in certain areas, we pay additional premiums to obtain flood, earthquake or wind insurance. We do not carry insurance for generally uninsured losses such as loss from riots.

Employees

We employed 174 full-time employees as of December 31, 2007. 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 website. The information found on our website 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. We have also made available on our website our audit committee charter, compensation committee charter, corporate governance and nominating committee charter, code of business conduct and ethics and corporate governance guidelines. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding any amendments to or waivers of our code of business conduct and ethics by posting the required information in the corporate governance section of our website.

You may request a copy of these filings and documents, 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 Proposed Merger with Gramercy Capital Corp.

Our business, operations and financial condition are subject to various risks. Some of these risks are described below; however, this section does not describe all risks applicable to us, our industry or our business, and it is intended only as a summary of certain material factors. Additional risks relating to the announced merger between us and Gramercy are described in the joint proxy statement filed on January 7, 2008 under the heading “Risk Factors, Risk Factors Relating to the Merger” starting on page 32 and ending on page 35, which risk factors are incorporated herein by reference. If any of the following risks or the risks described in the joint proxy statement actually occur, we could be materially and adversely affected.

If we are unable to consummate our proposed merger with Gramercy, our business, financial condition, operating results and stock price could suffer.

If we fail to satisfy the closing conditions to in the Merger Agreement, we could face adverse consequences, including:

	•		we would remain liable for significant costs relating to the transaction, including, among others, legal, accounting, financial advisory and financial printing expenses;

	•		activities relating to the proposed merger and related uncertainties could divert management’s attention from our day-to-day business and disrupt our operations;

	•		an announcement that we have abandoned the proposed merger could trigger a decline in our stock price to the extent that our stock price reflects a market assumption that we will complete the merger;

	•		we could be required to pay Gramercy a termination fee and/or expense reimbursement if the Merger Agreement is terminated under certain circumstances; and

	•		we may forego alternative business opportunities or fail to respond effectively to competitive pressures.

Certain restrictive pre-closing covenants in the Merger Agreement may negatively affect our business, financial condition, operating results and cash flows.

Pending completion of the proposed merger, we have agreed to conduct our business in the ordinary course and consistent with our past practices. We have also agreed to restrictions on the conduct of our business. These restrictions could have a material adverse effect on our business, financial condition, cash flows, operating results and stock price.

There may be unexpected delays in the consummation of the proposed merger.

The proposed merger is currently expected to be consummated in the second half of March 2008. However, certain events may delay or prevent the consummation of the proposed merger, including, without limitation, the failure of the Company or Gramercy to satisfy one or more of the closing conditions to which the proposed merger is subject. If these events were to occur, the receipt of the consideration by our shareholders and the Operating Partnership unitholders would be delayed. Further, if these events were to delay the closing past March 31, 2008, either we or Gramercy may terminate the Merger Agreement in accordance with its terms.

Uncertainties associated with the proposed merger may cause us to lose key personnel.

Our current and prospective officers and employees may be uncertain about their future roles and relationships with the Company following the completion of the proposed merger. This uncertainty may adversely affect our ability to attract and retain key management and personnel.

Risks Related to Our Business and Properties

We have experienced rapid growth and may not be able to adapt our management and operational systems to respond to the integration of these properties without unanticipated disruption or expense.

As a result of the rapid growth of our portfolio, we may not 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 without operating disruptions or unanticipated costs. Further, although at a reduced pace, we continue to acquire additional vacant properties under various formulated price contracts which generate additional operating expenses that we would be required to pay until such properties are leased or sold. 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 these properties 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.

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 and other structured purchase agreements. Typically, our formulated price contracts may be terminated without cause upon 90 days or less written notice. Moreover, these agreements only cover surplus vacant 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. Other than these formulated price contracts, the financial institutions that we have relationships with have no ongoing contractual obligation to sell any of their real estate to us. If we fail to maintain our formulated price contracts or if there is a disruption in any of our key relationships with 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.

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.

With limited exceptions, we acquire 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.

We often acquire 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. In addition, 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 our contracts for property acquisitions and dispositions, our operating results could be adversely affected.

Our ability to complete our contracts for property acquisitions is dependent upon many factors, such as satisfaction of due diligence and customary closing conditions and our ability to obtain sufficient debt financing. Likewise, our ability to complete our property dispositions are dependent upon similar factors, some of which are beyond our control such as the purchaser’s ability to obtain sufficient debt financing. Our inability to complete these acquisitions and dispositions 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 expect to incur in the future, debt to fund the acquisition of properties. As of December 31, 2007, we had approximately $2,198.2 million of outstanding indebtedness, which includes the aggregate principal amount of our convertible notes of $450.0 million and outstanding advances under our secured acquisition credit facility of $230.4 million. Increases in market interest rates on our existing variable rate indebtedness or on refinancing indebtedness when existing debt matures 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, 2007, we will have to refinance or repay an aggregate amount of approximately $230.4 million during the year ending December 31, 2008. This amount relates entirely to our secured acquisition credit facility, which has a maturity date in October 2008.

The amount of our existing indebtedness may adversely affect our ability to repay debt through refinancings, extension of our existing secured acquisition credit facility, or the structuring of a new secured credit facility. If we are unable to refinance our indebtedness, extend the term of our secured acquisition credit facility, or structure a new secured credit facility 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 and / or lower proceeds from refinancings, 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 will likely 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;

	•		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 credit facilities. 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 acquisition credit facility of up to $400.0 million that 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.

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, including as a result of the recent disruptions in the credit markets. 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 pre-bankruptcy 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 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 are leased to banks, making us more economically vulnerable in the event of a downturn in the banking industry.

As of December 31, 2007, approximately 79.9% 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, including negative conditions caused by thr recent disruptions in the financial markets. 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 vacant 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.

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, 2007, Bank of America, N.A. and Wachovia Bank, N.A. represented approximately 36% and 15%, respectively, of our portfolio’s rental income and occupied approximately 43% and 19%, respectively, of our total rentable square feet. The default, financial distress or insolvency of Bank of America N.A. 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.

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. 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.

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.

Under our formulated price contracts, we are required, with limited exceptions, to purchase surplus bank branches that these financial institutions own. 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 not be able to compete successfully for tenants with other entities that operate in our industry.

Numerous commercial properties compete for tenants with our properties. Some of the properties competing with ours may have newer or more desirable locations, or the competing properties’ owners may be willing to accept lower rates or may be less sensitive to risks with respect to creditworthiness of a tenant than are acceptable to us. Competition for tenants in properties that we own 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, 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. Further, if we are unable to 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. 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.

Additionally, 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.

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.

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 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.

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.

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 acquisition 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, 2007, we had $230.4 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, 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.

We may be unable to extend the term of our secured acquisition credit facility or structure a new credit facility, which could have an adverse impact on our ability to repay the current advances outstanding.

Our existing $400.0 million secured acquisition credit facility has a maturity date in October 2008. As of December 31, 2007, we had $230.4 million of advances outstanding under this facility. If we are unable to extend the term of the existing facility or structure a new facility, the lender may require us to repay the principal outstanding under the facility. If we do not have sufficient liquidity to satisfy the lender’s requirements or are unable to refinance the properties securing the facility, 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 be unable to extend the term of our secured operating credit facility or structure a new credit facility, which could adversely affect our operating results and financial condition.

Our existing secured operating credit facility with a stated commitment amount of $40.0 million has a maturity date in April 2008. The facility permits cash collateralized letters of credit in excess of this stated commitment amount. As of December 31, 2007, we had $53.6 million of letters of credit outstanding under this facility, $12.0 million of which were collateralized by a pledge of the subleases from our Harborside leasehold location and the remainder collateralized by cash escrow deposits of $41.9 million. If we are unable to extend the term of the existing facility or structure a new facility, the lender may terminate all or a portion of the letters of credit outstanding under the facility. The termination of the letters of credit will negatively impact our liquidity.

Certain of our mortgage loans impose “cash traps” when the financial performance of the property or the portfolio of properties securing such loans fails to meet certain pre-determined financial metrics, which if enforced could adversely affect our financial condition and operating results.

The provisions relating to “cash traps” in our mortgage loan for our Bank of America, N.A. portfolio of 248 properties that we acquired in October 2004 have been triggered as a result of the portfolio’s failure to meet certain financial performance metrics. If payments into these cash traps continue and if similar provisions in our other mortgage loans are triggered, our liquidity will be negatively impacted and this could have a material adverse effect on our results of operations and financial condition.

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 or, in some cases, a premium. 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. 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 may acquire some 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.

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.

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.

Under the terms of the Merger Agreement, we may not declare or pay any dividends in respect of any fiscal quarter after the fourth quarter of 2007, except to the extent required to maintain our REIT status or to eliminate any U.S. federal income taxes or excise taxes otherwise payable.

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 our management team. In particular, the extent and nature of the relationships that 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 our key executives, there is no guarantee that such 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 would harm our business and our prospects.

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

The issuance of additional shares could be substantially dilutive to our existing shareholders. Under the terms of the Merger Agreement, the Company is prohibited from issuing additional shares except as required under the terms of its employee compensation plans and arrangements.

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.

We are dependent on external sources of capital for future growth.

Because we are a REIT, we must distribute at least 90% of our annual taxable income to our shareholders. Due to this requirement, we will not be able to fund our acquisition, construction and development activities using cash flow from operations. Therefore, our ability to fund these activities is dependent on our ability to access capital funded by third parties. Such capital could be in the form of new loans, equity issuances of common shares, preferred shares, common and preferred units in our Operating Partnership or joint venture funding. Such capital may not be available on favorable terms or at all. Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management’s flexibility in directing our operations, and additional equity offerings may result in substantial dilution of our shareholders’ interests. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.

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. Under the terms of the Merger Agreement, the Company is prohibited from issuing preferred 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 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.

Subject to the limitations set forth in the Merger Agreement, 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 65% 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, 2007 our ratio of net debt to total net assets was approximately 61.5% 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.

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

We have entered into agreements with certain of our executive officers that provide them with severance benefits if their employment ends due to a termination by our company without cause. 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 acquirer 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

Recent disruptions in the financial markets could have adverse effects on us.

The United States credit markets have recently experienced significant dislocations and liquidity disruptions. Continued uncertainty in the credit markets may negatively impact our ability to make acquisitions. In addition, these factors may make it more difficult for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. These disruptions in the financial markets also may have other unknown adverse effects on us or the economy generally.

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.

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 our 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 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 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 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 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.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

As of December 31, 2007, we owned or held leasehold interests in 1,081 properties located in 36 states and Washington, D.C., containing an aggregate of approximately 30.2 million rental square feet. Additionally, we own an interest in 239 fully leased bank branches aggregating 983,000 square feet through our investment in an unconsolidated joint venture. The following table presents our owned portfolio as of December 31, 2007, grouped according to the transaction in which we acquired the properties:


		Number of		Rentable		Occupancy
Seller/ Property Name	Date of Acquisition	Buildings		Square Feet		Percentage
Formation Transactions	September 2002		56		1,082,455		85.3	%
Bank of America, N.A.	December 2002		4		138,625		83.2	%
Dana Commercial Credit Corp.	January 2003		15		3,720,608		94.0	%
Pitney Bowes — Wachovia	March 2003		80		973,414		100.0	%
Finova Capital — BB&T	April 2003		9		324,054		100.0	%
Bank of America, N.A.	June 2003		124		5,960,200		88.6	%
Citigroup	August 2003		4		24,502		98.4	%
Bethel, OH	August 2003		1		5,228		69.4	%
Pitney Bowes — Key Bank	September 2003		30		140,590		100.0	%
Pitney Bowes — Bank of America	September 2003		91		452,504		99.1	%
Three Beaver Valley	September 2003		1		263,058		100.0	%
Bank of America Plaza	December 2003		1		750,000		89.6	%
Potomac Realty — Bank of America	February 2004		5		50,982		100.0	%
Schwab Harborside	June 2004		1		287,838		77.4	%
Virginia — BB&T	June 2004		1		4,795		100.0	%
101 Independence Center	July 2004		1		564,724		96.8	%
Wachovia Bank, N.A.	September 2004		106		5,539,134		88.4	%
Bank of America, N.A.	October 2004		176		5,034,979		86.1	%
National City Bank Building	January 2005		1		159,749		100.0	%
Bank of America — Las Vegas	March 2005		1		82,255		79.9	%
One Montgomery Street	April 2005		1		75,880		100.0	%
801 Market Street	April 2005		1		365,624		99.7	%
First Charter — Midland	May 2005		1		2,160		100.0	%
Regions Bank	June 2005		77		1,923,056		57.4	%
Charter One Bank	June 2005		7		127,265		56.2	%
One Citizens Plaza	October 2005		1		224,089		99.4	%
One Colonial Plaza	November 2005		1		163,920		100.0	%
Wachovia South Trust	November 2005		53		162,344		93.4	%
National City Formulated Price Contracts	March 2006		6		500,580		71.5	%
Hinsdale	March 2006		1		12,927		100.0	%
Dripping Springs	April 2006		1		11,344		100.0	%
Meadowmont	May 2006		2		12,816		100.0	%
Umpqua Western Sierra Bancorp	June 2006		8		51,103		100.0	%
AmSouth	August 2006		6		21,871		13.0	%
First Charter Bank — Banner Elk	August 2006		1		2,108		100.0	%
Sterling Bank	December 2006		14		120,793		100.0	%
Heritage Oaks	June 2007		4		38,361		100.0	%
Home Federal Bancorp	September 2007		4		25,000		100.0	%
Wachovia Formulated Price Contracts	Various		150		651,608		49.7	%
Bank of America Formulated Price Contracts	Various		34		171,622		75.4	%

			1,081		30,224,165		86.7	%

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. Future options for additional vacancy occur in June 2009 and June 2015, of approximately 695,000 and 654,000 square feet, respectively.

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. As of December 31, 2007, Bank of America, N.A. occupied approximately 4.8 million square feet, or 81%, of the rentable square feet in this portfolio with an initial lease term of 20 years. Bank of America, N.A. will pay approximately $41.7 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.

Harborside: In June 2004, 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 provided a rent credit, paid over the 42 months ended December 31, 2007, totaling approximately $40.0 million, against our initial sublease obligations.

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, 2007, Wachovia Bank, N.A. occupied approximately 4.5 million square feet, or 82%, of the remaining portfolio for a 20-year term on a triple net basis and an additional approximately 16,000 square feet of the remaining portfolio on a short term (cancelable) 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, 2007, Bank of America, N.A. occupied approximately 3.6 million square feet, or 72%, 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.

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, 2007, Regions Bank occupied approximately 779,000 square feet, or 41% of the remaining portfolio for a 15-year term on a triple net basis.

Assets Held For Sale: At December 31, 2007 we classified 131 buildings comprising approximately 4.5 million square feet as held-for-sale based on our intent to sell these properties. Properties classified as held-for-sale have been determined to be non-core assets that are not central to our business plan or customer relationships.

At December 31, 2007, we leased properties to over 965 tenants. The following table sets forth information regarding leases with our five largest tenants based upon rentable square feet:


					% of
			Rentable		Portfolio
	Number of		Square		Rentable
	Locations		Feet		Square Feet
Bank of America, N.A.		406		12,927,787		42.8%
Wachovia, N.A.		178		5,665,018		18.7%
Regions Bank		92		859,398		2.8%
Citizens Bank		12		393,323		1.3%
American International Insurance Company (AIG)		1		263,058		0.9%

		689		20,108,584		66.5	%

As of December 31, 2007, Bank of America, N.A. and Wachovia, N.A. represented 36% and 15%, respectively, of rental income. No other tenants represented more than 10% of rental income.

Item 3. Legal Proceedings

None

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

On February 13, 2008, the Company’s shareholders held a special meeting to vote on the approval of the merger with Gramercy and the other transactions contemplated by the Merger Agreement. Approximately 72.9% of outstanding shares, or 93,720,255 shares, voted for, and approximately 0.4% of outstanding shares, or 527,227 shares, voted against the approval of the merger with Gramercy. Approximately 0.2% of outstanding shares, or 212,899 shares, abstained from voting.

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 ended December 31, 2006 and 2007, as quoted on the New York Stock Exchange:


	High		Low
Fiscal Year 2006:
First Quarter	$	12.81	$	11.52
Second Quarter	$	12.00	$	9.52
Third Quarter	$	12.25	$	9.59
Fourth Quarter	$	12.08	$	10.90
Fiscal Year 2007:
First Quarter	$	11.77	$	9.98
Second Quarter	$	11.58	$	9.91
Third Quarter	$	11.13	$	6.17
Fourth Quarter	$	8.65	$	6.31

The number of holders of record of our shares was 370 as of December 31, 2007. 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.)

On November 2, 2007 we entered into a merger agreement with Gramercy. Subject to the terms of the Merger Agreement, we are not allowed to declare or pay dividends after our fourth quarter 2007 dividend, which was paid on January 18, 2008, except to the extent required to maintain our REIT status or to eliminate any U.S. federal income taxes or excise taxes otherwise payable. Notwithstanding the terms of the Merger Agreement, our policy has been 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. If the merger is not completed, we cannot assure you that our Board of Trustees will reinstate a dividend payout consistent with past levels, if any, nor can we 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.

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 the discretion of the board of trustees. Dividends have been 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 consistent 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, 2006 and 2007 were as follows (in thousands, except per share data):


	Per Common Share		Total Dollars Declared to
	and Operating		Common		Operating Partnership
	Partnership Unit		Shareholders		Unit holders
Fiscal Year 2006:
First Quarter	$	0.27	$	34,961	$	921
Second Quarter	$	0.27	$	34,968	$	908
Third Quarter	$	0.19	$	24,771	$	562
Fourth Quarter	$	0.19	$	24,884	$	444
Fiscal Year 2007:
First Quarter	$	0.19	$	24,877	$	384
Second Quarter	$	0.19	$	24,687	$	347
Third Quarter	$	0.19	$	24,416	$	347
Fourth Quarter	$	0.19	$	24,417	$	347

To address the difference between cash flows generated from operations and dividend payout, the Company’s board of trustees announced on August 17, 2006, a reduction in our dividend of $0.08 per share, or 30%, from $0.27 per share to $0.19 per share. For comparative purposes, total dividends and distributions in 2006 would have totaled $101.2 million if the dividend has been decreased commencing in the first quarter of 2006. The dividend reduction is part of our overall repositioning strategy, which includes the sale of non-core assets and the reduction of leverage. Along with other initiatives, management and the board of trustees believe that the measures they are currently undertaking (as previously communicated), will enhance the cash flow coverage of future period payment of dividends.

Equity Compensation Plans

Information about our equity compensation plans at December 31, 2007 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)

2,955,278

10.06

4,229,842

Equity Compensation plans not approved by security holders

—

Total

2,955,278

10.06

4,229,842


(1)		Relates to our 2002 Equity Incentive Plan

(2)		Weighted-average exercise price of outstanding options excludes restricted common shares

Item 6. Selected Financial Data

The selected financial data presented below as of and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 are derived from the consolidated financial statements of American Financial Realty Trust.

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.

Amounts in thousands, except per share data


	Year Ended December 31,
	2007			2006			2005			2004			2003
Operating Information:
Total revenues	$	372,900		$	388,774		$	349,188		$	232,939		$	119,790
Loss from continuing operations	$	(81,902	)	$	(131,487	)	$	(79,932	)	$	(46,476	)	$	(25,084	)
Net loss	$	(49,511	)	$	(20,598	)	$	(93,615	)	$	(22,245	)	$	(18,822	)
Basic income (loss) per share:
From continuing operations	$	(0.65	)	$	(1.03	)	$	(0.67	)	$	(0.45	)	$	(0.35	)
From discontinued operations	$	0.26		$	0.86		$	(0.11	)	$	0.23		$	0.09
Total basic loss per share	$	(0.39	)	$	(0.17	)	$	(0.78	)	$	(0.22	)	$	(0.26	)
Diluted income (loss) per share:
From continuing operations	$	(0.65	)	$	(1.03	)	$	(0.67	)	$	(0.45	)	$	(0.35	)
From discontinued operations	$	0.26		$	0.86		$	(0.11	)	$	0.23		$	0.09
Total diluted loss per share	$	(0.39	)	$	(0.17	)	$	(0.78	)	$	(0.22	)	$	(0.26	)
Dividends/distributions declared per common share and Operating Partnership units	$	0.76		$	0.92		$	1.08		$	1.02		$	1.00
Cash Flow Information:
From operating activities	$	68,238		$	(26,689	)	$	80,637		$	118,620		$	94,809
From investing activities	$	146,758		$	1,124,225		$	(700,745	)	$	(1,744,112	)	$	(46,387	)
From financing activities	$	(196,154	)	$	(1,101,775	)	$	619,746		$	1,524,940		$	101,894


	December 31,
	2007		2006		2005		2004		2003
Balance Sheet Information:
Real estate investments, at cost	$	2,467,365	$	2,617,971	$	3,556,878	$	3,054,532	$	1,654,723
Cash and cash equivalents	$	124,848	$	106,006	$	110,245	$	110,607	$	211,158
Marketable investments and accrued interest	$	2,675	$	3,457	$	3,353	$	24,272	$	67,561
Intangible assets, net	$	271,294	$	314,753	$	642,467	$	590,341	$	115,084
Total assets	$	3,231,378	$	3,606,164	$	4,623,576	$	3,951,847	$	2,142,339
Mortgage notes payable	$	1,436,248	$	1,557,313	$	2,467,596	$	2,008,554	$	921,355
Credit facilities	$	195,363	$	212,609	$	171,265	$	270,000	$	—
Convertible debt, net	$	446,551	$	446,343	$	446,134	$	445,926	$	—
Total debt	$	2,078,162	$	2,216,265	$	3,084,995	$	2,724,480	$	921,355
Below-market lease liabilities, net	$	43,660	$	57,173	$	67,613	$	59,232	$	49,485
Total liabilities	$	2,617,581	$	2,807,807	$	3,662,509	$	3,016,789	$	1,128,373
Minority interest	$	7,380	$	12,393	$	53,224	$	65,099	$	36,365
Total shareholders’ equity	$	606,417	$	785,964	$	907,843	$	869,959	$	977,601
Total liabilities and shareholders’ equity	$	3,231,378	$	3,606,164	$	4,623,576	$	3,951,847	$	2,142,339


	December 31,
	2007			2006			2005			2004			2003
Portfolio statistics:
Occupancy		86.7	%		86.9	%		86.3	%		87.0	%		88.9	%
% base revenue from financial institutions		79.9	%		81.2	%		86.7	%		88.4	%		86.3	%
% base revenue from tenants rated “A–” or better (per Standard & Poor’s)		74.1	%		76.5	%		84.2	%		86.3	%		82.8	%
% base revenue from net leases(1)		76.6	%		77.8	%		85.1	%		89.9	%		86.6	%
Average remaining lease term (years)		11.0			11.6			13.4			14.7			13.3


(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.

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, 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;

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

	•		the successful completion of our proposed merger or our ability to continue to operate independently in the event that the merger is not completed.

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, in light of the on-going credit crisis 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;

	•		our ability to execute our business plan;

	•		availability, terms and deployment of capital;

	•		availability or the retention of qualified personnel;

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

	•		our ability to accurately project future financial performance;

	•		changes in our industry, the banking 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 Item IA, Part I 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 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, 2007, we owned or held leasehold interests in 1,081 properties located in 36 states and Washington, D.C., including 690 bank branches and 376 office buildings, containing an aggregate of approximately 30.2 million rentable square feet.

Acquisitions

During the year ended December 31, 2007, we acquired interests in 75 properties, containing an aggregate of approximately 0.4 million square feet, and six land parcels, for a total net purchase price of $78.2 million. We acquired four branches each in sale-leaseback transactions with Heritage Oaks Bank and Home Federal Bancorp. These portfolios contain 38,000 and 25,000 square feet and were acquired for $13.3 million and $3.7 million, respectively. Also, we acquired 62 and five branches under the terms of our Formulated Price Contracts with Wachovia Bank and Bank of America for $55.7 million and $5.5 million, respectively.

Dispositions

During the year ended December 31, 2007, we disposed of 146 non-core properties, land parcels and leasehold interests aggregating approximately 3.4 million square feet, for net proceeds of $335.4 million. Included in these dispositions is the sale of HSBC Operations Center in January of 2007, an office building with approximately 158,000 rentable square feet, located at 2200 East Benson Road, Sioux Falls, South Dakota, for a gross sale price of $27.5 million. In February of 2007 we sold Bank of America Financial Center, an office building with approximately 328,000 rentable square feet, located at 601 W. Riverside Avenue, Spokane, Washington, for a gross sale price of $36.0 million. Additionally, in May of 2007, we sold the Fireman’s Fund Insurance Company building, an office building with approximately 710,000 rentable square feet located at 777 San Marin Drive, Novato, California. This property was sold for a gross sale price of $312 million. In December of 2007, we sold Bank of Oklahoma Plaza, an office building with approximately 234,000 rentable square feet, located at 201 Robert S. Kerr Avenue, Oklahoma City, Oklahoma, for a gross sale price of $15.8 million.

Financings

During the year ended December 31, 2007, we received proceeds of $332.9 million from new financings, including (i) $61.3 million long-term refinancing of 32 properties during May 2007 which were previously pledged to our secured acquisition credit facility, (ii) $49.1 million long-term refinancing of 30 properties during September 2007 which were previously pledged to our secured acquisition credit facility, and (iii) $222.5 million from our secured acquisition credit facility.

During the year ended December 31, 2007, principal payments and extinguishment of mortgage principal aggregated $574.5 million. Included in this amount were (i) two defeaseance transactions that extinguished $56.0 million of debt, (ii) other repayments due to property dispositions of $18.9 million, (iii) refinancings and bridge loan repayments of $161.7 million, (iv) $186.1 million extinguishment of mortgage principal that was assumed by the buyer in connection with the sale of Fireman’s Fund Insurance Company building in Novato, California, (v) repayments of advances under our secured acquisition credit facility of $99.8 million utilizing proceeds from the sale of the Fireman’s Fund Insurance Company building, (vi) early repayment of $14.1 million of high constant debt, (vii) other repayments of advances under our acquisition credit facility of $6.5 million, and (viii) scheduled debt amortization of $28.2 million.

In January 2007, we sold the HSBC Operations Center located in Sioux Falls, South Dakota. We extinguished $15.3 million of mortgage principal through a legal defeasance at the time the property was sold.

In January 2007, we repaid $16.4 million of mortgage principal in connection with the termination of the short-term bridge facility secured by Bank of Oklahoma in Oklahoma City, Oklahoma.

In May 2007, we sold the Fireman’s Fund Insurance Company building located in Novato, California. We extinguished $186.1 million of mortgage principal that was assumed by the buyer in connection the sale of the property. In addition, we repaid advances under our secured acquisition credit facility of $99.8 million utilizing proceeds from the sale of this property.

In May 2007, we refinanced 32 properties through two non-recourse, fixed-rate financings; two properties were previously pledged to our secured acquisition credit facility and two properties were previously unencumbered by debt. The initial loan amounts for these financings were $30.0 million and $31.3 million, both loans have a maturity date of June 5, 2017 and a coupon of 5.80%. The loans will be interest-only for 3 years and then will pay principal based on a 30-year amortization schedule.

In September 2007, we financed 30 properties through two non-recourse, fixed-rate financings; 28 properties were previously pledged to our secured acquisition credit facility and two properties were previously unencumbered by debt. The initial loan amounts for these financings were $26.4 million and $22.7 million, both loans have a maturity date of October 5, 2017 and a coupon of 6.80%. The loans will be interest-only for 5 years after which principal will be repaid based on a 30-year amortization schedule.

In October 2007, we refinanced the mortgage on our 123 S. Broad Street property located in Philadelphia, Pennsylvania. We repaid the previous mortgage balance of $50.0 million using $35.0 million in proceeds from the advance associated with pledging the property to our secured acquisition credit facility and a $15.0 million advance from our secured acquisition credit facility against other properties. The $35.0 million advance secured by the 123 S. Broad Street property has an interest rate of LIBOR plus 2.25%.

During 2007 we entered into several amendments with our lender to the credit agreement of our secured operating credit facility. The initial credit facility commitment in September 2004 was for a $60.0 million unsecured operating credit facility. This commitment was subsequently reduced to $40.0 million effective October 29, 2007, due to the recent volatility in the credit markets, the lender required us to collateralize the facility during the same period. Effective September 28, 2007 the Company executed an extension of this facility to October 29, 2007. Effective October 29, 2007 the Company executed an extension of this facility to November 29, 2007. Effective November 29, 2007 the Company executed an extension of this facility to April 30, 2008. The facility maintains a $40.0 million sub-limit for letters of credit. In June 2006, the facility was amended to permit cash collateralized letters of credit in excess of this sub-limit. Effective November 29, 2007, the facility was amended to require collateralization of all outstanding letters of credit under the facility. As of December 31, 2007, the Company had $53.6 million letters of credit outstanding under this facility, $12.0 million of which were collateralized by a pledge of subleases from our Harborside leasehold location and the remainder collateralized by cash escrow deposits of $41.9 million.

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.

As part of our strategic repositioning plan, we committed to a plan to divest of non-core assets. Properties identified as such are classified as assets held for sale if there is an expectation that disposal within 12 months is probable. Such properties are actively marketed at prices management believes are reasonable in comparison to current fair values.

In accordance with FAS 144, assets held for sale are carried at the lower of carrying value or fair value less costs to sell. We utilize sales contracts, recent appraisals and internal and external estimates in order to determine the reasonableness of the carrying value of properties classified as held for sale. A substantial portion of properties held for sale, based upon net carrying value of the assets, was either under contract or sold subsequent to December 31, 2007. In such cases, written sales contracts or closing documents supported the fair market values for these properties.

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;

	•		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 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 intangible assets related to customer relationship is measured based on our evaluation of the specific characteristics of each tenants 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. The allocations presented in the accompanying consolidated balance sheets are substantially complete; however, there are certain items that we will finalize once we receive additional information. Accordingly, these allocations are subject to revision when final information is available, although we do not expect future revisions to have a significant impact on our financial position or results of operations.

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 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. 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.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, provides a framework for measuring fair value, and expands the disclosures required for fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require fair value measurements; it does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP 157-2 “Partial Deferral of the Effective Date of Statements 157” (FSP 157-2). FSP 157-2 delays the effective date of SFAS No. 157, for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financials statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Although the Company will continue to evaluate the application of SFAS No. 157, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. SFAS 159 creates a “fair value option” under which an entity may elect to record certain financial assets or liabilities at fair value upon their initial recognition. Subsequent changes in fair value would be recognized in earnings as those changes occur. The election of the fair value option would be made on a contract-by-contract basis and would need to be supported by concurrent documentation or a preexisting documented policy. SFAS 159 requires an entity to separately disclose the fair value of these items on the balance sheet or in the footnotes to the financial statements and to provide information that would allow the financial statement user to understand the impact on earnings from changes in the fair value. SFAS 159 is effective for us beginning with fiscal year 2008. Although the Company will continue to evaluate the application of SFAS 159, management does not believe adoption will have a material impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued Statement No. 141 R, Business Combinations (a revision of Statement No. 141). This Statement applies to all transactions or other events in which an entity obtains control of one or more business, including those combinations achieved without the transfer of consideration. This Statement retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations. This Statement expands the scope to include all business combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values as of the acquisition date. Additionally, FASB No. 141R changes the way entities account for business combinations achieved in stages by requiring the identifiable assets and liabilities to be measured at their full fair values. Additionally, contractual contingencies and contingent consideration shall be measured at fair value at the acquisition date. This Statement is effective on a prospective basis to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of this Statement will have on the consolidated financial statements of the Company.

In December 2007, the FASB issued Statement No. 160, Non-controlling Interest on Consolidated Financial Statements — an amendment of ARB No. 51. This Statement amends ARB No. 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, this Statement requires that consolidated net income include the amount attributable to both the parent and the non-controlling interest. This Statement is effective for interim period beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of this Statement will have on the consolidated financial statements of the Company.

Results of Operations

Comparison of the Years Ended December 31, 2007 and 2006

The following comparison of our results of operations for the year ended December 31, 2007 to the year ended December 31, 2006, makes reference to the following: (i) the effect of the “Same Store,” which represents all properties owned by us at January 1, 2006 and still owned by us at December 31, 2007, excluding assets held for sale at December 31, 2007; (ii) the effect of “Acquisitions,” which represents all properties acquired during the period from January 1, 2006 through December 31, 2007; and (iii) the effect of “Corporate and Eliminations,” which includes information related to our corporate entity and intercompany income, expenses and eliminations. Acquisitions include the Heritage Oaks portfolio, Home Federal Bancorp portfolio, Sterling portfolio, First Charter Bank, Umpqua Western Sierra, Meadowmont, Dripping Springs, Hinsdale, National City and properties acquired under our formulated price contracts.


									Corporate and
	Same Store				Acquisitions				Eliminations						Total Portfolio
Amounts in thousands:	2007		2006		2007		2006		2007			2006			2007			2006
Revenues:
Rental income	$	226,765	$	221,641	$	12,223	$	6,250	$	126		$	(974	)	$	239,114		$	226,917
Operating expense reimbursements		133,403		161,237		851		450		(468	)		170			133,786			161,857

Total revenues		360,168		382,878		13,074		6,700		(342	)		(804	)		372,900			388,774
Property operating expenses		189,223		221,997		7,568		4,295		(8,515	)		(6,677	)		188,276			219,615

Net operating income (1)		170,945		160,881		5,506		2,405		8,173			5,873			184,624			169,159
Marketing, general and administrative		—		—		—		—		19,483			25,110			19,483			25,110
Amortization of deferred equity compensation		—		—		—		—		4,471			8,687			4,471			8,687
Repositioning		—		—		—		—		—			9,065			—			9,065
Merger costs		—		—		—		—		399			—			399			—
Severance and related accelerated amortization of deferred compensation		—		—		—		—		5,000			21,917			5,000			21,917

Earnings before interest, depreciation and amortization		170,945		160,881		5,506		2,405		(21,180	)		(58,906	)		155,271			104,380
Depreciation and amortization		109,520		107,207		5,462		1,602		4,574			4,291			119,556			113,100

Operating income (loss)	$	61,425	$	53,674	$	44	$	803	$	(25,754	)	$	(63,197	)		35,715			(8,720	)

Interest and other income																11,728			6,315
Interest expense on mortgages and other debt																(128,423	)		(132,459	)
Gain on sale of properties in continuing operations																782			2,043
Equity in loss from joint venture																(2,878	)		(1,397	)
Minority interest																1,174			2,731

Loss from continuing operations																(81,902	)		(131,487	)
Discontinued operations:
Loss from operations																(42,741	)		(80,258	)
Yield maintenance fees and gain on extinguishment of debt																5,870			(46,409	)
Net gains on disposals																69,262			237,556

Income from discontinued operations																32,391			110,889

Net loss															$	(49,511	)	$	(20,598	)


(1)		We use the term “net operating income” when discussing our financial results, which represents total revenues less total property operating expenses. In our opinion, net operating income (or NOI) is helpful to investors as a measure of the Company’s performance as an equity REIT because it provides investors with an understanding of the Company’s operating performance and profitability. NOI is a non-GAAP financial measure commonly used in the REIT industry, and therefore, this measure may be useful in comparing the Company’s performance with that of other REITs. NOI should be evaluated along with GAAP net loss in evaluating the performance of equity REITs. The above table reconciles NOI to GAAP net loss.

Rental Revenue

Rental income increased $12.2 million, or 5.4%, to $239.1 million for the year ended December 31, 2007 from $226.9 million for the year ended December 31, 2006. This increase is due to the combination of a $6.0 million increase in rental income from Acquisitions and a $5.1 million or 2.3% increase in rental income from Same Store.

The 2007 rental income from Acquisitions includes a full year of results for Acquisitions purchased in 2006 and a partial period of results for Acquisitions purchased in 2007. Significant acquisition activity includes the Sterling Bank portfolio, acquired in December 2006, the National City portfolio, acquired in March 2006, the Heritage Oaks portfolio, acquired in June 2007 and properties purchased under our formulated price contracts.

The increase in rental income from Same Store primarily reflects the impact of net new leasing activity compared to the prior year. Occupancy at our Harborside leasehold location increased from approximately 167,000 square feet or 58.2% at December 2006 to approximately 223,000 square feet or 77.4% at December 2007. This increase in occupancy resulted in a $1.7 million increase in rental income in 2007 compared to 2006. The Company realized an increase in rental income of $1.7 million due to lease up of space in our Bank of America portfolio acquired in 2003. New leasing in certain properties acquired under our Formulated Price Contract (“FPC’s”) also resulted in higher rental income, up $1.3 million versus the prior period. Properties acquired under such FPC’s are vacant when purchased.

Operating Expense Reimbursements and Property Operating Expenses

Operating expense reimbursements decreased $28.1 million, or 17.4%, to $133.8 million for the year ended December 31, 2007, from $161.9 million for the year ended December 31, 2006. Property operating expenses decreased $31.3 million, or 14.3%, to $188.3 million for the year ended December 31, 2007, from approximately $219.6 million for year ended December 31, 2006. Total operating expense reimbursement as a percentage of total property operating expenses (“reimbursement ratio”) decreased from 73.7% to 71.1%. The decrease in both operating expense reimbursements and property operating expenses and the reduction in the reimbursement ratio are primarily the result of a lease modification affecting certain properties in our Wachovia portfolio that became effective in the current period. Under the modified terms, Wachovia, which is generally the sole tenant in the affected properties, will now pay for all operating expenses directly. Previously, Wachovia self-managed these properties and the Company paid for and was subsequently reimbursed for these property operating expenses. While the tenant is responsible for the operating expenses of the affected properties under both the original lease agreement and the current modified agreement, the new terms eliminate operating expense reimbursements and property operating expenses that previously generated a reimbursement ratio of nearly 100%. The 2007 total operating expense reimbursements and total property operating expenses also reflect a full year of results for Acquisitions purchased in 2006 and a partial period of results for Acquisitions purchased in 2007.

The table below segregates Same Store operating expense reimbursement and property operating expenses for properties affected by the Wachovia lease modification from total Same Store properties:


	Twelve Months Ended December 31,
	2007									2006
	Total									Total
	Same			Modified			Adjusted			Same			Modified			Adjusted
	Store			Properties			Same Store			Store			Properties			Same Store
Operating expense reimbursements	$	133,403		$	6,075		$	127,328		$	161,237		$	38,019		$	123,218
Property operating expenses	$	189,223		$	6,430		$	182,793		$	221,997		$	38,625		$	183,372
Reimbursement ratio		70.5	%		94.5	%		69.7	%		72.6	%		98.4	%		67.2	%

Excluding properties affected by the Wachovia lease modification, Same Store operating expense reimbursements increased $4.1 million, or 3.3%, to $127.3 million for the year ended December 31, 2007 from $123.2 million for the year ended December 31, 2006. Property operating expenses decreased $0.6 million, or 0.3%, to $182.8 million for the year ended December 31, 2007, from approximately $183.4 million for year ended December 31, 2007. The reimbursement ratio on the remaining Same Store portfolio increased from 67.2% to 69.7%.

The improvement in Adjusted Same Store operating expense reimbursement is primarily due to a reduction in impairment charges taken during the year ended December 31, 2007 compared to the year ended December 31, 2006. Impairment charges of $0.4 million were taken in the year ended December 31, 2007 within the Same Store portfolio. Impairment charges in the prior year totaled $9.0 million primarily due to impairment charges taken on a single property in our Bank of America portfolio acquired in 2004 and impairment charges taken in connection with the execution of subleases at our Harborside, NJ leasehold location. Excluding the reduction in impairment charges, the Same Store operating expense reimbursement ratio reflects a decrease of 0.9 percentage points from an adjusted rate of 70.7% for the twelve months ended December 31, 2006 to 69.8% for the twelve months ended December 31, 2007.

Adjusted Same Store operating expense reimbursements were adversely affected by lower operating expense reimbursement at two large properties in the Bank of America portfolio acquired in 2004. Bank of America exercised termination rights with respect to these two properties in the fourth quarter of 2006. Accordingly, these properties were vacant for a portion of 2007. These properties were subsequently 100% leased and operating expense reimbursements are anticipated to increase in future periods.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses decreased $5.6 million, or 22.3%, to $19.5 million for year ended December 31, 2007, from $25.1 million for the year ended December 31, 2006. The decrease reflects results achieved results in the current period in reducing expenses under our repositioning plan. These costs reductions primarily include rent on our former New York and European offices as well as lower salary, travel and other expenses from related staff reductions, as well as other operating expense reductions.

Amortization of Deferred Equity Compensation

The amortization of deferred equity compensation was $4.5 million in the year ended December 31, 2007 compared to $8.7 million for the year ended December 31, 2006, a decrease of $4.2 million or 48.3%. On June 26, 2007, the Company’s President and Chief Executive Officer died unexpectedly. His employment agreement contained no provision for the acceleration of unvested restricted shares upon death. As a result, such shares were forfeited at the date of death and the Company reversed $1.2 million of previously recorded stock compensation expense associated with these restricted stock awards in the current period. Additionally, there was a favorable variance of $2.9 million from the full amortization of restricted shares issued in July and September 2003, which vested over a three year period. These decreases were partially offset by the current year issuance of additional unvested restricted shares in connection with the termination of the Company’s former Long-term Incentive Plan as well unvested restricted shares awarded under its Equity Incentive Plan.

Repositioning

During the year ended December 31, 2006, the Company incurred $9.1 million of charges associated with the repositioning plan. These charges are primarily comprised of $4.4 million in professional and other fees related to the strategic review, $2.7 million in termination and impairment charges incurred in connection with subleasing the Company’s New York office, and $1.6 million of previously deferred costs related to the Company’s decision not to pursue a collateralized financing arrangement. No repositioning expenses were incurred during the year ended December 31, 2007

Merger Costs

The Company incurred $0.4 million of costs related to its proposed merger with Gramercy Capital Corp. The merger was approved by the shareholders of both companies on February 13, 2008 and is expected to close in the second half of March 2008,

Severance and Related Accelerated Amortization of Deferred Compensation

Severance expense for the year ended December 31, 2007, represents a $5.0 million payment to the estate of our former President and Chief Executive Officer which was approved by the Company’s Board of Trustees. During the year ended December 31, 2006, we recorded estimated severance charges related to the separation of our then President and Chief Executive Officer, and two additional senior executives, positions which were not refilled, as well as certain other employees. These charges include a combination of cash severance and accelerated vesting of equity compensation totaling $17.6 million and $4.3 million, respectively.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $6.5 million, or 5.7%, to $119.6 million for the year ended December 31, 2007, from $113.1 million for the year ended December 31, 2006.

The increase of $3.9 million in depreciation in Acquisitions primarily relates to the timing of acquisitions. Depreciation and amortization expense for the year ended December 31, 2007 includes a full twelve months of results for Acquisitions purchased in 2006 and a partial period of results for Acquisitions purchased in 2007.

Depreciation and amortization in Same Store increased $2.3 million from $107.2 million for the year ended December 31, 2006, to $109.5 million for the year ended December 31, 2007. This increase primarily reflects additional depreciation on improvements within the Bank of America portfolio acquired in 2003, our Harborside leasehold and Regions portfolio. Additionally, we recorded $0.7 million of accelerated amortization of intangible assets within our Regions portfolio in connection with the termination of a lease in the current period.

Interest and Other income

Interest and other income increased $5.4 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. The increase primarily reflects $3.8 million of higher interest income principally from $2.9 million earned on Treasury securities purchased and pledged in connection with a series of in-substance defeasance transactions completed over the prior 18 months. The Company recorded an increase of $1.3 million of net termination fee income in the year ended December 31, 2007. During the twelve months ended December 31, 2007, the Company received termination fees of $3.1 million and $1.0 million from two separate financial institutions upon the termination of leases at six locations. The increase in termination fee income was partially offset by $1.0 million paid by the Company to terminate leasehold obligations previously assumed.

In addition, in 2007, the Company concluded that payments received from a tenant in the amount of $1.1 million, which were received and recognized as income during 2006, but should have been deferred and amortized over the remaining lease term. The Company has evaluated, on both a quantitative and qualitative basis, the impact of this adjustment on the prior period interim and annual statements, and concluded that it is not material to those financial statements. This analysis was performed in accordance with SAB No. 99 and SAB No. 108 and included, among other factors, the impact these errors had on the Company’s net income (loss) and loss from continuing operations for the interim periods affected, as well as the impact on the estimated net loss for the 12 months ended December 31, 2007. In 2007, the Company corrected the error by recording a reduction in other income of $1.0 million.

Interest Expense on Mortgages and Other Debt

Interest expense on mortgage notes and other debt decreased $4.1 million, or 3.1%, to $ 128.4 million for the year ended December 31, 2007, from $132.5 million for the year ended December 31, 2006. Included in mortgage interest expense are $5.3 million of yield maintenance charges incurred in connection with two legal defeasance transactions executed during the twelve months ended December 31, 2007. Excluding the yield maintenance charges, interest expense on mortgages and other debt decreased $9.0 million or 6.8%.

Mortgage Interest. Interest expense on mortgages increased $0.9 million to $113.5 million for the year ended December 31, 2007, from $112.6 million for the year ended December 31, 2006. The increase in interest expense on mortgages primarily reflects interest expense from new borrowings related to our Sterling Bank portfolio acquisition in December 2006 and the permanent financings in May 2007 and September 2007 of 62 properties previously assigned to our secured acquisition credit facility. These increases were partially offset by lower interest expense due to scheduled debt amortization. Additionally, interest expense in the twelve months ended December 31, 2006 was reduced by $1.1 million due to the termination of an interest rate hedge associated with the State Street Financial Center permanent mortgage. The mortgage and related hedge were extinguished on December 29, 2006.

Secured Acquisition Credit Facility. Interest expense on our secured acquisition credit facility decreased by $5.0 million from $19.9 million for the year ended December 31, 2006, to $14.9 million for the year ended December 31, 2007. This decrease is attributable to a decrease in average advances to $183.3 million during the year ended December 31, 2007, compared to $248.0 million during the year ended December 31, 2006. On December 29, 2006, we reduced the outstanding balance on the secured acquisition credit facility by $150.3 million using the proceeds from the sale of the State Street Financial Center. The decrease in average advances was partially offset by an increase in the weighted average effective interest rate, excluding the amortization of deferred financing costs, to 7.1% during the year ended December 31, 2007, from 6.9% during the year ended December 31, 2006. We use this facility to finance the purchase of the acquisitions not separately financed and to provide financing for purchases under our formulated price contracts. We also have refinanced certain mortgages with the secured acquisition credit facility where we were able to lower interest rates, increase funds availability or reduce high debt constants.

Gain on Disposal of Properties in Continuing Operations

The Company sold 16 parcels of land, and one sub-parcels, for a net gain of $0.8 million in the year ended December 31, 2007. During the year ended December 31, 2006, the Company realized a gain of $2.0 million related to the sale of 15 parcels of land.

Equity in Loss from Unconsolidated Joint Venture

On June 23, 2006 we acquired an interest in 239 single-tenanted bank branches through a joint venture. Accordingly, results for the year ended December 31, 2007 include a full twelve months of activity compared to the six months of activity included in the year ended December 31, 2006. During the year ended December 31, 2007, our allocated share in the loss of our Citizens Bank unconsolidated joint venture totaled $2.9 million. This loss includes our allocated portion of depreciation and interest expense totaling $8.3 million. The Company earns a management fee of 0.15% of property value under management, defined as the original purchase price. The gross amount of management fees, totaling $0.5 million are included in other income from continuing operations.

Minority Interest

Minority interest was $1.2 million and $2.7 million, during the year ended December 31, 2007 and December 31, 2006, respectively. During the twelve months ended December 31, 2007, and 2006, this amount represents an allocation of net loss to unitholders in our Operating Partnership. The decrease in minority interest allocation also reflects a decrease in the proportionate share of our Operating Partnership held by unitholders. The share of our Operating Partnership held by unitholders has decreased from approximately 1.8% at December 31, 2006 to 1.4% at December 31, 2007. Accordingly, the amount of net loss allocable to these unitholders has decreased as well. On November 2, 2007, Gramercy’s operating partnership, GKK Capital LP, purchased approximately 1.4 million units of our Operating Partnership from our founder and related parties in anticipation of entering into the Merger Agreement with the Company. The merger was approved by the shareholders of both companies on February 13, 2008 and it expected to close in the second half of March 2008. In the event the merger is not consummated, GKK Capital LP will continue to hold these units as a limited partner of our Operating Partnership.

Discontinued Operations

Following the announcement of its repositioning plan on August 17, 2006, the Company began a process of identifying and disposing of non-core assets and selected marquee properties. Included in discontinued operations is State Street Financial Center, sold in December 2006, HSBC Operations Center, sold in January 2007 and Fireman’s Fund Insurance Company building, sold in May 2007. Discontinued operations includes 131 non-core properties included in held for sale at December 31, 2007 and 114 non-core properties which were sold during the twelve months ended December 31, 2007. Included in discontinued operations are six large office properties the Company classified as held for sale during the fourth quarter of 2007. These are the 123 S. Broad Street, 801 Market Street, One Montgomery Street, BOA West (Las Vegas), One Colonial and National City Bank properties.

Discontinued Operations — Loss from Discontinued Operations

Loss from discontinued operations decreased $37.6 million to a loss of $42.7 million, net of minority interest, for the year ended December 31, 2007, from a loss of $80.3 million, net of minority interest, for the year ended December 31, 2006. The decrease in loss from discontinued operations reflects the combination of lower net operating income from properties included in discontinued operations in the year ended December 31, 2007 compared to the year ended December 31, 2006. These decreases were partially offset by lower depreciation and interest expense in the current year compared to the prior year.

A majority of the properties included in discontinued operations, including large stand-alone properties such as State Street Financial Center, Fireman’s Fund, and HSBC Operations Center, were owned and operated by the Company for all, or substantially all, of the twelve months ended December 31, 2006, but were sold prior to December 31, 2007. Accordingly, discontinued operations for these properties includes twelve months, or nearly twelve months, of operating results for the year ended December 31, 2006, but less than twelve months of operating results for these properties for the year ended December 31, 2007 due to the property’s sale prior to this date. As a result, the change in loss from discontinued operations reflects a $77.6 million decrease in net operating income generated from these properties reported in discontinued operations, primarily due to properties that were owned in the prior period and for which there is no or limited activity in the current period as they were disposed.

The decrease in net operating income was offset by lower interest and depreciation and amortization expense. Interest expense on properties included in discontinued operations decreased approximately $51.9 million primarily due to the sale of encumbered properties during or after the twelve months ended December 31, 2006 but prior to December 31, 2007 such as State Street Financial Center, Fireman’s Fund and HSBC Operations Center. These properties incurred partial or no interest expense in the twelve months ended December 31, 2007. Depreciation and amortization expense on properties included in discontinued operations at December 31, 2007 decreased approximately $46.7 million for the twelve months ended December 31, 2007 compared to the twelve months ended December 31, 2006. Depreciation and amortization on a property ceases subsequent to being reclassified as held for sale. As a result, depreciation and amortization expense was incurred on many of these properties during the twelve months ended December 31, 2006, but not during the comparable period in 2007.

The Company also recorded impairment charges of approximately $34.6 million on properties included in discontinued operations during the twelve months ended December 31, 2007 compared to approximately $52.5 million during the twelve months ended December 31, 2006, a decrease of approximately $17.9 million.

Discontinued Operations — Yield Maintenance Fees and Gain on Extinguishment of Debt

During the twelve months ended December 31, 2007, we sold five properties encumbered by mortgages. The Company’s mortgage note encumbering the Fireman’s property was assumed by the purchaser which resulted in a gain on the extinguishment of debt of $8.3 million. This gain represents the difference between the net carrying value of the debt and its market value on the date of sale. In addition, the Company repaid three other mortgage notes during this period and incurred yield maintenance charges of approximately $2.3 million. In comparison, during the twelve months ended December 31, 2006, we sold 14 properties encumbered by mortgages and incurred prepayment and yield maintenance charges of approximately $46.4 million, net of minority interest.

Discontinued Operations — Net Gains on Disposals

During the twelve months ended December 31, 2007 and 2006, we sold 129 and 128 properties, including sub-parcels, for a gain of $69.3 million and $237.6 million, net of minority interest.

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 identification or acquisition and dispose of them within approximately 12 months. The Company generally disposes of properties within its taxable REIT subsidiary. If we sell properties at a gain, we may incur income tax liability. The Company did not record any income tax expense or benefit based on dispositions and other activities occurring in the twelve months ended December 31, 2007 as the taxable REIT subsidiary generated a taxable loss. During the twelve months ended December 31, 2007 and 2006, the Company sold two and five properties through its operating partnership, generating net gains of $43.1 million and $290.0 million, respectively. The Company reviewed the terms of the transactions and concluded that no income tax accrual was required related to these dispositions.

Comparison of the Year Ended December 31, 2006 and 2005

The following comparison of our results of operations for the year ended December 31, 2006 to the year ended December 31, 2005, makes reference to the following: (i) the effect of the “Same Store,” which represents all properties owned by us at January 1, 2005 and still owned by us at December 31, 2006, excluding assets held for sale at December 31, 2007 and (ii) the effect of “Acquisitions,” which represents all properties acquired during the period from January 1, 2005 through December 31, 2006. Acquisitions include 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, Charter One Bank portfolio, Regions Bank portfolio, One Citizen Plaza and properties acquired under our formulated price contracts.


									Corporate and
	Same Store				Acquisitions				Eliminations						Total Portfolio
Amounts in thousands:	2006		2005		2006		2005		2006			2005			2006			2005
Revenues:
Rental income	$	194,936	$	191,826	$	32,955	$	7,454	$	(974	)	$	(528	)	$	226,917		$	198,752
Operating expense reimbursements		152,204		146,148		9,483		4,234		170			54			161,857			150,436

Total revenues		347,140		337,974		42,438		11,688		(804	)		(474	)		388,774			349,188
Property operating expenses		203,091		184,193		23,201		7,679		(6,677	)		(11,939	)		219,615			179,933

Net operating income (1)		144,049		153,781		19,237		4,009		5,873			11,465			169,159			169,255
Marketing, general and administrative		—		—		—		—		25,110			25,364			25,110			25,364
Amortization of deferred equity compensation		—		—		—		—		8,687			10,411			8,687			10,411
Repositioning		—		—		—		—		9,065			—			9,065			—
Severance and related accelerated amortization of deferred compensation		—		—		—		—		21,917			4,503			21,917			4,503

Earnings before interest, depreciation and amortization		144,049		153,781		19,237		4,009		(58,906	)		(28,813	)		104,380			128,977
Depreciation and amortization		98,349		100,380		10,460		2,855		4,291			1,355			113,100			104,590

Operating income (loss)	$	45,700	$	53,401	$	8,777	$	1,154	$	(63,197	)	$	(30,168	)		(8,720	)		24,387

Interest and other income																6,315			3,839
Interest expense on mortgages and other debt																(132,459	)		(111,399	)
Gain on sale of properties in continuing operations																2,043			1,596
Equity in loss from joint venture																(1,397	)		—
Net loss on investments																—			(530	)
Minority interest																2,731			2,175

Loss from continuing operations																(131,487	)		(79,932	)
Discontinued operations:
Loss from operations																(80,258	)		(33,310	)
Yield maintenance fees																(46,409	)		(567	)
Net gains on disposals																237,556			20,194

Income (loss) from discontinued operations																110,889			(13,683	)

Net loss															$	(20,598	)	$	(93,615	)

(1)

We use the term “net operating income” when discussing our financial results, which represents total revenues less total property operating expenses. In our opinion, net operating income (or NOI) is helpful to investors as a measure of the Company’s performance as an equity REIT because it provides investors with an understanding of the Company’s operating performance and profitability. NOI is a non-GAAP financial measure commonly used in the REIT industry, and therefore, this measure may be useful in comparing the Company’s performance with that of other REITs. NOI should be evaluated along with GAAP net loss in evaluating the performance of equity REITs. The above table reconciles NOI to GAAP net loss.

Rental Revenue

Rental income increased $28.1 million, or 14.1%, to $226.9 million for the year ended December 31, 2006, from $198.8 million for the year ended December 31, 2005. This increase is primarily attributable to an increase in rental revenue from Acquisitions which increased $25.5 million compared to the year ended December 31, 2005. This increase in rental revenue for 2006 from Acquisitions reflects a full year of results for Acquisitions purchased in 2005 and a partial period of results for Acquisitions purchased in 2006.

Same Store rental revenue increased $3.1 million, or 1.6%, to $194.9 million for the year ended December 31, 2006 from $191.8 million for the year ended December 31, 2005. Same Store increased largely due to lease-up of vacancy within certain portfolios, particularly Harborside, 101 Independence and the Wachovia Bank, N.A. and Bank of America 2004 portfolios. Also, additional revenue was recorded in our Bank of America 2004 portfolio during 2006 reflecting favorable adjustments to leased square footage following the re-measurement of buildings within the portfolio that were completed in the fourth quarter of 2005. These increases were partially offset by scheduled lease terminations in our Dana Commercial Credit portfolio, Beaver Valley in Wilmington, DE and the Bank of America 2003 Portfolio.

Operating Expense Reimbursements and Property Operating Expenses

Operating expense reimbursements increased $11.5 million, or 7.6%, to $161.9 million during the year ended December 31, 2006, from $150.4 million for 2005. Property operating expenses increased $39.7 million, or 22.1%, to $219.6 million for the year ended December 31, 2006, from $179.9 million for year ended December 31, 2005. Both these increases are partially related to the effect of Acquisitions which represents $5.2 million and $15.5 million of the increase in operating expense reimbursements and property operating expenses, respectively. Total operating expense reimbursements as a percentage of total property operating expenses (“reimbursement ratio”) decreased to 73.7% from 83.6%. This decrease is also partially due to Acquisitions, which had reimbursement ratios of 40.9% and 55.1% for the years ended December 31, 2006 and 2005, respectively, as acquired properties have a lower recovery than properties in the Same Store portfolio, based on the structure of the corresponding leases and overall occupancy.

Same Store operating expense reimbursements increased $6.1 million, or 4.2%, to $152.2 million for the years ended December 31, 2006, from $146.1 million for same period in 2005. Same Store property operating expenses increased $18.9 million, or 10.3%, to $203.1 million from $184.2 million in the prior year. These changes resulted in a decrease in the Same Store reimbursement ratio to 74.9% from 79.3% for the years ended December 31, 2006 and 2005, respectively.

Same Store operating expense reimbursements were negatively impacted in 2006 by a lease modification executed concurrent with the completion of the 2004 and 2005 operating expense reconciliation associated with the Bank of America, N.A. 2003 and 2004 portfolios. Certain lease terms affecting reimbursable expenses were adjusted retroactively as a result of the modification. The modification and reconciliation resulted in a reduction of operating expense reimbursements of approximately $3.1 million in the year ended December 31, 2006. Furthermore, the 2004 operating expense reconciliation associated with the Wachovia portfolio was finalized during the third quarter of 2005 which contributed an additional $1.3 million of operating expense reimbursement during calendar 2005 that was not repeated in 2006.

Same Store property operating expenses increased in 2006 compared to 2005 partly as a result of impairment charges recorded on two properties within continuing operations, a multi-tenant office property on which a $1.4 million impairment was recorded and a leasehold interest. The leasehold impairment, which totaled $3.3 million, was recorded in connection with the execution of subleases at our Harborside leasehold location during 2006. This impairment was recorded by comparing the net cash inflows we anticipate receiving from sub-tenants, inclusive of tenant improvement allowances, to the net cash outflows we will pay under our leasehold interest obligation. Excluding these impairment adjustments and the lease modification adjustment noted above, the Same Store reimbursement ratio would have increased to 77.7% for 2006.

Interest and Other Income

Interest and other income increased $2.5 million from $3.8 million for the year ended December 31, 2005 to $6.3 million for the year ended December 31, 2006. This was primarily due to an increase in interest income reflecting higher average interest rates paid on the Company’s deposits during the year ended December 31, 2006. The Company’s cash management accounts bear interest at a LIBOR based rate. LIBOR increased from 2.40% at January 1, 2005 to 5.35% at December 31, 2006.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses decreased $0.3 million, or 1.2%, to $25.1 million for the year ended December 31, 2006, from $25.4 million for the year ended December 31, 2005. This decrease was primarily attributable to a $1.0 million decrease in broken deal costs, partially offset by increased personnel costs, professional fees and office and travel related expenses. The decrease of marketing, general and administrative expenses as a percentage of total revenues to 6.5% for the year ended December 31, 2006, from 7.3% for the year ended December 31, 2005, primarily reflects the increase in rental income and operating expense reimbursements resulting from Acquisitions.

Amortization of Deferred Equity Compensation

The amortization of deferred equity compensation decreased $1.7 million to $8.7 million for the year ended December 31, 2006, from $10.4 million for the year ended December 31, 2005. This decrease is due to restricted stock grants issued in September 2002 to the board of trustees, which were amortized over the three year period ended in September 2005 and also to a full period of amortization of restricted shares issued in July 2003 to certain members of senior management, which vested over the three year period ended June 30, 2006. These decreases were partially offset by amortization expense related to restricted shares awarded in 2006.

Repositioning

On August 17, 2006, the Company announced the results of a strategic review of its operations. This review resulted in several broad initiatives which include accelerating asset sales, reducing the Company’s leverage ratio and reducing marketing, general and administrative expenses. During the year ended December 31, 2006, the Company incurred $9.1 million of charges associated with the repositioning plan. These charges are primarily comprised of $4.4 million in professional and other fees related to the strategic review, $2.7 million in termination and impairment charges incurred in connection with subleasing the Company’s New York office, and $1.6 million of previously deferred costs related to the Company’s decision not to pursue a collateralized financing arrangement.

Severance and Related Accelerated Amortization of Deferred Compensation

During the year ended December 31, 2006, we recorded severance charges related to the separation our former President and Chief Executive Officer, and two additional senior executives, positions which will not be refilled, as well as certain other employees. These charges include a combination of cash severance and accelerated vesting of equity compensation totaling $17.6 million and $4.3 million, respectively. During the year ended December 31, 2005, we incurred severance charges related to the separation of two senior officers totaling $4.5 million. 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 $8.5 million, or 8.1%, to $113.1 million for the year ended December 31, 2006, from $104.6 million for the year ended December 31, 2005. This increase is related primarily to the timing of acquisitions due to depreciation and amortization expense for the year ended December 31, 2006 including a full year of expense for Acquisitions purchased in 2005 and a partial period of expense for Acquisitions purchased in 2006. As a result, depreciation and amortization for Acquisitions increased $11.2 million for the year ended December 31, 2006 compared to the prior year.

Depreciation and amortization in Same Store decreased $2.0 million from $100.4 million for the year ended December 31, 2005 to $98.4 million for the year ended December 31, 2006. This decrease includes lower depreciation and amortization at our Beaver Valley property in Wilmington, DE reflecting the impact of an early lease termination on this property. Depreciation and amortization in the Bank of America, N.A. 2003 portfolio decreased principally due to the accelerated amortization of intangibles and leasehold improvements recorded during the second quarter of 2005 related to an early lease termination by a non-bank third party tenant, initiated by the tenant due to its financial instability. Additionally, the change in Same Store depreciation and amortization expense reflects higher depreciation expense recorded in the prior year attributable to the correction of useful lives on the assets in certain portfolios. These decreases were partially offset by higher depreciation and amortization expense in certain properties due to additional capital and tenant improvements and the acceleration of depreciation and amortization of tenant improvements and intangible assets related to the early release of space in Bank of America Plaza in St. Louis, MO, recorded in the first quarter of 2006.

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 a full year of depreciation expense on 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 $21.1 million, or 18.9%, to $132.5 million for the year ended December 31, 2006, from $111.4 million for the year ended December 31, 2005. This increase was primarily attributable to additional borrowings and contractual increases in interest rates, specifically due to the following:

Mortgage Interest. Interest expense on permanent mortgage financing increased $11.7 million during the year ended December 31, 2006 versus the year ended December 31, 2005. Interest expense increased $3.0 million due to incurring a full year of interest expense on mortgages secured by properties acquired in 2005. Mortgage interest expense increased $4.8 million due to contractual changes in the interest rate on the Bank of America 2004 portfolio which occurred in 2005. The interest rate on this portfolio reverted to a fixed rate of 5.96% in June 2005 from a previously lower variable rate. Mortgage interest expense also increased $3.5 million due a combination of higher outstanding balance and higher rate of interest charged on the Dana Commercial Credit portfolio in 2006 versus 2005. In the fourth quarter of 2005, this portfolio’s mortgage was refinanced with an interest rate of 5.61% compared to 4.04% previously. Additionally, the amount financed on this portfolio was increased from $162.0 million to $180.0 million. These increases in interest expense were partially offset by contractual debt amortization during the year ended December 31, 2006, and the refinancing of certain mortgages with advances from our secured acquisition credit facility.

Secured Acquisition Credit Facility. Interest expense on our secured acquisition credit facility increased by $14.0 million. This increase was primarily due to a higher average balance outstanding during 2006. The average balance outstanding on the secured acquisition credit facility increased from $85.9 million during the year ended December 31, 2005 to $244.2 million during the year ended December 31, 2006. The weighted average effective interest rate increased from 6.89% to 8.02% due to changes in the underlying index. This facility bears interest at a rate of LIBOR plus 1.75% . The increase in average balance outstanding primarily reflects funds drawn to finance acquisitions including Regions Bank portfolio in June 2005, National City portfolio in March 2006, Western Sierra portfolio in July 2006 and to provide financing for purchases under formulated price contracts. We also refinanced certain mortgages with the secured acquisition credit facility where we were able to lower interest rates, increase funds availability or reduce high debt constant payments. The highest balance outstanding on this facility was $365.1 million in November 2006. On December 29, 2006 we reduced the balance outstanding by $150.3 million with the proceeds from the sale of State Street Financial Center.

Deferred Financing Costs. During the year ended December 31, 2006, non-cash interest expense related to the amortization of deferred financing costs declined $3.8 million. This primarily relates to $4.7 million of accelerated amortization recorded in 2005 upon the refinancing of the Dana Commercial Credit portfolio, and is partially offset by increases in the Pitney Wachovia portfolio and secured acquisition credit facility.

Gain on Disposal of Properties in Continuing Operations

We sold 15 parcels of land during the year ended December 31, 2006, and realized a net gain of $2.0 million. These parcels were acquired in 2006 and 2005 under our formulated price contract with Wachovia Bank, N.A. 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.

Equity in Loss from Unconsolidated Joint Venture

During the year ended December 31, 2006, our allocated share in the loss of our Citizens Bank portfolio unconsolidated joint venture totaled $1.4 million. This loss includes our allocated portion of depreciation and interest expense totaling $4.2 million. The Company earns a management fee of 0.15% of property value under management, defined as the original purchase price. The gross amount of management fees, totaling $0.2 million are included in interest and other income from continuing operations.

Minority Interest

Minority interest increased $0.5 to $2.7 million for the year ended December 31, 2006, from $2.2 million for the year ended December 31, 2005. This amount primarily represents an allocation of net loss to unitholders in our Operating Partnership.

Discontinued Operations

On August 17, 2006, the Company announced a change in management and a concurrent repositioning of its basic business strategy. This repositioning encompassed a broad array of initiatives and established a revised set of criteria by which the Company would evaluate retention of assets held for investment. As a result, the Company undertook a broad review of all of its assets.

In repositioning its real estate portfolio, the Company announced its intent to sell approximately $1.5 to $2.0 billion of non-core and selected other assets that held no ongoing business relationship or business development value for the Company. The focus of the sale of these assets was to increase property level occupancy, improve “same store” net operating income, to improve cash flow performance of at least one of the Company’s debt portfolios and to raise sufficient funds to reduce the Company’s overall leverage level from 72% of total assets to approximately 60-65%. To identify an appropriate mix of assets the Company singled out those assets which were 1) highly appreciated, 2) required relatively high levels of capital and/or tenant improvement investment to reposition and 3) which had high levels of vacancy.

To achieve these results a thorough review of the real estate portfolio was begun by the Company’s real estate operations and brokerage staff. The review was completed in the fourth quarter of 2006 and resulted in the identification of 265 properties, with an approximate net book value of $1.3 billion, considered to be non-core or holding no potential long-term relationship value. Properties addressed in this evaluation included both bulk purchase acquisition portfolios as well as vacant formulated price contract properties. Additionally, stand alone buildings that met the Company’s repositioning disposal criteria were also identified such as State Street Financial Center, Bank of Oklahoma Plaza, Fireman’s Fund Insurance Company and Household Bank. Subsequent to their identification, this same team determined estimated selling prices for these properties based upon their knowledge of market conditions, conversations with external brokers, reserve limits for properties to be sold at auction and other factors. Estimated selling prices were established at levels which would assist the Company in meeting the goals of its repositioning plan which target the sale of $1.5 billion of property within 12-18 months, while at the same time, achieving maximum value from the sale. Based on this evaluation, these 265 properties were identified for disposition based on the Company’s repositioning criteria. Properties were marketed for sale as soon as they were identified for disposition during our asset review process.

Discontinued Operations — Loss from Discontinued Operations.

Loss from discontinued operations increased $47.0 million to a loss of $80.3 million, net of minority interest, for the year ended December 31, 2006, from a loss of $33.3 million, net of minority interest, for the year ended December 31, 2005. Included in loss from discontinued operations is impairment charges of $52.5 million in the year ended December 31, 2006, $49.1 million of which occurred in the fourth quarter of 2006, versus $3.4 million included in 2005. The majority of these impairments were recorded as a result of the Company’s real estate portfolio review performed in connection with its repositioning plan.

Discontinued Operations — Yield Maintenance Fees

During the twelve months ended December 31, 2006 and 2005, we sold 14 and 7 properties, respectively, encumbered by mortgages and incurred related charges on the early extinguishment of debt of approximately $46.4 million and $0.6 million, net of minority interest, respectively. Included in yield maintenance charges for the year ended December 31, 2006 is approximately $33.6 million reflecting our portion of yield maintenance charges on the December 2006 sale of State Street Financial Center to Fortis Property Group and $11.0 million related to the sale in April 2006 of five properties to Resnick Development Corp.

Discontinued Operations — Net Gains

During the year ended December 31, 2006 and 2005, we sold 128 and 130 properties for an aggregate gain of $237.6 million and $20.2 million, net of minority interest and income tax expense, respectively. Included in net gains for the year ended December 31, 2006 is approximately $155.8 million reflecting our interest in the gain on the December 2006 sale of State Street to Fortis Property Group and $56.9 million related to the April 2006 sale of five properties to Resnick Development Corp.

Cash Flows for the Twelve Months ended December 31, 2007

Cash flows provided by operating activities were $68.2 million for the twelve months ended December 31, 2007 compared to $26.7 million used in operating activities for the twelve months ended December 31, 2006, an increase of $94.9 million. The improvement in cash flows from operating activities reflects the culmination of the Company’s repositioning plan, announced in August 2006. Specific goals of the plan included the disposal of non-core assets and a significant reduction in the Company’s debt to total assets ratio. Over the last 18 months, the Company has disposed of 218 properties with a sales value of nearly $1.5 billion. A significant number of these properties were vacant or under-performing properties which negatively impacted cash flows from operations. However, the most significant source of net proceeds was realized from the sale of two fully occupied marquee properties which enabled the Company to achieve its overall de-leveraging objectives. A substantial portion of the remaining 131 properties classified as held for sale at December 31, 2007 have substandard occupancy and generally produce negative operating cash flows. Excluding six large assets, the remaining 125 non-core properties have occupancy of approximately 51.2%. The Company believes that selling the remaining non-core properties will eliminate a significant source of negative operating cash flows and improve overall performance.

It is the Company’s objective to generate cash flow from operations sufficient to fund its operations, meet debt service and provide for its dividend payments. The Company was able to partially meet that objective in the twelve months ended December 31, 2007 due to rent payments received in advance and recorded as deferred revenue. Payments received in the twelve months ended December 31, 2007 include the prepayment of $40.4 million annual rent payment typically received in the first quarter of each year related to the Dana portfolio and $12.0 million of standby subtenant fees from Charles Schwab & Co., Inc. Accordingly, the Company expects cash flows from operations will decline in future periods due to the non-recurring nature of these annual payments. Additionally the standby subtenant fees received from Charles Schwab & Co., Inc. have completely terminated as of December 2007.

Net cash provided by investing activities was approximately $146.8 million for the year ended December 31, 2007 compared to cash provided by investing activities of $1,124.2 million in the year ended December 31, 2006. Cash flows from investing activities generated during the year ended December 31, 2007 reflect the conclusion of the Company’s repositioning plan, which began in 2006, and a refocus on core business operations to improve financial and operating performance. A key component of that plan was the sale of non-core real estate assets. Consistent with this objective, investment activities in the year ended December 31, 2007 reflect an emphasis on the sale of non-core real estate assets. Included in property dispositions in 2007 were the sale of 128 properties, 16 land parcels and two sub-parcels, including Fireman’s Fund Headquarters which was sold for a purchase price of $310.2 million after transactions costs and HSBC Operations Center which was sold for proceeds of $27.3 million after transaction costs. Proceeds from sales of non-core assets and other dispositions decreased by $1,085.9 million from $1,421.6 million during the year ended December 31, 2006 to $335.7 million during the year ended December 31, 2007. Proceeds from the sale of real estate assets in the year ended December 31, 2006 include the proceeds from the sale of five 100% leased properties to Resnick Development Corp for $301.0 million, a specific transaction outside of the scope of our repositioning plan, and the sale of State Street Financial Center, the Company’s largest marquee repositioning asset, which was sold in December 2006 for $889.0 million. Conversely, cash paid for the acquisition of real estate investments decreased from $192.7 million in the twelve months ended December 31, 2006 to $78.5 million in the twelve months ended December 31, 2007. Acquisitions in the year ended December 31, 2007 reflects the purchase of 81 properties, the majority of which were comprised of properties purchased under existing formulated price contracts. Other significant investing activities include the purchase of $58.5 million of treasury securities which were acquired in connection with property defeasance transactions completed during the year ended December 31, 2007.

Net cash used in financing activities was approximately $196.2 million for the twelve months ended December 31, 2007 compared with $1,101.8 million used in the twelve months ended December 31, 2006. A significant portion of the cash proceeds from the sale of non-core assets were used to repay borrowings in order to de-lever our balance sheet. Net mortgage and credit facility cash activity in the twelve months ended December 31, 2007 reflects the repayment of $388.4 million in borrowings. In addition to the debt repayments, the Company extinguished $186.1 million of debt which was assumed by the purchaser of Fireman’s Fund Headquarters. Net mortgage and credit facility cash activity in the twelve months ended December 31, 2006 reflects the repayment of $1,207.6 million in borrowings, including $591.3 million of debt related to the sale of State Street Financial Center, but does not include $66.1 million of debt assumed by the purchaser of five properties by Resnick Development Corp. Dividends and distributions totaled $101.4 million for the twelve months ended December 31, 2007 compared to $221.1 million for the twelve months ended December 31, 2006. This reduction in dividends and distributions primarily reflects the reduction in our dividend rate announced in August 2006. In August 2006, our quarterly dividend rate decreased from $0.27 per share. This resulted in a decrease in dividends and distributions of approximately $119.7 million. Finally, the Company repurchased $35.0 million of its shares pursuant to a repurchase plan authorized by its Board of Trustees, which approved the repurchase of up to $100.0 million common shares, during the year ended December 31, 2007.

Cash Flows for the Year Ended December 31, 2006

Cash used in operating activities was $26.7 million for the year ended December 31, 2006 compared to cash provided by operating activities of $80.6 million for the year ended December 31, 2005, or a decrease of $107.3 million. A substantial portion of this decrease reflects the execution of the Company’s repositioning plan that was announced in August 2006. Specific goals of the plan include the disposal of non-core real estate assets and a significant reduction in the Company’s debt to total assets ratio. During the year ended December 31, 2006, the Company paid $47.2 million of yield maintenance fees associated with sales of non-core assets or asset sales executed to reduce the Company’s debt to total assets ratio. Yield maintenance fees are the amounts paid to our lenders to compensate them for the early repayment of a loan. The Company also paid $17.2 million of cash severance to former members of its senior management team and professional and other fees of $6.4 million as a result of implementing the repositioning plan. Higher effective interest rates and greater outstanding debt balances in 2006 added an additional $36.1 million of interest payments compared to the prior year.

Cash provided by investing activities totaled $1,124.2 million for the year ended December 31, 2006 compared to cash used in investing activities of $700.7 million in the prior year, an increase of $1,824.9 million. This increase in cash flows from investing activities reflects the Company’s efforts, outlined in its repositioning plan, to refocus on its core business and improve its operating and financial performance. Sales of non-core real estate assets are a key component of the Company’s repositioning plan which targets sales of $1.5 to $2.0 billion. As a result, our investment emphasis shifted from the acquisition of additional real estate towards the sale of non-core real estate assets. Accordingly, cash paid for the acquisition of real estate investment decreased from $807.0 million in the year ended December 31, 2005 to $216.0 million, including an unconsolidated joint venture investment, in the year ended December 31, 2006, a decrease of $591.0 million. Conversely, proceeds from sales of non-core assets and other dispositions increased $1,296.0 million. An additional investing activity in the year ended December 31, 2006 includes the purchase of $32.7 million of treasury securities that have been pledged in connection with the defeasance of $31.2 million of debt that was previously secured by properties in our Bank of America portfolio acquired in 2003.

Cash used in financing activities totaled $1,101.8 million in the year ended December 31, 2006 compared to cash provided by financing activities of $619.7 million in the prior year, a decrease of $1,721.5 million. A substantial portion of the cash proceeds from the sale of non-core real estate assets were used to repay borrowings in order to reduce our debt to total assets ratio towards a target of 60-65%. As a result, cash repayments of mortgages, bridge notes and our secured acquisition credit facility increased substantially from $594.1 million in the year ended December 31, 2005 to $1,207.6 million in the current year, an increase of $613.5 million. Proceeds from borrowings decreased $780.8 million from $1,108.7 million in the year ended December 31, 2005 to $327.9 million in the current year, reflecting our shift in investment emphasis towards the sale of non-core assets. Dividends and distributions increased to $221.1 million in the year ended December 31, 2006 from $134.4 million in the year ended December 31, 2005, an increase of $86.7 million. This increase is substantially due to an $86.4 million distribution paid to our 30% minority partner, IPC US Income REIT, upon the sale of State Street Financial Center, sold in December 2006. Dividend payments increased slightly from $131.1 million in 2005 to $132.8 million in the current year primarily as a result of the issuance of 16.8 million additional shares in May 2005. In August 2006, concurrent with the announcement of our repositioning plan, we also announced a reduction in our dividend from $0.27 per share to $0.19 per share.

Cash Flows for the Year Ended December 31, 2005

During the year ended December 31, 2005, net cash provided by operating activities was approximately $80.6 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 $700.7 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 $619.7 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 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, and (iii) approximately $4.4 million of payments to redeem Operating Partnership units issued in connection with the acquisition of State Street Financial Center.

Liquidity and Capital Resources

Short-Term Liquidity Requirements

We had an aggregate of $124.8 million of cash and cash equivalents as of December 31, 2007, of which $40.4 million was due to the early payment in December by Bank of America of the Dana Commercial Credit property portfolio rent due in January 2008 and $32.1 million will be used to fund future contractual debt service payments.

As of December 31, 2007, we had $230.4 million of advances outstanding from our secured acquisition credit facility, an estimated $56.6 million of collateralized availability under this facility, and an additional $113.0 million of uncollateralized availability under this facility. In addition, the Company has approximately $52 million of additional properties it could add to the collateral pool of this facility, which could increase funds availability under this facility by approximately $33 million. Our ability to receive advances under this facility are contingent upon the underwriting of the properties by the facility lender. 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. Due to the volatility in the credit markets the collateralized availability under this facility could be different than anticipated. This facility has a stated maturity date during October 2008. Under the terms of the Merger Agreement we cannot currently seek an extension of this facility, however in the event the merger is not completed, we anticipate seeking an extension of the credit facility with the current lender or structuring a new facility with another lender prior to the maturity date.

In addition to our secured acquisition credit facility, we have a secured operating credit facility with a $40.0 million combined limit on borrowings and letter of credit outstanding. In June 2006, the facility was amended to permit cash collateralized letters of credit in excess of this sub-limit. The facility had a stated maturity of September 28, 2007. On that date, the line was extended 30 days while the Company’s lender arranged renewal in the wake of volatility in the credit markets. Effective October 29, 2007, the line was extended another 30 days simultaneous with a $20.0 million reduction in the committed facility amount. This reduced the facility commitment amount from $60.0 million to $40.0 million after the October 29, 2007 amendment. We were able to comply with this reduced commitment amount through a reduction in availability under this facility and by posting cash in lieu of $17.5 million of existing letters of credit. Effective November 29, 2007 the facility was further amended to extend the maturity date to April 30, 2008 and to require collateralization of all outstanding letters of credit under the facility. We were able to comply with this collateralization requirement by posting $19.8 million of additional cash collateral into the escrow accounts held by the facility lender and by also pledging as additional collateral the subleases from our Harborside leasehold location. As of December 31, 2007, we had $53.6 million letters of credit outstanding under this facility, $12.0 million of which were collateralized by a pledge of subleases from our Harborside leasehold location and the remainder collateralized by cash escrow deposits of $41.9 million. There were no advances under this facility as of December 31, 2007.

During December 2007 we terminated $6.0 million in outstanding letters of credit under our secured operating credit facility and posted an equal amount of cash collateral with another banking institution for the simultaneous re-issuance of the letters of credit. Including these letters of credit as of December 31, 2007, we had $59.6 million of total letters of credit outstanding. These letters of credit are secured by an aggregate of $47.9 million of cash collateral and a pledge of the subleases from our Harborside leasehold location.

Prior to the April 30, 2008 maturity date of our secured operating credit facility we anticipate seeking, subject to the terms of the Merger Agreement, a long-term extension of this facility or a restructured credit facility with the existing or a new lender. Due to the volatility in the capital markets we cannot ensure we will be able to extend this facility or structure a new facility. Since the letters of credit outstanding are substantially cash collateralized, the risk to the Company is limited.

As of January 31, 2008, we had $63.2 million of cash and cash equivalents. This decrease during the period from December 31, 2007 to January 31, 2008 primarily relates to our fourth quarter common shareholder dividend of $24.2 million paid in January 2008, the annual debt service payment on our Dana Commercial Credit property portfolio of $10.1 million, the interest payment on our senior convertible notes of $9.8 million, and acquisitions under our formulated price contracts of $7.4 million.

As of January 31, 2008, we had executed agreements of sale related to the disposition of non-core properties with estimated proceeds of approximately $15.4 million, net of principal payments on related debt. We anticipate closing the majority of these dispositions in the first quarter of 2008. 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.

During July 2007 we removed 63 properties from a non-recourse loan, through a partial defeasance of the loan, collateralized by the Bank of America properties we acquired in October 2004. These properties were released in advance of their expected disposition during the remainder of 2007. As part of the partial defeasance transaction, we were required to make a payment of $56.3 million to purchase the defeasance collateral and for the payment of related transaction costs. Simultaneously with the partial defeasance transaction we posted an additional debt service reserve of $5.0 million for the loan as required by the loan servicer as a condition of their approving the partial defeasance. Subsequent to the release of properties we sold 32 of the corresponding properties as of December 31, 2007 for net sales proceeds of $29.2 million. We anticipate selling the remaining 31 properties during 2008 but we cannot ensure we will successfully close these transactions.

Excluding acquisitions under our formulated price contracts, as of December 31, 2007, we had no pending acquisitions under contract. As of December 31, 2007, we had approximately $55.4 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. We are still in due diligence periods and have 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 funded with available cash, proceeds generated by property disposition and our secured acquisition credit facility.

As of December 31, 2007, we had 9 formulated price contracts with banking institutions. 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.

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. We are obligated under the terms of our major tenant leases to fund all capital expenditures at the time of completing certain capital improvements. These tenants reimburse these costs over a useful life schedule plus interest. 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 actively manage our debt and capital position. We continuously review our debt portfolio, in order to identify and refinance obligations with high interest rate coupons or high debt service constants. Through these re-financings, 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. The current volatility in the credit markets may impact our ability to maintain desired levels of liquidity or achieve these objectives in the near term.

Under the terms of the Merger Agreement we have agreed to limit or restrict certain aspects of our business. As such we have limited our acquisition activity. However, if the merger is not completed, we would expect to acquire additional properties in the next 12 months. We would expect to fund those acquisitions and other future commitments with any or all of the sources of capital described above. We intend to arrange for debt in accordance with our general borrowing policies, which 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, cash equivalents, short-term investments, 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 payment requirements will be adversely affected.

Our properties are encumbered by mortgages and other financing agreements aggregating approximately $2,198.2 million in outstanding principal, excluding unamortized premiums and discounts, as of December 31, 2007, with an average remaining term of 8.8 years and a weighted-average interest rate (excluding unamortized debt premium and discounts and the effects of hedging activities) of 5.61%. During the year ending December 31, 2008, we are required to pay $257.2 million in mortgage principal payments, which includes $230.4 million on our secured acquisition credit facility, and $26.8 million of contractual mortgage principal amortization. The table below summarizes the properties financed and the principal payments required as of December 31, 2007, in the following calendar years (dollars in millions):


			Balance at		Coupon
	Number of		December 31		Interest			Principal Payments and Debt Security Schedule
Property/Borrowing	Properties		2007(1)		Rate(1)			2008		2009		2010		2011		2012		Thereafter
Convertible Senior Notes(2)		—	$	450.0		4.38	%	$	—	$	—	$	—	$	—	$	—	$	450.0
Bank of America, N.A. acquired in June 2003(3)		121		371.6		5.47	%		10.6		11.2		11.9		12.6		13.2		312.1
Secured credit facility(5)		197		230.4		7.06	%		230.4		—		—		—		—		—
Bank of America, N.A. acquired in Oct. 2004		139		223.0		5.96	%		3.3		3.6		3.8		4.0		4.2		204.1
Dana Commercial Credit		13		180.0		5.61	%		—		—		—		—		—		180.0
Wachovia Bank, N.A.(4)		104		173.8		6.40	%		2.8		3.1		3.3		164.6		—		—
101 Independence Center, Charlotte, NC		1		76.5		5.53	%		1.3		1.3		1.4		1.5		1.6		69.4
Bank of America Plaza, St. Louis, MO		1		56.0		4.55	%		2.2		53.8		—		—		—		—
Pitney Bowes-Bank of America		71		51.3		5.33	%		2.0		1.7		1.6		1.7		1.8		42.5
One Citizens Plaza, Providence RI		1		43.5		5.70	%		—		—		—		—		43.5		—
801 Market Street, Philadelphia, PA		1		41.3		6.17	%		0.5		0.7		0.8		0.7		1.0		37.6
Three Beaver Valley, Wilmington, DE		1		40.8		5.06	%		0.7		0.7		0.8		0.8		0.9		36.9
First States Investors 6000D		16		31.3		5.80	%		—		—		0.2		0.4		0.4		30.3
First States Investors 6000B		16		30.0		5.80	%		—		—		0.2		0.4		0.4		29.0
First States Investors 6000A		15		26.4		6.80	%		—		—		—		—		—		26.4
Pitney Bowes — Wachovia		23		23.5		5.50	%		1.0		1.0		1.1		1.2		1.2		18.0
First States Investors 6000A		15		22.7		6.80	%		—		—		—		—		—		22.7
Sterling Bank		14		19.9		5.57	%		—		—		—		—		—		19.9
10561 Telegraph Road, Glen Allen, VA		1		18.0		5.68	%		—		—		—		—		0.2		17.8
6900 Westcliff Drive. Las Vegas, NV		1		16.4		5.41	%		0.3		0.3		0.3		0.3		0.3		14.9
610 Old York Road, Jenkintown, PA		1		14.5		8.29	%		0.2		0.2		14.1		—		—		—
177 Meeting Street, Charleston, SC		1		9.3		7.44	%		0.2		0.2		0.2		8.7		—		—
1965 East Sixth Street, Cleveland, OH		1		6.2		5.31	%		0.1		0.1		0.1		0.1		0.1		5.7
4 Pope Avenue, Hilton Head, SC		1		3.0		5.89	%		0.1		0.1		0.1		0.2		0.2		2.3
200 Reid Street, Palatka, FL		1		3.0		5.81	%		0.1		0.1		0.1		0.1		0.1		2.5
Debt between $1.0 million and $3.0 million(6)		16		27.5		5.82	%		1.0		1.0		1.1		1.2		7.7		15.5
Debt less than $1.0 million		12		8.3		6.21	%		0.4		0.3		0.3		0.4		4.1		2.8

		784	$	2,198.2		5.61	%	$	257.2	$	79.4	$	41.4	$	198.9	$	80.9	$	1,540.4


(1)		Excludes unamortized debt premium and discounts and hedging activity and the related effects on interest rates.

(2)		The table above identifies the contractual maturities of the convertible senior notes as July 15, 2024. The note holders have the option to require the Company to repurchase the notes from the noteholders for cash on July 15, 2009, 2015, and 2019 or upon a change of control of the Company.

(3)		Includes $71.5 million collateralized by pledged Treasury securities.

(4)		Includes $8.9 million collateralized by pledged Treasury securities.

(5)		Borrowings bear interest at LIBOR a weighted average spread as of December 31, 2007 of 1.83%.

(6)		Includes $4.5 million collateralized by pledged Treasury securities.

Our indebtedness contains various financial and non-financial event of default covenants customarily found in financing arrangements, including debt service coverage ratio requirements and in the case of our secured operating credit facility, limitations on our total indebtedness and our total secured indebtedness. As of December 31, 2007 we were in compliance with all event of default covenants. The Company’s mortgage notes payable typically require that specified loan-to-value and debt service coverage ratios be maintained with respect to the financed properties before the Company can exercise certain rights under the loan agreements relating to such properties. If the specified criteria are not satisfied, in addition to other conditions that the Company may have to observe, the Company’s ability to release properties from the financing may be restricted and the lender may be able to “trap” portfolio cash flow until the required ratios are met on an ongoing basis. As of December 31, 2007, the Company was out of debt service coverage compliance under one of its mortgage note financings, although such non-compliance does not, and will not, constitute an event of default under the applicable loan agreement.

Contractual Obligations

The following table outlines the timing of payment requirements related to our contractual obligations as of December 31, 2007 (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	$	26,789	$	120,744	$	279,764	$	1,090,508	$	1,517,805
Convertible senior notes(2)		—		—		—		450,000		450,000
Credit facilities		230,363		—		—		—		230,363
Interest payments		114,403		203,808		247,551		375,456		941,218
Operating and capital leases		18,218		36,149		35,260		169,301		258,928
Purchase obligations and other commitments(3)		82,284		147		—		—		82,431

	$	472,057	$	360,848	$	562,575	$	2,085,265	$	3,480,745


(1)		Excludes unamortized debt premium and discounts.

(2)		The table above identifies the contractual maturities of the convertible senior notes as July 15, 2024. The note holders have the option to require the Company to repurchase the notes from the noteholders for cash on July 15, 2009, 2015, and 2019, or upon a change of control of the Company.

(3)		Includes approximately $54.7 million related to notifications outstanding 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, 2007, we had $59.6 million of letters of credit outstanding. We have provided Charles Schwab & Co., Inc. with an irrevocable, standby letter of credit for $51.6 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. This is the maximum amount of the letter of credit required during the term of our agreement and it is scheduled to decrease over the term of our obligations through September 2017. 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, 2007 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, may of 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.


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, 2007, our debt included fixed-rate debt, including debt secured by assets held for sale, with a carrying value of approximately $1,964.8 million and a fair value of approximately $1,796.4 million. Changes in market interest rates on our fixed-rate debt impact 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, 2007 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 $131.5 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 $146.0 million.

As of December 31, 2007, our debt included variable-rate mortgage notes payable with a carrying value of $230.4 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 $1.7 million annually.

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

As the information presented above includes only those exposures that existed as of December 31, 2007, 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.

The tabular information required by this item is included in this report as part of Item 7 under the caption “Liquidity and Capital Resources.”


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

Under the supervision and with the participation of our management, including our President and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this report. Based on that evaluation, the President and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(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, 2007. Based on that evaluation, management has concluded that, as of December 31, 2007, the Company did maintain effective internal control over financial reporting.

KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this report, has issued their report on the effectiveness of internal control over financial reporting as of December 31, 2007, which is included herein.

(c) Change in Internal Control Over Financial Reporting

There were no other changes in our internal control over financial reporting during the year ended December 31, 2007, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.		Other Information

None.

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Trustees of
American Financial Realty Trust:

We have audited American Financial Realty Trust’s internal control over financial reporting as of December 31, 2007, 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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express 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, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included 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.

In our opinion, American Financial Realty Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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, 2007 and 2006, 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, 2007, and our report dated February 26, 2008, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Philadelphia, Pennsylvania
February 26, 2008

PART III


Item 10.		Directors, Executive Officers and Corporate Governance

The information required by Item 10 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2008 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 2008 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 2008 annual meeting of shareholders.


Item 13.		Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is incorporated by reference herein to the information contained in our definitive proxy statement related to our 2008 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 2008 annual meeting of shareholders.

(b) Exhibits

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Filing Date

Exhibit

Herewith

2.1

Agreement and Plan of Merger, dated November 2, 2007, by and among Gramercy Capital Corp., GKK Capital LP, GKK Stars Acquisition LLC, GKK Stars Acquisition Corp., GKK Stars Acquisition LP, American Financial Realty Trust and First States Group, L.P.

8-K

11/8/07

2.1

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

4/11/03

3.3

3.5

Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership of First States Group, L.P., dated November 2, 2007.

8-K

11/8/07

3.1

4.1

Registration Rights Agreement, dated September 4, 2002, by and among the Registrant and the Contributors listed on Schedule 1 thereto.

S-11

2/28/03

4.1

4.2

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

2/28/03

4.3

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

4.4

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

4.5

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

4.6

Form of 4.375% Convertible Senior Notes (included in Exhibit 4.6).

S-3

10/7/04

4.3

4.7

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

4.8

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

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

10.3

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

10.4

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

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

10.6

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

10.7

†

2002 Equity Incentive Plan, as amended and restated on July 24, 2003.

14A

8/25/03

10.8

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

10.9

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

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Filing Date

Exhibit

Herewith

10.10

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

10.11

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

10.12

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

10.13

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

10.14

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

10.15

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

10.16

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

10.17

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

10.18

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

10.19

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

10.20

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

10.21

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

10.22

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

10.23

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

10.24

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

10.25

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

10.26

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

10.27

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

10.28

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

10.29

†

2006 Long Term Incentive Plan.

10-Q

8/9/05

10.2

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Filing Date

Exhibit

Herewith

10.30†

Employment Agreement, dated August 30, 2005, by and between Nicholas S. Schorsch and First States Group, L.P. (with respect to sections incorporated into the Separation Agreement only, which agreement is filed as Exhibit 10.31)

10-Q

11/8/05

10.1

10.31†

Separation Agreement, dated August 16, 2006, between First States Group, L.P. and Nicholas S. Schorsch, and guaranteed by the Registrant.

10-Q

11/6/06

10.1

10.32†

Employment Agreement, dated August 30, 2005, by and between Glenn Blumenthal and First States Group, L.P.

10-Q

11/8/05

10.2

10.33†

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

10.34†

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

10.35

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

10.36

Contribution Agreement, effective as of October 26, 2005, by and between the Contributors and First States Group, L.P.

10-K

3/16/06

10.54

10.37†

Non-Employee Trustee Compensation Summary Plan Description.

10-Q

5/10/06

10.1

10.38

Agreement of Purchase and Sale, dated as of November 2, 2006, between First States Investors 228, LLC and FPG DF Lincoln Street, LLC.

10-K

3/1/07

10.38

10.39†

Form of Restricted Common Shares Award Agreement (LTIP Dissolution Grant) dated April 30, 2007.

8-K

5/2/07

10.1

10.40†

Employment Agreement, dated March 2, 2007, by and between Harold W. Pote and First States Group, L.P.

10-Q

5/10/07

10.1

10.41†

Consent to Terminate LTIP Target Units and Amend Employment Agreement of Glenn Blumenthal dated April 30, 2007.

10-Q

8/9/07

10.1

10.42†

Consent to Terminate LTIP Target Units and Amend Employment Agreement of David J. Nettina dated April 30, 2007.

10-Q

8/9/07

10.2

10.43†

Consent to Terminate LTIP Target Units and Amend Employment Agreement of Edward J. Matey Jr. dated April 30, 2007.

10-Q

8/9/07

10.3

10.44†

2007 Annual Incentive Plan

10-Q

11/9/07

10.3

10.45†

2007 Multi-Year Equity Incentive Plan

10-Q

11/9/07

10.4

21.1

Subsidiaries of the Registrant.

23.1

Consent of KPMG LLP (independent auditors of the Registrant).

31.1

Certificate of Principal Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

31.2

Certificate of Principal Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

32.1*

Certificate of Principal Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended

32.2*

Certificate of Principal Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended


*		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

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/ DAVID J. NETTINA David J. Nettina
		President and Chief Financial Officer

Date: February 26, 2008

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

Signature

Title

Date

/s/ DAVID J. NETTINA

President and Chief Financial Officer

February 26, 2008

David J. Nettina

(Principal Executive Officer and Principal Financial Officer)

/s/ CHRISTOPHER J. BARONE

Vice President and Chief Accounting Officer

February 26, 2008

Christopher J. Barone

(Principal Accounting Officer)

/s/ LEWIS S. RANIERI

Chairman of the Board of Trustees

February 26, 2008

Lewis S. Ranieri

/s/ RICHARD J. BERRY

Trustee

February 26, 2008

Richard J. Berry

/s/ JOHN R. BIGGAR

Trustee

February 26, 2008

John R. Biggar

/s/ RAYMOND GAREA

Trustee

February 26, 2008

Raymond Garea

/s/ JOHN P. HOLLIHAN III

Trustee

February 26, 2008

John P. Hollihan III

/s/ RICHARD A. KRAEMER

Trustee

February 26, 2008

Richard A. Kraemer

/s/ ALAN E. MASTER

Trustee

February 26, 2008

Alan E. Master

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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, 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), American Financial Realty Trust’s internal control over financial reporting as of December 31, 2007, 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 February 26, 2008, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania
February 26, 2008

AMERICAN FINANCIAL REALTY TRUST
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and December 31, 2006
(In thousands, except share and per share data)


	December 31,			December 31,
	2007			2006
Assets:
Real estate investments, at cost:
Land	$	312,232		$	333,716
Land held for development		10,528			14,632
Buildings and improvements		1,844,805			1,947,977
Equipment and fixtures		264,539			283,704
Leasehold interests		18,930			16,039
Investment in joint venture		16,331			21,903

Total real estate investments, at cost		2,467,365			2,617,971
Less accumulated depreciation		(358,833	)		(297,371	)

Total real estate investments, net		2,108,532			2,320,600
Cash and cash equivalents		124,848			106,006
Restricted cash		125,786			76,448
Marketable investments and accrued interest		2,675			3,457
Pledged treasury securities, net		88,658			32,391
Tenant and other receivables, net of allowance		67,499			62,946
Prepaid expenses and other assets		20,926			32,191
Assets held for sale		359,294			594,781
Intangible assets, net of accumulated amortization of $84,357 and $70,044		271,294			314,753
Deferred costs, net of accumulated amortization of $28,519 and $20,070		61,866			62,591

Total assets	$	3,231,378		$	3,606,164


Liabilities and Shareholders’ Equity:
Mortgage notes payable	$	1,436,248		$	1,557,313
Credit facilities		195,363			212,609
Convertible notes, net		446,551			446,343
Accounts payable		2,453			7,246
Accrued interest expense		15,593			15,601
Accrued expenses and other liabilities		45,052			58,940
Dividends and distributions payable		25,021			25,328
Below-market lease liabilities, net of accumulated amortization of $11,994 and $10,874		43,660			57,173
Deferred revenue		264,738			179,456
Liabilities related to assets held for sale		142,902			247,798

Total liabilities		2,617,581			2,807,807
Minority interest		7,380			12,393
Shareholders’ equity:
Preferred shares, 100,000,000 shares authorized at $0.001 per share, no shares issued and outstanding at December 31, 2007 and 2006, respectively		—			—
Common shares, 500,000,000 shares authorized at $0.001 per share, 132,147,856 issued and 128,510,395 outstanding at December 31, 2007 and 130,966,141 issued and outstanding at December 31, 2006		132			131
Capital contributed in excess of par		1,395,858			1,389,827
Accumulated deficit		(747,504	)		(599,596	)
Common shares held in treasury at cost, 3,637,461 shares at December 31, 2007		(34,990	)		—
Accumulated other comprehensive loss		(7,079	)		(4,398	)

Total shareholders’ equity		606,417			785,964

Total liabilities and shareholders’ equity	$	3,231,378		$	3,606,164

See accompanying notes to consolidated financial statements.

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2007, 2006 and 2005


	Year Ended December 31,
	2007			2006			2005
Revenues:
Rental income	$	239,114		$	226,917		$	198,752
Operating expense reimbursements		133,786			161,857			150,436

Total revenues		372,900			388,774			349,188
Expenses:
Property operating expenses:
Ground rents and leasehold obligations		14,266			14,218			12,938
Real estate taxes		39,885			39,398			32,639
Utilities		39,496			51,756			45,609
Property and leasehold impairments		1,880			10,416			144
Other property operating expenses		85,776			97,813			84,893
Direct billable expenses		6,973			6,014			3,710

Total property operating expenses		188,276			219,615			179,933
Marketing, general and administrative		19,483			25,110			25,364
Amortization of deferred equity compensation		4,471			8,687			10,411
Repositioning		—			9,065			—
Merger costs		399			—			—
Severance and related accelerated amortization of deferred compensation		5,000			21,917			4,503
Interest expense on mortgages and other debt		128,423			132,459			111,399
Depreciation and amortization		119,556			113,100			104,590

Total expenses		465,608			529,953			436,200

Interest and other income		11,728			6,315			3,839

Loss before net gain on sale of land, equity in loss from joint venture, net loss on investments, minority interest and discontinued operations		(80,980	)		(134,864	)		(83,173	)
Gain on sale of land		782			2,043			1,596
Equity in loss from joint venture		(2,878	)		(1,397	)		—
Net loss on investments		—			—			(530	)

Loss from continuing operations before minority interest		(83,076	)		(134,218	)		(82,107	)
Minority interest		1,174			2,731			2,175

Loss from continuing operations		(81,902	)		(131,487	)		(79,932	)
Discontinued operations:
Loss from operations before yield maintenance fees, net of minority interest of $529, $1,805 and $2,871 for the years ended December 31, 2007, 2006 and 2005, respectively		(42,741	)		(80,258	)		(33,310	)
Yield maintenance fees and gains on extinguishment of debt, net of minority interest of $(84), $15,564 and $16 for the years ended December 31, 2007, 2006 and 2005, respectively		5,870			(46,409	)		(567	)
Net gains on disposals, net of minority interest of $905, $74,046 and $562 for the years ended December 31, 2007, 2006 and 2005 respectively		69,262			237,556			20,194

Income (loss) from discontinued operations		32,391			110,889			(13,683	)

Net loss	$	(49,511	)	$	(20,598	)	$	(93,615	)

Basic and diluted income (loss) per share:
From continuing operations	$	(0.65	)	$	(1.03	)	$	(0.67	)
From discontinued operations		0.26			0.86			(0.11	)

Total basic and diluted loss per share	$	(0.39	)	$	(0.17	)	$	(0.78	)

See accompanying notes to consolidated financial statements.

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME

Years Ended December 31, 2007, 2006 and 2005

(In thousands, except share and per share data)


					Capital									Accumulated
	Shares of		Common		Contributed									Other
	Beneficial		Shares		in Excess of			Treasury			Accumulated			Comprehensive
	Interest		at Par		par			Stock			Deficit			Income (Loss)			Total
Balance, December 31, 2004		111,001,935	$	111	$	1,113,516		$	—		$	(229,380	)	$	(14,288	)	$	869,959
Net loss		—		—		—			—			(93,615	)		—			(93,615	)
Other comprehensive income (loss):
Reclassification adjustment for net losses incurred on hedges 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		(1	)		—			—			—			—
Amortization of deferred equity compensation		—		—		13,440			—			—			—			13,440

Balance, December 31, 2005		128,712,181		129		1,371,648			—			(457,313	)		(6,621	)		907,843
Cumulative effect of adopting SAB No. 108		—		—		—			—			(2,101	)		—			(2,101	)
Net loss		—		—		—			—			(20,598	)		—			(20,598	)
Other comprehensive income (loss):
Reclassification adjustment for net losses incurred on hedges reclassified into operations		—		—		—			—			—			2,331			2,331
Minority interest allocation		—		—		—			—			—			(108	)		(108	)

Total comprehensive loss		—		—		—			—			—			—			(20,476	)

Exercised options of common shares		118,515		—		1,185			—			—			—			1,185
Conversion of Operating Partnership units into common shares		1,142,742		2		3,690			—			—			—			3,692
Dividends declared at $0.92 per share		—		—		—			—			(119,584	)					(119,584	)
Issuance of restricted shares		992,703		—		273			—			—			—			273
Amortization of deferred equity compensation		—		—		13,031			—			—			—			13,031

Balance, December 31, 2006		130,966,141		131		1,389,827			—			(599,596	)		(4,398	)		785,964
Net loss		—		—		—			—			(49,511	)		—			(49,511	)
Other comprehensive income (loss):
Reclassification adjustment for net losses incurred on hedges reclassified into operations		—		—		—			—			—			(2,705	)		(2,705	)
Minority interest allocation		—		—		—			—			—			24			24

Total comprehensive loss		—		—		—			—			—			—			(52,192	)

Purchase of Treasury Stock		—		—		—			(34,990	)		—			—			(34,990	)
Conversion of Operating Partnership units into common shares		517,106		—		1,333			—			—			—			1,333
Dividends declared at $0.76 per share		—		—		—			—			(98,397	)					(98,397	)
Issuance of restricted shares		664,609		1		227			—			—			—			228
Amortization of deferred equity compensation		—		—		4,471			—			—			—			4,471

Balance, December 31, 2007		132,147,856	$	132	$	1,395,858		$	(34,990	)	$	(747,504	)	$	(7,079	)	$	606,417

See accompanying notes to consolidated financial statements.

AMERICAN FINANCIAL REALTY TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2007, 2006 and 2005

(In thousands)


	Year Ended December 31,
	2007			2006			2005
Cash flows from operating activities:
Net loss	$	(49,511	)	$	(20,598	)	$	(93,615	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		108,047			137,420			138,990
Minority interest		(714	)		53,946			(4,500	)
Amortization of leasehold interests and intangible assets, net		24,748			36,351			38,887
Amortization of acquired leases to rental income		1,533			1,160			(120	)
Amortization of deferred financing costs		6,872			13,708			12,656
Amortization of deferred compensation		4,471			13,031			13,440
Amortization of discount on pledged treasury securities		(2,385	)		(359	)		—
Non-cash compensation charge		228			273			262
Straight line rent adjustment		22,639			19,316			23,713
Impairment charges		36,870			65,116			3,581
Equity in loss from unconsolidated joint venture		2,878			1,397			—
Net gain on sales of properties and lease terminations		(73,925	)		(315,077	)		(23,006	)
Gain on extinguishment of debt		(8,252	)		—			—
Net loss on sales of investments		—			—			530
Payments received from tenants for lease terminations		4,949			1,947			440
Payment of capitalized leasing costs		(7,978	)		(18,154	)		(8,404	)
Decrease (increase) in operating assets:
Restricted cash		(41,043	)		(3,792	)		(17,646	)
Tenant and other receivables, net		(2,311	)		(12,768	)		(8,663	)
Prepaid expenses and other assets		9,543			(2,777	)		(81	)
Increase (decrease) in operating liabilities:
Accounts payable		(6,429	)		4,447			(709	)
Accrued expenses and other liabilities		(23,980	)		(3,034	)		(10,469	)
Deferred revenue and tenant security deposits		61,988			1,758			15,351

Net cash provided by (used in) operating activities		68,238			(26,689	)		80,637

Cash flows from investing activities:
Payments for acquisitions of real estate investments, net of cash acquired		(78,484	)		(192,669	)		(806,951	)
Capital expenditures and leasehold costs		(50,893	)		(50,043	)		(41,559	)
Proceeds from sales of real estate and non-real estate assets		335,740			1,421,613			125,583
(Increase) decrease in restricted cash		(8,965	)		590			1,601
Investment in joint venture		—			(23,300	)		—
Distribution received from joint venture		2,887			—			—
Sales and maturities of investments		4,999			1,116			21,240
Purchases of investments		(58,526	)		(33,082	)		(659	)

Net cash provided by (used in) investing activities		146,758			1,124,225			(700,745	)

Cash flows from financing activities:
Repayments of mortgages, bridge notes payable and credit facilities		(388,418	)		(1,207,580	)		(594,063	)
Proceeds from mortgages, bridge notes payable and credit facilities		332,923			327,878			1,108,652
Payment to acquire treasury stock		(34,990	)		—			—
Payments for deferred financing costs, net		(4,237	)		(2,118	)		(838	)
Proceeds from common share issuances, net		—			1,185			244,442
Redemption of Operating Partnership units		—			—			(4,405	)
Contributions by limited partners		—			—			353
Dividends and distributions		(101,432	)		(221,140	)		(134,395	)

Net cash (used in) provided by financing activities		(196,154	)		(1,101,775	)		619,746

Increase (decrease) in cash and cash equivalents		18,842			(4,239	)		(362	)
Cash and cash equivalents, beginning of year		106,006			110,245			110,607

Cash and cash equivalents, end of year	$	124,848		$	106,006		$	110,245

Supplemental cash flow and non-cash information:
Cash paid for interest	$	134,116		$	248,170		$	166,533

Cash paid for income taxes	$	—		$	687		$	24

Debt assumed in real estate acquisitions	$	—		$	—		$	78,645

Debt assumed by purchaser in sale of real estate	$	186,106		$	66,121		$	—

Non-cash acquisition costs	$	—		$	—		$	2,367

See accompanying notes to consolidated financial statements.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2007, 2006 and 2005

(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 acquires corporate-owned real estate assets, primarily bank branches and office buildings from financial institutions, and owns and manages such assets principally under long-term, triple net leases.

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 98.6% interest in the Operating Partnership as of December 31, 2007. There were 1,823,928 Operating Partnership units outstanding as of December 31, 2007.

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).

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. The State Street Financial Center occupied by State Street Corporation was sold in December 2006.


	Year Ended
		December 31,
		2007	2006	2005
Bank of America, N.A.		36%	29%	32%
State Street Corporation		—%	18%	19%
Wachovia Bank, N.A.		15%	12%	15%

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

On November 2, 2007, the Company entered into an agreement to be acquired by Gramercy Capital Corp. At the effective time of the merger, each of the issued and outstanding common shares of beneficial interest of the Company will be converted into the right to receive $5.50 in cash and 0.12096 of a share of common stock of Gramercy.

(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.

(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.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company applies the provisions of Financial Accounting Standards Board (FASB) Interpretation No.46R (FIN 46R), “Consolidation of Variable Interest Entities.” 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. The Company has an interest in one variable interest entity and includes the accounts of this entity in the consolidated financial statements as the Company is the primary beneficiary of this entity.

The Company accounts for the investment in a joint venture using the equity method of accounting. The Company has evaluated its investment in the joint venture and has concluded that it is not a variable interest entity as defined by FIN 46R. The Company does not control the joint venture, since all major decisions of the partnership, such as the sale, refinancing, expansion or rehabilitation of any property, require the approval of all partners and voting rights and the sharing of profits and losses are in proportion to the ownership percentages of each partner. This investment was recorded initially at the Company’s cost and subsequently adjusted for the Company’s share of net equity in income (loss) and will be adjusted for cash contributions and distributions.

(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 straight-line method over the estimated useful 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 and leasehold interests. Maintenance and repairs expenditures are charged to expense as incurred.

In leasing office space, the Company may provide funding to the lessee through a tenant allowance. In accounting for tenant allowances, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance and depreciates it over the shorter of the useful life of the leasehold improvements or the lease term. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements for accounting purposes, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of rental revenue. Factors considered during this evaluation usually include (i) who holds legal title to the improvements, (ii) evidentiary requirements concerning the spending of the tenant allowance, and (iii) other controlling rights provided by the lease agreement (e.g. unilateral control of the tenant space during the build-out process). Determination of the accounting for a tenant allowance is made on a case-by- case basis, considering the facts and circumstances of the individual tenant lease.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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.

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 in short-term money market instruments. 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 $2,353, of which $233 are related to assets held for sale, and $3,005 as of December 31, 2007 and 2006, respectively, and were pledged as collateral for obligations related to leases and leasehold interest liabilities. Additionally, the Company has accrued interest income on these investments of $555 and $452 as of December 31, 2007 and 2006, respectively.

In the year ended December 31, 2005, the Company liquidated a prior investment in another institutional mutual fund that invested primarily in mortgage-backed securities, realizing a loss of $530.

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


	Year Ended December 31,
	2007		2006		2005
Gross proceeds from sales	$	858	$	451	$	21,240
Gross realized losses		—		—	$	530

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(j) Pledged treasury securities

The Company maintains a portfolio of treasury securities that are pledged to provide principal and interest payments for mortgage debt previously collateralized by properties in its real estate portfolio. These securities are carried at amortized cost because the Company has both positive intent and the ability to hold the securities to maturity. These securities have a fair value of $93,584 and $32,811 at December 31, 2007 and 2006, respectively, and unrealized gains of $4,926 and $420 at December 31, 2007 and 2006, respectively, and have maturities that extend through November 2013.

(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 include 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 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, 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 lease term. 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 and 2004. 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 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.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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.

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. The allocations presented in the accompanying consolidated balance sheets are substantially complete; however, there are certain items that we will finalize once we receive additional information. Accordingly, these allocations are subject to revision when final information is available, although we do not expect future revisions to have a significant impact on our financial position or results of operations.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets and acquired lease obligations consist of the following:


	December 31,
	2007			2006
Intangible assets:
In-place leases, net of accumulated amortization of $59,222 and $51,260	$	163,760		$	221,452
Customer relationships, net of accumulated amortization of $21,539 and $17,565		137,364			154,375
Above-market leases, net of accumulated amortization of $16,379 and $13,198		9,931			14,826
Goodwill		700			700
Amounts related to assets held for sale, net of accumulated amortization of $12,783 and $11,979		(40,461	)		(76,600	)

Total intangible assets	$	271,294		$	314,753

Intangible liabilities:
Below-market leases, net of accumulated amortization of $14,388 and $13,475	$	54,640		$	63,586
Amounts related to liabilities held for sale, net of accumulated amortization of $2,394 and $2,601		(10,980	)		(6,413	)

Total intangible liabilities	$	43,660		$	57,173

The following table provides the weighted-average amortization period as of December 31, 2007 for intangible assets and liabilities and the projected amortization expense for the next five years:


	Weighted-
	Average
	Amortization
	Period		2008			2009			2010			2011			2012
In-place leases		15.5	$	15,734		$	15,023		$	13,445		$	12,533		$	11,345
Customer relationships		35.3		4,917			4,874			4,840			4,771			4,144

Total to be included in depreciation and amortization expense			$	20,651		$	19,897		$	18,285		$	17,304		$	15,489

Above-market lease assets		7.1	$	(3,488	)	$	(2,648	)	$	(2,054	)	$	(751	)	$	(288	)
Below-market lease liabilities		30.0		2,467			2,335			2,007			1,716			1,726

Total to be included in (deducted from) rental revenue			$	(1,021	)	$	(313	)	$	(47	)	$	965		$	1,438

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. 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 year ended December 31, 2005. During the year ended December 31, 2005, the Company recorded $865 of additional amortization expense to adjust accumulated amortization to the proper balances.

(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. Subsequent to 2005, direct costs of financings are deferred and amortized over the terms of the underlying financing agreements using an effective interest methodology. Prior to 2005, the Company amortized deferred financing costs to interest expense on a straightline basis. 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 year ended December 31, 2005. During the year ended December 31, 2005, the Company recorded $508 of additional interest expense to adjust net deferred costs to the proper balances.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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 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) Transfer of financial assets and extinguishment of liabilities

The Company follows Statement of Financial Accounting Standards (SFAS) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” which establishes an accounting model for the derecognition of transferred assets and liabilities. The Company applies the provisions of SFAS No. 140 when the Company enters into a defeasance transaction in which the Company will unencumber a property from a mortgage note prior to the property’s disposal. To effect this transaction, the Company will purchase and substitute a secured interest in treasury securities for the property that originally served as collateral under a mortgage note agreement. For transactions that meet the criteria of SFAS No. 140, the Company will derecognize the transferred assets and liability (“legal defeasance”). For defeasance transactions that do not meet the criteria of SFAS No. 140, the Company will continue to report the securities and liability on its consolidated balance sheet (“in-substance defeasance”).

(q) 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 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. At December 31, 2007 and 2006, there were no open derivative positions.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(r) 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. The Company enters 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.

(s) 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.

Other income includes fees paid by tenants to terminate their leases, which are recognized when fees due are determinable, no further actions or services are required to be performed by the Company, and collectibility is reasonably assured. In the event of early termination, the unrecoverable net book values of the assets or liabilities related to the terminated tenant are recognized as depreciation and amortization expense in the period of termination.

During the three months ended June 30, 2007, the Company concluded that payments received from a tenant in the amounts of $1,128 and $374, which were received and recognized as income during the quarters ended December 31, 2006 and March 31, 2007, respectively, should have been deferred and amortized over the remaining lease term. The Company has evaluated, on both a quantitative and qualitative basis, the impact of this adjustment on the prior period interim and annual statements, and concluded that it is not material to those financial statements. This analysis was performed in accordance with SAB No. 99 and SAB No. 108 and included, among other factors, the impact these errors had on the Company’s net income (loss) and loss from continuing operations for the interim periods affected, as well as the impact on the estimated net loss for the 12 months ended December 31, 2007. During the three months ended June 30, 2007, the Company corrected the error by recording an adjustment of $1,502, primarily through a reduction of other income.

(t) 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.

(u) 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, 2007, 2006 and 2005 rent expense related to leasehold interests, which is included in property operating expenses, and rent expense related to office rentals, which is included in marketing, general and administrative expense, totaled $15,244, $16,201 and $14,947, respectively.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(v) 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 adopted the provisions of FIN 48 on January 1, 2007. Upon adoption, we recognized no material adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007 and at December 31, 2007, we had no unrecognized tax benefits. As a result we have no accrued interest or penalties related to uncertain tax positions.

The statute of limitations for federal tax returns filed by the company and its subsidiaries through 2003 is closed. The expiration of the statute of limitations related to various state and local income tax returns that the company and subsidiaries file varies by jurisdiction. No federal or state and local income tax returns are currently under examination.

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 years ended December 31, 2007 and 2006, no tax benefit or provision was recorded. During the year ended December 31, 2005, the Company recorded current and deferred income tax benefits of $505 and $622, respectively.

As of December 31, 2007, the Company has a current tax receivable of $48 recorded on the consolidated balance sheet related to the refund of taxes paid in current and prior years. As of December 31, 2006, the Company fully reserved the deferred tax asset of $622 and $77 of the receivable recorded as of December 31, 2005 as it was no longer more likely than not that these future benefits will be realized. The remaining $428 current tax receivable recorded as of December 31, 2005 was realized during 2006. As of December 31, 2006, the Company had a current tax receivable of $1,724 recorded on the consolidated balance sheet related to the refund of taxes paid in the current and prior years.

As of December 31, 2005, the taxable REIT subsidiary recorded a deferred tax asset of $622 related to expenses, which are deductible for tax purposes in future periods. No valuation was recorded at that time as the Company believed it was more likely than not that the future benefit associated with this deferred tax asset would be realized as of December 31, 2005. The Company also recorded a current tax receivable of $505 related to a refund of taxes paid in prior years.

The tax basis of real estate assets, including assets held for sale, exceeded the net book basis of real estate assets, including assets held for sale, by approximately $71,511 at December 31, 2007. The tax basis of real estate assets, including assets held for sale, exceeded net book basis of real estate assets, including assets held for sale, by approximately $26,357 at December 31, 2006.

For the year ended December 31, 2007, 11.5% of the Company’s dividends were characterized as ordinary income, 46.8% were classified as capital gains, and 41.7% were characterized as a return of capital. For the year ended December 31, 2006, 100% of the Company’s dividends were characterized as capital gains. For the year ended December 31, 2005, 5.9% of the Company’s dividends were characterized as ordinary income, 2.2% were classified as capital gains, and 91.9% were characterized as a return of capital.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(w) Stock Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payments” (SFAS No. 123R). Prior to the adoption of SFAS No. 123R, the Company accounted for stock-based compensation using the intrinsic value method of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” As a result, the Company did not recognize compensation expense in the statement of operations for options granted for the periods prior to the adoption of SFAS 123R. As required by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), the Company provided certain pro forma disclosures for stock-based compensation as if the fair-value-based approach of SFAS No. 123 had been applied. The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods. Under this transition method, the Company has applied the provisions of SFAS No. 123R to new options granted or cancelled after December 31, 2005. Additionally, the Company has recognized compensation cost for the portion of options for which the requisite service has not been rendered (unvested) that were outstanding as of December 31, 2005, on a straight-line basis over the remaining service period adjusted for estimated forfeitures. The compensation cost the Company records for these options is based on their grant-date fair value as calculated for the pro forma disclosures required by SFAS No. 123.

Amortization of deferred equity compensation was $4,471, $13,031 and $13,440 for the years ended December 31, 2007, 2006 and 2005, respectively.

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 all share-based employee compensation and recognized compensation costs in its financial statements during the year ended December 31, 2005:


	Year Ended
	December 31,
	2005
Net loss	$	(93,615	)
Add: Total share-based employee compensation expense included in net loss		13,440
Deduct: Total share-based employee compensation expense determined under fair value based methods for all awards		(14,966	)

Pro forma net loss	$	(95,141	)

Basic and diluted loss per share — as reported	$	(0.78	)

Basic and diluted loss per share — pro forma	$	(0.79	)

(x) 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 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.

The following table reconciles the beginning and ending carrying amounts of the Company’s asset retirement obligations:


	2007			2006
Asset retirement obligations, beginning of year	$	3,203		$	2,565
Property acquisitions		—			635
Property dispositions		(272	)		(213	)
Accretion expense		228			216

Asset retirement obligations, end of year	$	3,159		$	3,203

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(y) Treasury Stock

The Company records shares of common stock repurchased at cost as treasury stock, resulting in a reduction of shareholders’ equity in the Consolidated Balance Sheets.

(z) Application of SAB No. 108

In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated.

We adopted SAB No. 108 during the quarter ended December 31, 2006. Prior to adopting SAB No. 108, our approach to quantifying misstatements only considered the amount of errors originating in the current year consolidated statement of operations. Thus the effects of correcting the portion of the consolidated balance sheet misstatement that originated in prior years were not considered. Upon adopting SAB No. 108, we changed our approach to quantifying the effects of misstatements to include an analysis of the impact on the current year consolidated statement of operations for the cumulative balance of any known errors, regardless of when they originated. When we applied this approach to quantifying the effects of misstatements to our 2006 consolidated financial statements, we identified two errors that were not material to our consolidated statements of operations in any prior quarter or annual period; however, the cumulative error would have been material to correct in the current period. Since the errors were not material to any prior consolidated statement of operations, we were not required to restate prior year financial statements. The first error related to the accrual of a property operating expense which the Company had not previously accrued for. The second error related to overstated deferred costs resulting from separately accounting for the gross cash inflows and outflows which originated from a lease modification in which the Company should have capitalized the net cash outflow. The consolidated financial statements were corrected with an adjustment of $2,101 to the beginning balance of retained earnings at January 1, 2006.

(aa) Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. SFAS 159 creates a “fair value option” under which an entity may elect to record certain financial assets or liabilities at fair value upon their initial recognition. Subsequent changes in fair value would be recognized in earnings as those changes occur. The election of the fair value option would be made on a contract-by-contract basis and would need to be supported by concurrent documentation or a preexisting documented policy. SFAS 159 requires an entity to separately disclose the fair value of these items on the balance sheet or in the footnotes to the financial statements and to provide information that would allow the financial statement user to understand the impact on earnings from changes in the fair value. Although the Company will continue to evaluate the application of SFAS 159, management does not currently believe adoption will have a material impact on the Company’s results of operations or financial position.

In December 2007, the FASB issued Statement No. 141 R, Business Combinations (a revision of Statement No. 141). This Statement applies to all transactions or other events in which an entity obtains control of one or more business, including those combinations achieved without the transfer of consideration. This Statement retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations. This Statement expands the scope to include all business combinations and requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their fair values as of the acquisition date. Additionally, FASB No. 141R changes the way entities account for business combinations achieved in stages by requiring the identifiable assets and liabilities to be measured at their full fair values. Additionally, contractual contingencies and contingent consideration shall be measured at fair value at the acquisition date. This Statement is effective on a prospective basis to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact, if any, that the adoption of this Statement will have on the consolidated financial statements of the Company.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(3) Acquisitions and Dispositions

The Company acquired 75 and 156 properties and leasehold interests during the years ended December 31, 2007 and 2006, respectively. In addition, the Company purchased 6 and 11 parcels of land designated as land held for development during the years ended December 31, 2007 and 2006, respectively. The following table presents the allocation of the net assets acquired and liabilities assumed during the years ended December 31, 2007 and 2006:


	Year Ended December 31,
	2007			2006
Real estate investments, at cost:
Land	$	10,899		$	27,099
Land held for development		5,451			4,451
Buildings		53,041			130,299
Equipment and fixtures		8,719			21,344
Initial tenant improvements		125			3,715
Leasehold interests, net		(1,571	)		(578	)

		76,664			186,330
Intangibles and other assets:
In-place leases		1,503			8,561
Above-market lease assets		—			518
Below-market lease liabilities		—			(796	)
Other assets		—			75

		1,503			8,358

Total assets		78,167			194,688
Other liabilities assumed		—			(1,899	)

Cash paid	$	78,167		$	192,789

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents information regarding property and leasehold interests acquired during the years ended December 31, 2007 and 2006:


		Number of
Property/Seller	Date	Buildings(1)		Purchase Price(2)
Heritage Oaks	June 2007		4	$	13,314
Home Federal Bancorp	Sept 2007		4		3,720
Bank of America Formulated Price Contracts	Various		5		5,397
Wachovia Bank Formulated Price Contracts	Various		62		55,736	(3)

Total 2007			75	$	78,167

Washington Mutual Bank	Feb. 2006		1	$	1,738
National City	March 2006		16		35,241
Hinsdale	March 2006		1		5,383
Dripping Springs — Franklin Bank	April 2006		1		3,039
Meadowmont — Wachovia Securities	June 2006		2		3,443
Western Sierra	June 2006		8		14,136
Regions repurchase	July 2006		3		1,900
Amsouth Bank Formulated Price Contracts	August 2006		7		3,512
First Charter Bank	August 2006		1		635
Sterling Bank	Dec. 2006		16		28,806
Bank of America Formulated Price Contracts	Various		20		5,136
Wachovia Bank Formulated Price Contracts	Various		80		91,719	(3)

Total 2006			156	$	194,688


(1)		Includes the assumption of leasehold interests and parking facilities.

(2)		Includes all acquisition costs and the value of acquired intangible assets and leasehold interests assumed. Excludes non-real estate assets acquired.

(3)		Includes amount paid for land parcels.

The following table presents information regarding other property dispositions including land parcels and leasehold interests, completed during the years ended December 31, 2007, 2006 and 2005:


	Number of		Sale
	Buildings and		Proceeds,
	Land Parcels(1)		Net		Gain(2)
Total 2007		150	$	335,424	$	70,044
Total 2006		154	$	1,421,501	$	239,599
Total 2005		143	$	124,643	$	21,790


(1)		Includes the sale of 16 parcels of land, two sub-parcels, and four leasehold interest terminations during the year ended December 31, 2007, the sale of 15 land parcels and 11 leasehold interest terminations during the year ended December 31, 2006, and the sale of five parcels of land and eight leasehold interest terminations during the year ended December 31, 2005.

(2)		Net of minority interest.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(4) Indebtedness

The Company had several types of financings in place as of December 31, 2007 and 2006, which include mortgage notes payable, a secured acquisition credit facility, convertible senior notes, and a secured operating credit facility. The weighted average effective interest rate on these borrowings was 6.0%, 6.2% and 5.8% for the years ended December 31, 2007, 2006 and 2005, respectively. The fair value of these borrowings, calculated by comparing the outstanding debt to debt with similar terms at current interest rates, was $2,026,803 and $2,380,245 as of December 31, 2007 and 2006, respectively, compared to book values of $2,195,198 and $2,437,533.

The Company’s mortgage notes payable typically require that specified loan-to-value and debt service coverage ratios be maintained with respect to the financed properties before the Company can exercise certain rights under the loan agreements relating to such properties. If the specified criteria are not satisfied, in addition to other conditions that the Company may have to observe, the Company’s ability to release properties from the financing may be restricted and the lender may be able to “trap” portfolio cash flow until the required ratios are met on an ongoing basis. As of December 31, 2007, the Company was out of debt service coverage compliance under one of its mortgage note financings; although such non-compliance does not, and will not, constitute an event of default under the applicable loan agreement.

The Company’s secured acquisition credit facility permits the lender to require partial repayment of a property advance if such advance remains outstanding for more than 12 months, and full repayment if such advance remains outstanding for more than 18 months. In addition, the facility agreement permits the lender to require mandatory repayments to the extent necessary to reduce outstanding facility advances to current market levels following adverse changes in commercial loan underwriting conditions. No such payments were required during this period.

The Company’s secured operating credit facility contains customary financial covenants, including a minimum debt service coverage ratio for the Company of 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%.

The Company’s secured and operating credit facilities contain various financial and non-financial covenants that are customarily found in these types of facilities. As of December 31, 2007, no event of default conditions existed under any of the Company’s financings.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(a) Mortgage Notes Payable

The following is a summary of mortgage notes payable as of December 31, 2007 and 2006:


	Encumbered
	Properties		Balance			Interest Rates	Maturity Dates
Fixed-rate mortgages		587	$	1,517,804	(1)	4.5% to 8.3%	July 2009 to Sept. 2023
Variable-rate mortgages		—		—

Total mortgage notes payable		587		1,517,804

Unamortized debt premiums and discounts				480
Mortgage notes payable related to assets held for sale		4		(82,036	)(2)

Balance, December 31, 2007			$	1,436,248


Fixed-rate mortgages		644	$	1,755,858	(3)	4.5% to 8.8%	Oct. 2007 to Dec. 2023
Variable-rate mortgages		9		21,301		6.8% to 7.4%	Jan. 2007 to Nov. 2023

Total mortgage notes payable		653		1,777,159

Unamortized debt premiums and discounts				1,422
Mortgage notes payable related to assets held for sale		4		(221,268	)

Balance, December 31, 2006			$	1,557,313


(1)		Includes $84,933 of debt that is collateralized by $88,658 of pledged Treasury securities, net of discounts and premiums and $4,548 of debt that relates to the proportionate share of the 11% minority interest holder in 801 Market Street as of December 31, 2007.

(2)		Includes $4,548 of debt that relates to the proportionate share of the 11% minority interest holder in 801 Market Street as of December 31, 2007.

(3)		Includes $31,344 of debt that is collateralized by $32,391 of pledged Treasury securities, net of discounts and premiums and $4,616 of debt that relates to the proportionate share of the 11% minority interest holder in 801 Market Street as of December 31, 2006.

Certain of our mortgage notes payable related to assets held for sale contain provisions that require us to compensate the lender for the early repayment of the loan. These charges will be separately classified in the statement of operations as yield maintenance fees within discontinued operations during the period in which the charges are incurred.

From June 2006 through December 2007, the Company completed in-substance defeasances on a total of $86,261 of debt secured by properties that were part of our Bank of America portfolio acquired in 2003, Bank of America portfolio acquired in 2002, Wachovia portfolio acquired in 2003, and Formation portfolio. The Company defeased these properties in order to unencumber them prior to their disposal or as a result of a lease termination. In connection with these defeasances, Treasury securities sufficient to satisfy the scheduled interest and principal payments contractually due under the respective loan agreements were purchased. The cash flow from these securities has interest and maturities that coincide with the scheduled debt service payments of the mortgage notes and ultimate payment of principal. The Treasury securities were then substituted for the properties that originally served as collateral for the loan. These securities were placed into a collateral account for the sole purpose of funding the principal and interest payments when due. The indebtedness remains on the consolidated balance sheet as it was not an extinguishment of the debt and the securities are recorded as pledged Treasury securities, net of unamortized discount, on the consolidated balance sheet.

In July and December 2007 we completed two legal defeasance transactions related to the pending sales of properties under our Bank of America portfolio acquired in October of 2004 and our Wachovia portfolio acquired in September of 2004, respectively. We defeased these properties in order to unencumber them from their debt of $52,263 and $3,708, respectively, prior to their disposal. In April and December 2006 we completed two legal defeasance transactions related to the sale of our 123 S. Broad St. Unit I Condominium and the State Street Financial Center, respectively. We defeased these properties in order to unencumber them from their debt of $34,971 and $489,961, respectively, prior to their disposal. As a result of these transactions, the Company was legally released from its obligations under the notes. Accordingly, the Company accounted for these transactions as a sale of real estate assets and extinguishment of the related debt in accordance with the provisions of SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Principal payments due on the mortgage notes payable as of December 31, 2007 are as follows:


2008	$	26,789
2009		79,366
2010		41,377
2011		198,891
2012		80,873
2013 and thereafter		1,090,508

Total	$	1,517,804

(b) Secured Acquisition Credit Facility

The Company entered into a $300,000 secured acquisition 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 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, 2007, the Company had $230,363 of advances outstanding under this facility, including $35,000 included in Liabilities Related to Assets Held for Sale, secured by 197 properties. The $35,000 advance has an interest rate of LIBOR plus 2.25% (7.49% at December 31, 2007) and the remainder of the advances, $195,363, have an interest rate of LIBOR plus 1.75% (6.99% at December 31, 2007.) As of December 31, 2006, the Company had $212,609 of advances outstanding under this facility, secured by 270 properties, with an interest rate of LIBOR plus 1.75% (7.10% at December 31, 2006.)

(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. At both December 31, 2007 and 2006, the conversion price per share was $17.65. On December 20, 2007, the Company declared a dividend of $0.19, which did not trigger an adjustment to the conversion price per share.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

(d) Secured Operating Credit Facility

The Company maintains a secured operating credit facility for general corporate purposes, established in September 2004. The initial facility commitment in September 2004 was $60,000 and this commitment was subsequently reduced to $40,000 during November 2007. This facility 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 2.0%. If the Company designates the advance as a Base Rate Loan then the advance bears interest at the greater of (i) the Prime Rate plus 1.0%, or (ii) the Federal Funds Rate plus 1.5%. In May 2006, the Company executed an extension of this facility for a period of one year, beginning on September 30, 2006. The terms of this renewal will reduced the current spread on Eurodollar Rate Loans from LIBOR plus 2.0% to LIBOR plus 1.7% and increase the letter of credit fee amount from 0.8% to 1.7%. These changes became effective at the start of the one year renewal period on September 30, 2006. Effective September 28, 2007 the Company executed an extension of this facility to October 29, 2007. Effective October 29, 2007 the Company executed an extension of this facility to November 29, 2007. Effective November 29, 2007 the Company executed an extension of this facility to April 30, 2008.

The secured operating credit facility maintains a $40,000 sub-limit for letters of credit. In June 2006, the facility was amended to permit cash collateralized letters of credit in excess of this sub-limit. Due to recent volatility in the credit markets, effective November 29, 2007 the facility was amended to require collateralization of all outstanding letters of credit under the facility. As of December 31, 2007 the Company had $53,646 letters of credit outstanding under this facility, $12,000 of which were collateralized by a pledge of subleases from our Harborside leasehold location and the remainder collateralized by cash escrow deposits of $41,917. There were no advances under this facility as of December 31, 2007. At December 31, 2006, the Company had $68,205 of letters of credit outstanding consisting of $59,049 of unsecured letters of credit and $9,156 of cash collateralized letters of credit. 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. There were no advances under this facility as of December 31, 2007.

(5) Derivative Instruments and Other Financing Arrangements

The Company enters 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.

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, 2007 and 2006, the Company had a liability of $3,697 and $3,760, respectively related to this agreement.

During the years ended December 31, 2007, 2006 and 2005, the Company reclassified approximately $2,705, ($2,331) and ($2,773), respectively, of accumulated other comprehensive income (loss) to interest expense. 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 $1,305 to interest expense as the underlying hedged items affect earnings, such as when the forecasted interest payments occur.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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 March 15, 2007, the Company issued a press release announcing that it has adopted a written trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934 for the purpose of repurchasing up to 2,500,000 of its common shares of beneficial interest. The trading plan was adopted pursuant to the Company’s previously announced authorization from its Board to repurchase up to $100,000 of its common shares. The trading plan which was effective as of March 15, 2007, expired on May 10, 2007. During the three months ended June 30, 2007, the Company completed the purchase of 2,378,568 of its common shares of beneficial interest for an average cost per share of $10.48.

On March 15, 2007, the Company declared a dividend to shareholders and a distribution to Operating Partnership unit holders. The Company paid a dividend of $0.19 per common share, totaling $24,878, on April 20, 2007 to shareholders of record as of March 31, 2007. In addition, the Operating Partnership simultaneously paid a distribution of $0.19 per Operating Partnership unit, totaling $384.

On June 6, 2007, the Company declared a dividend to shareholders and a distribution to Operating Partnership unit holders. The Company paid a dividend of $0.19 per common share, totaling $24,529, on July 20, 2007 to shareholders of record as of June 30, 2007. In addition, the Operating Partnership simultaneously paid a distribution of $0.19 per Operating Partnership unit, totaling $347.

On August 16, 2007, the Company issued a press release announcing that it has adopted a written trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934 for the purpose of repurchasing up to 1,500,000 of its common shares of beneficial interest. The trading plan was adopted pursuant to the Company’s previously announced authorization from its Board to repurchase up to $100,000 of its common shares. The trading plan which was effective as of August 16, 2007, expired on September 14, 2007. During the three months ended September 30, 2007, the Company completed the purchase of 1,258,893 of its common shares of beneficial interest for an average cost per share of $7.91.

On September 19, 2007, the Company declared a dividend to shareholders and a distribution to Operating Partnership unit holders. The Company paid a dividend of $0.19 per common share, totaling $24,281, on October 19, 2007 to shareholders of record as of September 30, 2007. In addition, the Operating Partnership simultaneously paid a distribution of $0.19 per Operating Partnership unit, totaling $347.

On December 20, 2007, the Company declared a dividend to shareholders and a distribution to Operating Partnership unit holders. The Company paid a dividend of $0.19 per common share, totaling $24,297, on January 18, 2008 to shareholders of record as of December 31, 2007. In addition, the Operating Partnership simultaneously paid a distribution of $0.19 per Operating Partnership unit, totaling $347.

(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 $431, $420 and $300 for the years ended December 31, 2007, 2006 and 2005, respectively, and is included within general and administrative expenses in the accompanying consolidated statements of operations.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental Executive Retirement Plan

The Company had established a non-qualified Supplemental Executive Retirement Plan (SERP) in which the Company’s former President, Chief Executive Officer and Vice Chairman of the board of trustees was a participant.

On August 16, 2006, the Company entered into a Separation Agreement wih the SERP’s sole participant. Under the terms of the separation, the Company fully and completely satisfied its obligation under the SERP by agreeing to pay the participant an aggregate amount of $1,485 on the six month anniversary of the separation. This expense is included within repositioning costs for the year ended December 31, 2006. The Company paid this obligation to the former executive in February 2007.

(8) Equity Incentive Plans

The Company established the 2002 Equity Incentive Plan (Incentive Plan) that authorized the issuance of options to purchase up to 3,125,000 common shares and up to 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 and restricted share grants 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.

SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of operations. Prior to the adoption of SFAS No. 123(R), we accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB Opinion No. 25 as allowed under SFAS No. 123. Under the intrinsic value method, no stock-based compensation expense had been recognized in our consolidated statement of operations.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in our consolidated statement of operations for the years ended December 31, 2007 and 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS No. 123 and compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). Stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2007 and 2006 is based on awards ultimately expected to vest which includes the Company’s estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, we accounted for forfeitures as they occurred.

The Company elected to use the modified prospective transition method as permitted by SFAS No. 123R and therefore has not restated the financial results for prior periods. Under this transition method, the Company will apply the provisions of SFAS No. 123R to new options granted or cancelled after December 31, 2005. Additionally, the Company will recognize compensation cost for the portion of options for which the requisite service has not been rendered (unvested) that are outstanding as of December 31, 2005, on a straight-line basis over the remaining service period. The compensation cost the Company records for these options will be based on their grant-date fair value as calculated for the pro forma disclosures required by SFAS No. 123.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On June 26, 2007, the Company’s President and Chief Executive Officer died unexpectedly. His employment agreement contained no provision for the acceleration of unvested restricted shares upon death. As a result, such shares were forfeited at the date of death. Included in deferred equity compensation expense is the reversal of equity compensation expense is the reversal of $1,246 of previously recorded stock compensation expense associated with these restricted stock awards. Subsequently on August 14, 2007, the Company made a $5,000 cash payment to the President and Chief Executive Officer’s estate.

The following table summarizes option activity for the Company for the period from January 1, 2005 to December 31, 2007:


				Weighted
	Number of			Average		Aggregate
	Shares Issuable			Exercise		Exercise			Grant Price Range
	Upon Exercise			Price		Price			From		To
Balance, January 1, 2005		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
Options exercised		(118,515	)	$	10.00		(1,185	)	$	10.00	$	10.00
Options cancelled		(37,423	)	$	14.04		(525	)	$	10.00	$	14.98

Balance, December 31, 2006		1,877,218		$	10.35		19,434		$	10.00	$	14.98
Options cancelled		(225,219	)	$	12.50		(2,812	)	$	10.00	$	14.98

Balance, December 31, 2007		1,651,999		$	10.06	$	16,622		$	10.00	$	14.91

The following table summarizes stock options outstanding as of December 31, 2007:

Weighted-

Average

Weighted-

Number of Shares

Remaining

Average

Outstanding

Contractual

Exercise

Range of Exercise Prices

And Exercisable

Life

Price

$10.00 to $11.65

1,613,999

4.7 years

10.00

$12.10 to $14.98

38,000

5.4 years

12.69

The weighted-average fair value of each option granted 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%

These assumptions, determined upon issuance of such stock options, were utilized in the calculation of the compensation expense. This expense is the result of vesting of previously granted stock option awards. No stock options were granted during the years ended December 31, 2007, 2006 and 2005.

The options outstanding and exercisable at December 31, 2007 had no intrinsic value. Intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $8.02 as of December 31, 2007, and the exercise price multiplied by the number of options outstanding. The total intrinsic value of options exercised was $237 and $1,007 for the twelve months ended December 31, 2006 and 2005, respectively. As of December 31, 2007, the Company had no unrecognized compensation costs related to options outstanding.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes restricted stock activity for the years ended December 31, 2006 and 2007:


				Weighted-
	Number of			Average
	Restricted Stock			Grant Date
	Grants Outstanding			Fair Value
Balance, January 1, 2006		1,009,205		$	15.16
Granted		1,065,430		$	11.57
Vested		(908,036	)	$	14.46
Forfeited		(159,117	)	$	14.06

Balance, December 31, 2006		1,007,482		$	12.17
Granted		1,331,855		$	10.76
Vested		(363,751	)	$	12.68
Forfeited		(672,307	)	$	11.22

Balance, December 31, 2007		1,303,279		$	11.09

During the years ended December 31, 2007, 2006 and 2005, compensation expense related to restricted stock grants was $4,471, $8,687 and $10,411, respectively. In addition, pursuant to the severance agreements of certain senior officers the Company incurred charges of $4,344 and $3,029 during the years ended December 31, 2006 and 2005, respectively, related to the accelerated vesting of restricted stock grants and the issuance of other equity instruments.

As of December 31, 2007, the Company had approximately $13,228 of unrecognized compensation costs related to total issued and outstanding restricted stock grants. Based upon their scheduled amortization, these costs will be recognized over a weighted average period of 3.6 years.

The following table summarizes restricted share grant activity for the years ended December 31, 2005, 2006 and 2007:


			Share Price
	Shares		at Grant		Vesting
Date of Grant	Granted		Date		Period(1)
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
January 1, 2006		539,326	$	11.97	4 years
March 31, 2006		6,000	$	11.65	3 years
June 1, 2006		20,104	$	9.95	3 years
August 16, 2006		500,000	$	11.21	3 years
March 1, 2007		100,000	$	11.01	3 years
March 1, 2007		382,480	$	11.01	4 years
April 2, 2007		5,450	$	10.02		—
April 30, 2007		720,000	$	10.60	6 years
April 30, 2007		12,000	$	10.60	3 years
May 1, 2007		96,000	$	10.68	6 years
June 6, 2007		15,925	$	10.99	3 years

		2,987,231


(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. Restricted share grants that have a six-year vesting period vest as follows: 12.5% on December 31, 2007 and 2008, 16.7% on December 31, 2009 and 2010, and 20.8% on December 31, 2011 and 2012.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Effective April 30, 2007, the Company terminated its 2006 Long-Term Incentive Plan (the “LTIP”) in its entirety and cancelled all of the target units granted to the participants thereunder. In connection with such termination and cancellation, and in complete satisfaction and release of their rights and the Company’s obligations under the LTIP, each of the LTIP participants received a one-time grant of restricted common shares (each, a “Dissolution Grant”) representing 50% of their respective cancelled LTIP target units. In particular, participants received 720,000 restricted shares, in consideration for the cancellation of the 1,440,000 targets units, respectively, awarded to such persons under the LTIP. The Dissolution Grants will vest, according to the following schedule: 12.5% on each of December 31, 2007 and December 31, 2008, 16.7% on each of December 31, 2009 and December 31, 2010 and 20.8% on each of December 31, 2011 and December 31, 2012. During the third quarter of 2007, 96,000 Dissolution Grants were forfeited. At December 31, 2007, 624,000 Dissolution Grants remain outstanding. Any outstanding restricted shares, including these Dissolution Grants, will fully vest upon a change of control of the Company.

In June 2007, the Company created the 2007 Multi-Year Equity Incentive Plan (the “MYP”) as a long term equity incentive plan designed to reward its participants through the issuance of restricted common shares based on the achievement of certain performance metrics on a cumulative basis during the three (3) year performance period beginning on January 2007 and ending on December 2009. Under the plan, a range of available restricted common share awards may be awarded to participants at the end of the performance period based upon the Company’s achieved level of performance. Participants were awarded Target Units, as defined in the MYP, equal to a percentage of the participant’s base salary divided by the Company’s average share price for the 20 days preceding the date the Board of Trustees created the plan. Restricted common share awards under the MYP are determined based upon the level of achievement of the performance metrics which state the percentage of Target Units, ranging from 50% to 600% (cumulative opportunity), that will be converted into restricted share grants. The Company has accounted for the MYP in accordance with SFAS 123R, and identified that it consists of two market-based plans and three performance-based plans. The total compensation cost for the year ended December 31, 2007 was approximately $90.

If a change in control of the Company occurs before the conclusion of the performance period, the participants may be eligible to receive pro rata grants as follows: (i) if a change of control occurs on or before March 31, 2008, participants will receive restricted share grants up to 40% of cumulative opportunity, (ii) if a change of control occurs after March 31, 2008 and on or before December 31, 2008, participants will receive restricted share grants up to 70% of cumulative opportunity, and (iii) if a change of control occurs after December 31, 2008 and on or before December 31, 2009, participants will receive restricted share grants up to 100% of cumulative opportunity. The shares allocated under the MYP will fully accelerate in vesting upon a change of control of the Company.

In July 2006, the Company entered into an agreement with a third-party advisor to assist the Company with bank use real estate acquisition sourcing activities. In connection with entering into this agreement, the Company issued the advisor an unvested warrant to purchase 100,000 common shares of beneficial interest. Provided the agreement is still in effect, on each of first, second, third and fourth anniversary of this sourcing agreement, the Company will grant the advisor additional unvested warrants to purchase 100,000 common shares of beneficial interest. The purchase price of each warrant is equal to the closing common share price of the Company on the date of the respective grant. The advisor will earn, or vest in, each warrant if they successfully source acquisition transactions, as defined within the agreement, equal to $100,000. The right to vest in each warrant is cumulative; however, no warrant will be issued in advance of an anniversary date. The advisor must source and the Company must close transactions equal to $500,000 to vest all of the warrants. The Company will recognize this cost, to the extent the warrants are earned, and capitalize such cost as a component of the acquired properties. A fair value pricing model, such as Black-Scholes, will be utilized to value the warrant when earned. As of December 31, 2007, no warrants have been earned.

(9) 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, 2007, 2006 and 2005:


	Basic and Diluted
	Year Ended December 31,
	2007			2006			2005
Loss from continuing operations	$	(81,902	)	$	(131,487	)	$	(79,932	)
Less: Dividends on unvested restricted share awards		1,087			1,034			1,396

Loss from continuing operations	$	(82,989	)	$	(132,521	)	$	(81,328	)

Income (loss) from discontinued operations	$	32,391		$	110,889		$	(13,683	)

Weighted average common shares and common share equivalents outstanding		128,414,738			128,644,625			121,171,897

Loss per share from continuing operations	$	(0.65	)	$	(1.03	)	$	(0.67	)

Income (loss) per share from discontinued operations	$	0.26		$	0.86		$	(0.11	)

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Diluted net income (loss) per share assumes the conversion of all common share equivalents into an equivalent number of common shares, unless the effect is not dilutive. The Company considers share options, unvested restricted shares, and Operating Partnership units to be common share equivalents. These were excluded from the diluted loss per share computations as their effect would have been antidilutive for the years ended December 31, 2007, 2006 and 2005:


	Year Ended December 31,
	2007		2006		2005
Share options		—		191,267		574,296
Unvested restricted shares(1)		420,949		228,480		500,859
Operating Partnership units		1,888,341		3,160,026		3,408,526

Total shares excluded from diluted loss per share		2,309,290		3,579,773		4,483,681


(1)		Includes shares that are contingently issuable under the OPP during the year ended December 31, 2005.

(10) Accumulated Other Comprehensive Loss

The following table reflects components of accumulated other comprehensive loss for the years ended December 31, 2007, 2006 and 2005:


	Unrealized Gains			Interest Rate			Accumulated
	(Losses) on			Hedges on			Other
	Available for			Mortgage			Comprehensive
	Sale Securities			Notes Payable			Loss
Balance, January 1, 2005	$	(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	)
Reclassification adjustments into statements of operations		—			2,331			2,331
Minority interest		—			(108	)		(108	)

Balance, December 31, 2006		—			(4,398	)		(4,398	)
Reclassification adjustments into statements of operations		—			(2,705	)		(2,705	)
Minority interest		—			24			24

Balance, December 31, 2007	$	—		$	(7,079	)	$	(7,079	)

(11) 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, 2007 are classified as such in the consolidated statement of operations for all periods presented for purposes of comparability.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2007, the Company sold 128 properties and one sub-parcel in separate transactions for net sales proceeds of $326,059. The sales transactions resulted in a net gain of approximately $69,262, after minority interest of $905 for the year ended December 31, 2007, which was reported in discontinued operations.

During the year ended December 31, 2006, the Company sold 128 properties in separate transactions for net sales proceeds of $1,413,247. The sales transactions resulted in a net gain of approximately $237,556, after minority interest of $74,046 for the year ended December 31, 2006, which was reported in discontinued operations

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.

In accordance with the provisions of SFAS No. 144, the Company had classified 131 and 237 properties as held for sale as of December 31, 2007 and 2006, respectively. The following table summarizes information for these properties:


	December 31,
	2007			2006
Assets held for sale:
Real estate investments, at cost:
Land	$	53,885		$	84,226
Buildings		251,828			388,228
Equipment and fixtures		48,275			68,760

Total real estate investments, at cost		353,988			541,214
Less accumulated depreciation		(51,768	)		(41,181	)

		302,220			500,033
Intangible assets, net		40,461			76,600
Other assets, net		16,613			18,148

Total assets held for sale		359,294			594,781
Liabilities related to assets held for sale:
Mortgage notes payable		82,036			221,268
Credit facility		35,000			—
Accrued expenses		7,027			14,519
Below-market lease liabilities, net		10,980			6,413
Deferred revenue		7,364			5,191
Tenant security deposits		495			407

Total liabilities related to assets held for sale		142,902			247,798

Net assets held for sale	$	216,392		$	346,983

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following operating results of the properties held for sale as of December 31, 2007, 2006 and 2005 and the properties sold during the years ended December 31, 2007, 2006 and 2005 are included in discontinued operations for all periods presented:


	Year Ended December 31,
	2007			2006			2005
Operating results:
Revenues	$	77,528		$	193,883		$	209,453
Operating expenses		59,531			98,228			106,210
Impairment loss		34,648			52,523			3,441
Interest expense		11,874			63,736			62,373
Depreciation		14,745			61,459			73,610

Loss from operations before minority interest		(43,270	)		(82,063	)		(36,181	)
Minority interest		529			1,805			2,871

Loss from operations, net		(42,741	)		(80,258	)		(33,310	)
Yield maintenance fees		5,954			(61,973	)		(583	)
Minority interest		(84	)		15,564			16

Yield maintenance fees, net		5,870			(46,409	)		(567	)
Gain on disposals		70,167			311,602			20,756
Minority interest		(905	)		(74,046	)		(562	)

Gain on disposals, net		69,262			237,556			20,194

Income (loss) from discontinued operations	$	32,391		$	110,889		$	(13,683	)

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

(12) Leasing Agreements

The Company’s properties are leased and subleased to tenants under operating leases with expiration dates extending to the year 2031. These leases generally contain rent increases and renewal options. Future minimum rental payments under non-cancelable leases, excluding reimbursements for operating expenses, as of December 31, 2007 are as follows:


2008	$	304,006
2009		296,140
2010		281,021
2011		220,025
2012		200,866
2013 and thereafter		1,601,721

Total	$	2,903,779

As of December 31, 2007, 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.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum lease payments under non-cancelable operating leases as of December 31, 2007 are as follows:


2008	$	18,137
2009		18,240
2010		17,909
2011		17,765
2012		17,495
2013 and thereafter		169,301

Total	$	258,847

(13) Repositioning

On August 17, 2006, the Company announced the appointment of a new President and Chief Executive Officer as well as strategic and organizational initiatives designed to reposition the Company, reduce costs and improve performance. As a result of this initiative the Company incurred severance and stock compensation costs, leasehold termination costs and professional fees as follows:


											As of December 31,
	Charges During the								Accrued		2006
	Year Ended					Amortization			Repositioning as		Total Costs &		Total Expected
	December 31,					and Other			of December 31,		Adjustments to		Costs &
	2006		Cash Payments			Adjustments			2006		Date		Adjustments
Cash severance	$	17,573	$	(17,205	)	$	—		$	368	$	17,573	$	17,573
Stock compensation		4,344		—			(4,344	)		—		4,344		4,344
Lease termination costs		2,675		(499	)		(56	)		2,120		2,675		2,675
Professional and other fees		6,390		(5,928	)		(75	)		387		6,390		6,390

	$	30,982	$	(23,632	)	$	(4,475	)	$	2,875	$	30,982	$	30,982

All costs accrued as part of the repositioning plan at December 31, 2006 were subsequently paid in 2007. Accordingly, there are no accruals at December 31, 2007 for repositioning costs.

(14) 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 our founder and a trust controlled by his spouse. They 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.

Until August 2006, the Company leased space in two office buildings from real estate partnerships controlled by the Company’s founder and his spouse. Total rent payments under these office leases were approximately $117, $165, and $156 for the years ended December 31, 2006, 2005 and 2004, respectively, and are included within marketing, general and administrative expenses in the accompanying consolidated statements of operations. On August 17, 2006 in connection with the separation of our founder, the Company terminated its leasehold obligations in both buildings for an aggregate amount of $407. These termination fees are included within repositioning costs for the year ended December 31, 2006.

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 $255, $248, $241 for the years ended December 31, 2007, 2006 and 2005, respectively.

In January 2007, the Company entered into a lease agreement with a public company which employs a former member of our board of trustees as one of its executive officers. Annual rent due under this lease is approximately $1,300 on an annualized basis over the five-year term. The Company believes it has negotiated the terms of this lease at arms-length. Rental income recognized under this lease was approximately $857 for the year ended December 31, 2007.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(15) 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 lease with the ultimate owner terminates. In exchange for the agreements described above, Schwab paid the Company a sublease management and standby subtenant fee of approximately $11,541. Additionally, Schwab provided a rent credit against the Company’s initial sublease obligations, payable through December 31, 2007, totaling approximately $40,028. 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, 2007, the standby letter of credit had a face amount of $51,569.

As of December 31, 2007, we had approximately $54,708 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 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, 2007 and 2006, total deposits of $154 and $299, 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, 2007 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.

AMERICAN FINANCIAL REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(16) 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, 2007:	1^st Quarter			2^nd Quarter		3^rd Quarter			4^th Quarter
Total revenues	$	101,191		$	100,002	$	101,914		$	92,432
Net (loss) income	$	(17,913	)	$	14,138	$	(22,782	)	$	(22,954	)
(Loss) income allocated to common shares	$	(17,913	)	$	14,138	$	(22,782	)	$	(22,954	)
Basic and diluted (loss) income per share	$	(0.14	)	$	0.11	$	(0.18	)	$	(0.18	)


Year Ended December 31, 2006:	1^st Quarter			2^nd Quarter		3^rd Quarter			4^th Quarter
Total revenues	$	139,611		$	141,679	$	123,496		$	108,939
Net (loss) income	$	(23,408	)	$	13,457	$	(56,183	)	$	45,536
(Loss) income allocated to common shares	$	(23,408	)	$	13,457	$	(56,183	)	$	45,536
Basic and diluted (loss) income	$	(0.19	)	$	0.10	$	(0.44	)	$	0.35

(17) Subsequent Event

On January 7, 2008, the Company and Gramercy filed a joint proxy statement with the Securities and Exchange Commission describing the merger agreement and also includes the Merger Agreement in its entirety. On February 13, 2008, the shareholders of the Company approved the Merger Agreement with Gramercy. The Company and Gramercy expect the merger to be consummated by the end of the first quarter of 2008.

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Abington	PA		8/19/1998	$	—		$	82	$	494	$	52		$	84	$	544	$	628	$	(171	)		35
Avondale	PA		8/20/1998		—			99		515		8			101		521		622		(141	)		37
Berkeley Height	NJ		8/20/1998		546			84		386		15			85		400		485		(103	)		37
Cambelltown	PA		8/20/1998		—			40		185		8			41		192		233		(51	)		36
Cherry Hill	NJ		8/20/1998		—			72		337		11			73		347		420		(84	)		37
Edison Twp.	NJ		8/20/1998		653			104		473		19			106		490		596		(124	)		37
Emmaus	PA		8/20/1998		739			111		492		18			113		508		621		(121	)		37
Feasterville	PA		8/20/1998		970			125		566		10			126		575		701		(113	)		39
Hamilton Square	NJ		8/20/1998		(i	)		113		490		24			116		511		627		(129	)		37
Highland Park	NJ		8/20/1998		455			67		347		10			68		356		424		(81	)		38
Hightstown	NJ		8/20/1998		—			78		346		11			80		355		435		(82	)		38
Kendall Park	NJ		8/20/1998		—			64		288		5			64		293		357		(61	)		38
Kenilworth	NJ		8/20/1998		447			60		267		8			61		274		335		(66	)		38
Kennett Square	PA		8/20/1998		1			174		728		30			175		757		932		(151	)		39
Lawrenceville	NJ		8/20/1998		—			113		518		17			115		533		648		(126	)		37
Linden	NJ		8/20/1998		1			135		563		9			136		571		707		(112	)		39
Linden	NJ		8/20/1998		—			147		606		33			148		638		786		(137	)		39
Manasquan	NJ		8/20/1998		—			83		377		9			84		385		469		(83	)		38
Millburn	NJ		8/20/1998		911			127		572		19			129		589		718		(139	)		37
Moosic	PA		8/20/1998		—			36		148		4			36		152		188		(34	)		38
North Plainfiel	NJ		8/20/1998		(g	)		26		130		6			27		135		162		(36	)		36
Phoenixville	PA		8/20/1998		—			133		547		(2	)		134		544		678		(93	)		39
Point Pleasant	NJ		8/20/1998		—			78		388		11			80		397		477		(89	)		38
Pottstown	PA		8/20/1998		—			32		135		4			33		138		171		(28	)		39
Runnemede	NJ		8/20/1998		—			20		110		7			20		117		137		(45	)		31
Scotch Plains	NJ		8/20/1998		625			86		380		10			87		389		476		(82	)		38
Somerdale	NJ		8/20/1998		—			49		220		5			49		225		274		(50	)		38
South Plainfiel	NJ		8/20/1998		558			80		357		11			81		367		448		(85	)		38
Spring Lake	NJ		8/20/1998		—			56		304		9			57		312		369		(71	)		38
Ventnor	NJ		8/20/1998		—			55		261		9			56		269		325		(67	)		37
Warminster	PA		8/20/1998		739			111		530		13			112		542		654		(118	)		38
West Chester	PA		1/28/1999		—			374		3,569		24			374		3,593		3,967		(1,057	)		37
Upper Dublin	PA		6/17/1999		—			352		956		—			352		956		1,308		(375	)		32
Collingswood	NJ		8/6/1999		—			52		272		—			52		272		324		(93	)		34
Pennington	NJ		8/6/1999		—			92		531		37			92		568		660		(216	)		34

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Philadelphia	PA		8/6/1999		—			70		333		—			70		333		403		(86	)		37
Boyertown	PA		12/14/1999		—			57		300		—			57		300		357		(100	)		34
Jenkintown	PA		7/11/2000		14,499			2,357		19,654		8,369			2,314		28,066		30,380		(9,480	)		34
Bensalem	PA		9/20/2000		—			76		409		—			76		409		485		(129	)		35
Charleston	SC		12/29/2000		9,315			1,425		11,981		1,905			1,425		13,886		15,311		(4,099	)		33
Aurora	MO		2/28/2002		—			77		419		—			77		419		496		(132	)		34
Cary	NC		12/10/2002		1,319			185		1,051		—			185		1,051		1,236		(221	)		35
Charlotte	NC		12/10/2002		1,206			214		1,212		—			214		1,212		1,426		(255	)		35
Charlotte	NC		12/10/2002		1,050			97		548		—			97		548		645		(116	)		35
Cornelius	NC		12/10/2002		—			187		1,061		—			187		1,061		1,248		(224	)		35
Dalton	GA		12/10/2002		—			143		813		—			143		813		956		(171	)		35
Hickory	NC		12/10/2002		—			102		578		—			102		578		680		(122	)		35
Hilton Head	SC		12/10/2002		3,016			311		1,760		—			311		1,760		2,071		(371	)		35
Hilton Head	SC		12/10/2002		2,046			252		1,430		20			252		1,450		1,702		(303	)		35
Huntersville	NC		12/10/2002		—			158		893		—			158		893		1,051		(188	)		35
Raleigh	NC		12/10/2002		1,392			170		961		—			170		961		1,131		(202	)		35
Rock Hill	SC		12/10/2002		(g	)		97		549		—			97		549		646		(116	)		35
Nassau Bay	FL		12/16/2002		2,313			404		2,277		86			404		2,363		2,767		(494	)		35
Port St. Lucie	FL		12/16/2002		—			774		4,388		1,313			773		5,702		6,475		(1,428	)		35
Reno	NV		12/16/2002		1,557			779		4,440		1			779		4,441		5,220		(966	)		35
Arlington	VA		1/9/2003		(a	)		370		2,484		(3	)		370		2,481		2,851		(533	)		35
Baltimore	MD		1/9/2003		(a	)		3,030		23,279		(26	)		3,026		23,257		26,283		(5,053	)		35
Baltimore	MD		1/9/2003		(a	)		8,550		55,550		2,227			8,540		57,787		66,327		(12,135	)		35
College Park	GA		1/9/2003		(a	)		2,182		14,237		(69	)		2,127		14,223		16,350		(3,042	)		35
Columbia	SC		1/9/2003		(a	)		517		3,508		(3	)		517		3,505		4,022		(754	)		35
Greensboro	NC		1/9/2003		(a	)		3,585		21,688		(25	)		3,581		21,667		25,248		(4,572	)		35
Norfolk	VA		1/9/2003		(a	)		3,624		24,023		(28	)		3,620		23,999		27,619		(5,146	)		35
Norfolk	VA		1/9/2003		(a	)		3,316		22,990		1,612			3,313		24,605		27,918		(5,342	)		35
Richmond	VA		1/9/2003		(a	)		5,505		34,061		(40	)		5,499		34,027		39,526		(7,210	)		35
Richmond	VA		1/9/2003		(a	)		7,054		46,626		5,882			7,046		52,516		59,562		(10,532	)		35
Silver Springs	MD		1/9/2003		(a	)		331		2,154		437			331		2,591		2,922		(537	)		35
Tucker	GA		1/9/2003		(a	)		2,310		15,118		(18	)		2,307		15,103		17,410		(3,226	)		35
Washington	DC		1/9/2003		(a	)		3,913		25,082		(29	)		3,909		25,057		28,966		(5,326	)		35
Clemmons	NC		2/5/2003		1,247			172		974		(56	)		116		974		1,090		(199	)		35
Clover	SC		2/5/2003		—			51		291		—			51		291		342		(60	)		35

100

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Pembroke Pines	FL		2/19/2003		1,468			124		705		—			124		705		829		(142	)		35
Plantation	FL		2/19/2003		—			139		789		—			139		789		928		(159	)		35
Winter Park	FL		2/19/2003		1,067			126		714		—			126		714		840		(144	)		35
Winter Park	FL		2/19/2003		725			127		718		—			127		718		845		(145	)		35
Advance	NC		3/31/2003		(g	)		40		242		—			40		242		282		(53	)		35
Atlanta	GA		3/31/2003		2,326			369		2,160		(1	)		369		2,159		2,528		(430	)		35
Atlanta	GA		3/31/2003		670			88		522		(1	)		88		521		609		(104	)		35
Augusta	GA		3/31/2003		1,306			162		957		(40	)		123		956		1,079		(191	)		35
Augusta	GA		3/31/2003		1,141			165		969		(1	)		165		968		1,133		(193	)		35
Blowing Rock	NC		3/31/2003		(g	)		45		265		(1	)		45		264		309		(57	)		35
Boca Raron	FL		3/31/2003		784			105		618		(1	)		105		617		722		(123	)		35
Breman	GA		3/31/2003		—			54		349		2			54		351		405		(89	)		35
Brevard	NC		3/31/2003		(g	)		137		804		(1	)		137		803		940		(171	)		35
Callahan	FL		3/31/2003		(g	)		183		1,084		(1	)		183		1,083		1,266		(235	)		35
Canton	NC		3/31/2003		—			15		103		1			15		104		119		(28	)		35
Cary	NC		3/31/2003		(g	)		43		256		—			43		256		299		(55	)		35
Charlotte	NC		3/31/2003		(g	)		67		399		(1	)		67		398		465		(86	)		35
Charlotte	NC		3/31/2003		458			62		365		(1	)		61		365		426		(73	)		35
China Grove	NC		3/31/2003		(g	)		96		567		(1	)		96		566		662		(122	)		35
Clearwater	FL		3/31/2003		(g	)		217		1,285		(1	)		217		1,284		1,501		(276	)		35
Clemmons	NC		3/31/2003		510			77		457		(1	)		77		456		533		(91	)		35
Conover	NC		3/31/2003		(g	)		79		472		—			79		472		551		(103	)		35
Davie	FL		3/31/2003		(g	)		145		856		(1	)		145		855		1,000		(183	)		35
Daytona Beach	FL		3/31/2003		(g	)		174		1,029		(1	)		174		1,028		1,202		(223	)		35
Eustis	FL		3/31/2003		(g	)		316		1,871		(2	)		316		1,869		2,185		(404	)		35
Fayetteville	FL		3/31/2003		(g	)		273		1,663		(3	)		273		1,660		1,933		(380	)		35
Forest City	NC		3/31/2003		(g	)		180		1,060		(1	)		180		1,059		1,239		(227	)		35
Ft. Lauderdale	FL		3/31/2003		(g	)		310		1,837		(1	)		310		1,836		2,146		(395	)		35
Goldsboro	NC		3/31/2003		—			30		191		2			30		193		223		(47	)		35
Green Cove	FL		3/31/2003		(g	)		188		1,121		(2	)		187		1,120		1,307		(247	)		35
Greensboro	NC		3/31/2003		—			128		741		2			128		743		871		(155	)		35
Hapeville	GA		3/31/2003		1,897			229		1,357		(1	)		229		1,356		1,585		(271	)		35
Harrisburg	NC		3/31/2003		(g	)		67		400		(1	)		67		399		466		(87	)		35
HIckory	NC		3/31/2003		653			90		534		(1	)		90		533		623		(107	)		35
Jacksonville	FL		3/31/2003		(g	)		1,620		9,777		(9	)		1,618		9,770		11,388		(2,199	)		35

101

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Jacksonville	FL		3/31/2003		(g	)		374		2,280		(5	)		373		2,276		2,649		(523	)		35
Jacksonville	FL		3/31/2003		2,604			366		2,149		(1	)		366		2,148		2,514		(428	)		35
Jacksonville	FL		3/31/2003		(g	)		152		884		(1	)		151		884		1,035		(186	)		35
Jacksonville	FL		3/31/2003		621			88		520		(1	)		88		519		607		(103	)		35
Jacksonville	FL		3/31/2003		1,931			282		1,654		(1	)		282		1,653		1,935		(329	)		35
Jefferson	NC		3/31/2003		—			20		136		2			20		138		158		(38	)		35
Kannapolis	NC		3/31/2003		(g	)		75		443		(1	)		75		442		517		(95	)		35
King	NC		3/31/2003		545			78		462		—			78		462		540		(92	)		35
Knightdale	NC		3/31/2003		(g	)		27		157		3			27		160		187		(35	)		35
Lakeland	FL		3/31/2003		519			63		372		—			63		372		435		(74	)		35
Lantana	FL		3/31/2003		1,050			137		804		(2	)		136		803		939		(160	)		35
Largo	FL		3/31/2003		(g	)		44		257		(1	)		43		257		300		(56	)		35
Lexington	NC		3/31/2003		(g	)		354		2,087		(2	)		354		2,085		2,439		(449	)		35
Mabletown	GA		3/31/2003		(g	)		342		2,098		(5	)		341		2,094		2,435		(485	)		35
Macon	GA		3/31/2003		1,512			144		911		—			144		911		1,055		(222	)		35
Marietta	GA		3/31/2003		(g	)		71		416		(2	)		70		415		485		(89	)		35
Marietta	GA		3/31/2003		(g	)		105		620		(1	)		105		619		724		(134	)		35
Marion	NC		3/31/2003		836			113		668		(1	)		112		668		780		(133	)		35
Martinez	GA		3/31/2003		(g	)		198		1,158		(1	)		198		1,157		1,355		(245	)		35
Morganton	NC		3/31/2003		1,823			204		1,259		70			204		1,329		1,533		(309	)		35
New Port Richey	FL		3/31/2003		514			67		393		—			67		393		460		(78	)		35
Newnan	NC		3/31/2003		(g	)		507		2,965		(5	)		506		2,961		3,467		(627	)		35
Newton	NC		3/31/2003		(g	)		148		867		(1	)		148		866		1,014		(185	)		35
Norcross	GA		3/31/2003		(g	)		260		1,517		(2	)		259		1,516		1,775		(321	)		35
Norcross	GA		3/31/2003		(g	)		150		889		(1	)		150		888		1,038		(193	)		35
Norcross	GA		3/31/2003		(g	)		78		462		—			78		462		540		(100	)		35
North Port	FL		3/31/2003		(g	)		203		1,195		(2	)		202		1,194		1,396		(257	)		35
North Wilkesboro	NC		3/31/2003		(g	)		1,968		11,947		(18	)		1,965		11,932		13,897		(2,714	)		35
Orlando	FL		3/31/2003		(g	)		135		798		—			135		798		933		(173	)		35
Palatka	FL		3/31/2003		3,024			124		805		226			124		1,031		1,155		(239	)		35
Rockingham	NC		3/31/2003		—			78		473		2			78		475		553		(108	)		35
Rockledge	FL		3/31/2003		622			79		469		(1	)		79		468		547		(93	)		35
Rocky Mount	NC		3/31/2003		(g	)		141		855		—			141		855		996		(194	)		35
Rome	GA		3/31/2003		(g	)		394		2,455		(4	)		394		2,451		2,845		(583	)		35
Rome	GA		3/31/2003		—			34		202		3			34		205		239		(46	)		35

102

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Roswell	GA		3/31/2003		—			116		679		2			116		681		797		(145	)		35
Roxboro	NC		3/31/2003		1,277			171		1,016		(1	)		171		1,015		1,186		(203	)		35
Savannah	GA		3/31/2003		703			92		544		(1	)		92		543		635		(108	)		35
Savannah	GA		3/31/2003		—			26		156		2			26		158		184		(37	)		35
Sparta	NC		3/31/2003		—			17		116		2			17		118		135		(33	)		35
St. Petersburg	FL		3/31/2003		(g	)		68		398		(2	)		67		397		464		(85	)		35
Tampa	FL		3/31/2003		(g	)		600		3,599		(6	)		599		3,594		4,193		(799	)		35
Valdese	NC		3/31/2003		1,073			154		915		(1	)		154		914		1,068		(182	)		35
Vidalia	GA		3/31/2003		—			117		736		1			117		737		854		(178	)		35
Waynesboro	GA		3/31/2003		—			36		274		2			36		276		312		(86	)		35
Waynesville	NC		3/31/2003		884			106		636		(1	)		106		635		741		(127	)		35
West Jefferson	NC		3/31/2003		—			30		188		2			30		190		220		(45	)		35
Wilkesboro	NC		3/31/2003		564			73		437		—			73		437		510		(87	)		35
Apex	NC		4/15/2003		(g	)		32		166		—			32		166		198		(38	)		35
Graham	NC		4/15/2003		(g	)		140		724		—			140		724		864		(166	)		35
Havelock	NC		4/15/2003		(g	)		37		193		—			37		193		230		(44	)		35
Morehead City	NC		4/15/2003		(g	)		86		446		—			86		446		532		(101	)		35
New Bern	NC		4/15/2003		(g	)		170		877		—			170		877		1,047		(201	)		35
Plymouth	NC		4/15/2003		(g	)		126		653		—			126		653		779		(149	)		35
Wilson	NC		4/15/2003		(g	)		915		4,726		—			915		4,726		5,641		(1,131	)		35
Wilson	NC		4/15/2003		(g	)		409		2,113		—			409		2,113		2,522		(483	)		35
Wilson	NC		4/15/2003		(g	)		1,218		6,285		481			1,698		6,286		7,984		(1,437	)		35
Cayce	SC		5/8/2003		—			52		296		—			52		296		348		(57	)		35
Harrisonburg	VA		6/6/2003		(g	)		128		725		—			128		725		853		(138	)		35
Wilmington	NC		6/6/2003		—			132		748		—			132		748		880		(143	)		35
Aberdeen	WA		6/30/2003		(b	)		145		820		1			145		821		966		(154	)		35
Aiken	SC		6/30/2003		(b	)		241		1,381		—			241		1,381		1,622		(257	)		35
Albuquerque	NM		6/30/2003		(b	)		534		3,059		291			534		3,350		3,884		(570	)		35
Annapolis	MD		6/30/2003		(b	)		570		3,267		43			575		3,305		3,880		(616	)		35
Auburn	CA		6/30/2003		(b	)		283		1,623		256			283		1,879		2,162		(433	)		35
Bakersfield	CA		6/30/2003		(b	)		220		1,249		(1	)		220		1,248		1,468		(234	)		35
Bakersfield	CA		6/30/2003		(b	)		205		1,160		3			205		1,163		1,368		(217	)		35
Baltimore	MD		6/30/2003		(b	)		128		727		88			128		815		943		(136	)		35
Bellingham	WA		6/30/2003		(b	)		443		2,537		(1	)		443		2,536		2,979		(473	)		35
Bremerton	WA		6/30/2003		(b	)		238		1,363		—			238		1,363		1,601		(254	)		35

103

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Carrollton	TX		6/30/2003		(b	)		166		939		—			166		939		1,105		(176	)		35
Charlotte	NC		6/30/2003		(b	)		4,100		48,997		1,707			4,122		50,682		54,804		(9,907	)		36
Chicago	IL		6/30/2003		(b	)		14,189		88,621		3,700			14,183		92,327		106,510		(16,981	)		35
Clearwater	FL		6/30/2003		(b	)		270		1,544		45			269		1,590		1,859		(300	)		35
Clermont	FL		6/30/2003		(b	)		56		316		151			56		467		523		(111	)		35
Columbia	MO		6/30/2003		(b	)		232		1,327		53			232		1,380		1,612		(270	)		35
Compton	CA		6/30/2003		(b	)		127		720		—			127		720		847		(135	)		35
Coronado	CA		6/30/2003		(b	)		611		3,500		65			612		3,564		4,176		(668	)		35
Deland	FL		6/30/2003		—			581		3,328		230			581		3,558		4,139		(734	)		35
El Segundo	CA		6/30/2003		(b	)		247		1,416		40			247		1,456		1,703		(277	)		35
Escondido	CA		6/30/2003		(b	)		346		1,982		9			346		1,991		2,337		(371	)		35
Florissant	MO		6/30/2003		(b	)		189		1,073		111			194		1,179		1,373		(253	)		35
Fresno	CA		6/30/2003		(b	)		324		1,855		(1	)		324		1,854		2,178		(346	)		35
Fresno	CA		6/30/2003		(b	)		214		1,215		1			212		1,218		1,430		(229	)		35
Fresno	CA		6/30/2003		(b	)		180		1,020		11			180		1,031		1,211		(194	)		35
Gardena	CA		6/30/2003		(b	)		794		4,500		(1	)		794		4,499		5,293		(843	)		35
Glendale	CA		6/30/2003		(b	)		939		5,384		219			939		5,603		6,542		(1,003	)		35
Hallandale	FL		6/30/2003		(b	)		570		3,264		657			570		3,921		4,491		(734	)		35
Hampton	VA		6/30/2003		(b	)		149		868		24			149		892		1,041		(187	)		35
Hialeah	FL		6/30/2003		(b	)		159		903		45			159		948		1,107		(178	)		35
Houston	TX		6/30/2003		(b	)		534		3,057		16			546		3,061		3,607		(570	)		35
Independence	KS		6/30/2003		(b	)		131		741		15			131		756		887		(145	)		35
Independence	MO		6/30/2003		(b	)		187		1,063		76			187		1,139		1,326		(205	)		35
Inglewood	CA		6/30/2003		(b	)		418		2,396		104			418		2,500		2,918		(453	)		35
Jacksonville	FL		6/30/2003		(b	)		173		982		(1	)		173		981		1,154		(184	)		35
Jacksonville	FL		6/30/2003		(b	)		1,957		11,211		11			1,957		11,222		13,179		(2,092	)		35
Jacksonville	FL		6/30/2003		(b	)		1		4		11			1		15		16		(1	)		35
Jacksonville	FL		6/30/2003		(b	)		2,067		11,840		376			2,066		12,217		14,283		(2,236	)		35
Jacksonville	FL		6/30/2003		(b	)		3,052		17,486		475			3,052		17,961		21,013		(3,289	)		35
Jacksonville	FL		6/30/2003		(b	)		2,051		11,749		490			2,051		12,239		14,290		(2,189	)		35
Jacksonville	FL		6/30/2003		(b	)		2,020		11,569		860			2,019		12,430		14,449		(2,240	)		35
Jacksonville	FL		6/30/2003		(b	)		3,893		22,317		1,064			3,892		23,382		27,274		(4,196	)		35
Jacksonville	FL		6/30/2003		(b	)		409		2,341		1,346			409		3,687		4,096		(608	)		35
Jacksonville	FL		6/30/2003		(b	)		401		2,320		1,376			401		3,696		4,097		(608	)		35
Jacksonville	FL		6/30/2003		(b	)		5,103		29,228		3,204			5,101		32,434		37,535		(5,576	)		35

104

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Lexington	MO		6/30/2003		(b	)		68		385		9			68		394		462		(78	)		35
LighthousePoint	FL		6/30/2003		(b	)		363		2,104		109			363		2,213		2,576		(406	)		35
Long Beach	CA		6/30/2003		(b	)		173		983		—			173		983		1,156		(184	)		35
Long Beach	CA		6/30/2003		(b	)		142		806		—			142		806		948		(151	)		35
Long Beach	CA		6/30/2003		(b	)		814		4,663		17			814		4,680		5,494		(876	)		35
Los Angeles	CA		6/30/2003		(b	)		110		622		(1	)		110		621		731		(116	)		35
Los Angeles	CA		6/30/2003		(b	)		174		985		152			174		1,137		1,311		(185	)		35
Lynwood	CA		6/30/2003		(b	)		159		904		(1	)		159		903		1,062		(169	)		35
Merced	CA		6/30/2003		—			470		2,693		—			470		2,693		3,163		(502	)		35
Mesa	AZ		6/30/2003		(b	)		283		1,621		(1	)		283		1,620		1,903		(302	)		35
Miami Lakes	FL		6/30/2003		(b	)		2,190		12,546		114			2,190		12,660		14,850		(2,388	)		35
Mission	TX		6/30/2003		(b	)		113		642		(1	)		113		641		754		(120	)		35
Mission Hills	CA		6/30/2003		(b	)		205		1,179		—			205		1,179		1,384		(236	)		35
Murfreesboro	TN		6/30/2003		(b	)		189		1,073		180			189		1,253		1,442		(260	)		35
Muskogee	OK		6/30/2003		(b	)		212		1,204		52			212		1,256		1,468		(251	)		35
Newport Beach	CA		6/30/2003		(b	)		439		2,517		(2	)		439		2,515		2,954		(469	)		35
North Hollywood	CA		6/30/2003		(b	)		367		2,105		(2	)		367		2,103		2,470		(392	)		35
North Kansas City	MO		6/30/2003		(b	)		328		1,881		278			328		2,159		2,487		(401	)		35
Ocala	FL		6/30/2003		(b	)		299		1,715		374			299		2,089		2,388		(343	)		35
Ontario	CA		6/30/2003		(b	)		721		4,127		(1	)		720		4,127		4,847		(769	)		35
Overland Park	KS		6/30/2003		(b	)		244		1,395		168			244		1,563		1,807		(260	)		35
Palmdale	CA		6/30/2003		(b	)		158		895		14			158		909		1,067		(172	)		35
Pasadena	CA		6/30/2003		(b	)		689		3,950		33			689		3,983		4,672		(753	)		35
Pensacola	FL		6/30/2003		(b	)		323		1,851		365			323		2,216		2,539		(382	)		35
Phoenix	AZ		6/30/2003		(b	)		96		542		1			96		543		639		(102	)		35
Phoenix	AZ		6/30/2003		(b	)		2,020		11,572		13			2,020		11,585		13,605		(2,157	)		35
Phoenix	AZ		6/30/2003		(b	)		972		5,566		15			971		5,582		6,553		(1,037	)		35
Phoenix	AZ		6/30/2003		(b	)		970		5,556		16			970		5,572		6,542		(1,035	)		35
Phoenix	AZ		6/30/2003		(b	)		892		5,152		69			904		5,209		6,113		(979	)		35
Phoenix	AZ		6/30/2003		(b	)		2,123		12,163		1,008			2,122		13,172		15,294		(2,379	)		35
Pomona	CA		6/30/2003		(b	)		471		2,699		41			471		2,740		3,211		(517	)		35
Port Charlotte	FL		6/30/2003		(b	)		198		1,125		108			198		1,233		1,431		(224	)		35
Red Bluff	CA		6/30/2003		(b	)		330		1,888		224			330		2,112		2,442		(408	)		35
Redding	CA		6/30/2003		(b	)		548		3,142		70			548		3,212		3,760		(589	)		35
Richland	MO		6/30/2003		(b	)		106		602		24			106		626		732		(115	)		35

105

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Richland	WA		6/30/2003		(b	)		372		2,131		40			372		2,171		2,543		(397	)		35
Riverside	CA		6/30/2003		(b	)		611		3,500		150			611		3,650		4,261		(652	)		35
Rolla	MO		6/30/2003		(b	)		86		487		—			86		487		573		(91	)		35
Sacramento	CA		6/30/2003		(b	)		220		1,250		(1	)		220		1,249		1,469		(234	)		35
Sacramento	CA		6/30/2003		(b	)		174		984		—			174		984		1,158		(184	)		35
Salinas	CA		6/30/2003		(b	)		330		1,888		—			330		1,888		2,218		(352	)		35
San Antonio	TX		6/30/2003		(b	)		1,068		6,115		61			1,067		6,177		7,244		(1,157	)		35
San Bernadino	CA		6/30/2003		(b	)		345		1,979		150			345		2,129		2,474		(400	)		35
Santa Barbara	CA		6/30/2003		(b	)		1,408		8,069		86			1,408		8,155		9,563		(1,518	)		35
Santa Maria	CA		6/30/2003		(b	)		334		1,916		281			334		2,197		2,531		(373	)		35
Savannah	GA		6/30/2003		(b	)		386		2,210		—			386		2,210		2,596		(412	)		35
Seattle	WA		6/30/2003		(b	)		333		1,905		(1	)		332		1,905		2,237		(355	)		35
Spokane	WA		6/30/2003		(b	)		1,499		8,584		(3	)		1,498		8,582		10,080		(1,600	)		35
Springfield	MO		6/30/2003		(b	)		283		1,620		—			283		1,620		1,903		(302	)		35
Springfield	MO		6/30/2003		(b	)		138		779		28			138		807		945		(147	)		35
St. Louis	MO		6/30/2003		(b	)		217		1,244		33			217		1,277		1,494		(251	)		35
St. Louis	MO		6/30/2003		(b	)		221		1,250		857			221		2,107		2,328		(298	)		35
Stockton	CA		6/30/2003		(b	)		587		3,364		3			587		3,367		3,954		(628	)		35
Stuart	FL		6/30/2003		(b	)		485		2,783		208			485		2,991		3,476		(541	)		35
Sunnyvale	CA		6/30/2003		(b	)		627		3,590		(3	)		626		3,588		4,214		(669	)		35
Tampa	FL		6/30/2003		(b	)		1,189		7,401		(253	)		1,188		7,149		8,337		(1,343	)		35
Tampa	FL		6/30/2003		(b	)		426		2,442		—			426		2,442		2,868		(455	)		35
Torrance	CA		6/30/2003		(b	)		222		1,258		10			222		1,268		1,490		(240	)		35
Tulsa	OK		6/30/2003		(b	)		142		807		54			142		861		1,003		(164	)		35
Valdosta	GA		6/30/2003		(b	)		259		1,487		653			259		2,140		2,399		(321	)		35
Ventura	CA		6/30/2003		(b	)		355		2,032		—			355		2,032		2,387		(379	)		35
Walla Walla	WA		6/30/2003		(b	)		206		1,169		260			206		1,429		1,635		(238	)		35
Whittier	CA		6/30/2003		(b	)		470		2,694		10			470		2,704		3,174		(507	)		35
Winder	GA		6/30/2003		(b	)		96		541		32			95		574		669		(104	)		35
Winter Park	FL		6/30/2003		(b	)		348		1,993		105			360		2,086		2,446		(412	)		35
Yuba City	CA		6/30/2003		(b	)		302		1,733		242			302		1,975		2,277		(348	)		35
Hickory	NC		8/8/2003		—			124		—		—			124		—		124		—			—
Bethel	OH		8/22/2003		—			51		314		11			51		325		376		(56	)		35
San Rafael	CA		8/28/2003		(g	)		420		2,381		22			420		2,403		2,823		(440	)		35
Abingdon	VA		8/29/2003		(g	)		131		741		8			131		749		880		(136	)		35

106

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Irvington	NJ		8/29/2003		(g	)		131		741		—			131		741		872		(134	)		35
Ashtabula	OH		9/12/2003		(g	)		285		1,646		—			285		1,646		1,931		(306	)		35
Beachwood	OH		9/12/2003		(g	)		232		1,363		—			232		1,363		1,595		(261	)		35
Bedford	OH		9/12/2003		(g	)		96		609		—			96		609		705		(132	)		35
Berea	OH		9/12/2003		(g	)		189		1,136		2			189		1,138		1,327		(229	)		35
Cincinnati	OH		9/12/2003		(g	)		60		371		—			60		371		431		(78	)		35
Cincinnati	OH		9/12/2003		(g	)		74		446		—			74		446		520		(89	)		35
Cleveland	OH		9/12/2003		(g	)		73		452		—			73		452		525		(94	)		35
Cleveland	OH		9/12/2003		(g	)		392		2,272		1			392		2,273		2,665		(427	)		35
Cleveland	OH		9/12/2003		(g	)		80		491		—			80		491		571		(103	)		35
Cleveland	OH		9/12/2003		(g	)		137		842		—			137		842		979		(175	)		35
Cleveland	OH		9/12/2003		(g	)		67		446		—			67		446		513		(103	)		35
Cleveland	OH		9/12/2003		(g	)		131		805		—			131		805		936		(168	)		35
Cleveland	OH		9/12/2003		(g	)		116		720		1			117		720		837		(151	)		35
Conneaut	OH		9/12/2003		(g	)		106		653		—			106		653		759		(137	)		35
Euclid	OH		9/12/2003		(g	)		102		659		—			102		659		761		(146	)		35
Euclid	OH		9/12/2003		(g	)		103		615		—			103		615		718		(121	)		35
Garfield Height	OH		9/12/2003		(g	)		71		439		—			71		439		510		(92	)		35
Geneva	OH		9/12/2003		(g	)		134		836		—			134		836		970		(178	)		35
Jefferson	OH		9/12/2003		(g	)		130		819		—			130		819		949		(176	)		35
Kent	OH		9/12/2003		(g	)		43		248		—			43		248		291		(47	)		35
Mason	OH		9/12/2003		(g	)		58		345		—			58		345		403		(69	)		35
Medina	OH		9/12/2003		(g	)		100		606		(2	)		98		606		704		(123	)		35
Mentor	OH		9/12/2003		(g	)		98		588		—			98		588		686		(117	)		35
Mentor	OH		9/12/2003		(g	)		152		903		—			152		903		1,055		(178	)		35
Milford	OH		9/12/2003		(g	)		108		675		—			108		675		783		(145	)		35
Pepper Pike	OH		9/12/2003		(g	)		167		978		—			167		978		1,145		(188	)		35
Rock Creek	OH		9/12/2003		(g	)		45		273		—			45		273		318		(56	)		35
Shaker Heights	OH		9/12/2003		(g	)		241		1,442		2			241		1,444		1,685		(285	)		35
Springfield Twp	OH		9/12/2003		(g	)		64		383		—			64		383		447		(76	)		35
Strongville	OH		9/12/2003		(g	)		103		654		—			103		654		757		(143	)		35
Asheville	NC		9/24/2003		—			505		2,923		(2	)		505		2,921		3,426		(519	)		35
Asheville	NC		9/24/2003		(c	)		64		374		(1	)		64		373		437		(66	)		35
Asheville	NC		9/24/2003		—			60		350		—			60		350		410		(62	)		35
Black Mountain	NC		9/24/2003		(g	)		30		194		—			30		194		224		(48	)		35

107

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Boone	NC		9/24/2003		(c	)		112		655		—			112		655		767		(117	)		35
Brevard	NC		9/24/2003		(g	)		50		314		—			50		314		364		(73	)		35
Burgaw	NC		9/24/2003		(c	)		63		369		(1	)		63		368		431		(66	)		35
Burlington	NC		9/24/2003		(c	)		95		552		(1	)		95		551		646		(98	)		35
Burlington	NC		9/24/2003		(c	)		210		1,215		5			210		1,220		1,430		(217	)		35
Calabash	NC		9/24/2003		(g	)		69		414		(1	)		69		413		482		(86	)		35
Candler	NC		9/24/2003		(c	)		74		430		(1	)		74		429		503		(76	)		35
Carolina Beach	NC		9/24/2003		(c	)		154		895		(2	)		153		894		1,047		(159	)		35
Cary	NC		9/24/2003		(c	)		81		472		—			81		472		553		(84	)		35
Charlotte	NC		9/24/2003		(c	)		87		505		(2	)		86		504		590		(90	)		35
Charlotte	NC		9/24/2003		(c	)		178		1,035		(2	)		177		1,034		1,211		(184	)		35
Charlotte	NC		9/24/2003		(c	)		230		1,338		(2	)		229		1,337		1,566		(238	)		35
Charlotte	NC		9/24/2003		(c	)		166		965		(2	)		165		964		1,129		(172	)		35
Charlotte	NC		9/24/2003		(c	)		142		826		(2	)		141		825		966		(147	)		35
Charlotte	NC		9/24/2003		(c	)		95		554		(1	)		95		553		648		(99	)		35
Charlotte	NC		9/24/2003		(c	)		172		1,003		(1	)		172		1,002		1,174		(178	)		35
Charlotte	NC		9/24/2003		(c	)		101		587		—			101		587		688		(104	)		35
Charlotte	NC		9/24/2003		—			79		462		—			79		462		541		(82	)		35
Cherryville	NC		9/24/2003		(c	)		73		427		—			73		427		500		(76	)		35
Columbus	NC		9/24/2003		(c	)		48		281		—			48		281		329		(50	)		35
Cornelius	NC		9/24/2003		(c	)		259		1,510		1			259		1,511		1,770		(269	)		35
Dallas	NC		9/24/2003		(c	)		64		372		(1	)		64		371		435		(66	)		35
Denver	NC		9/24/2003		(c	)		54		312		—			54		312		366		(56	)		35
Dunn	NC		9/24/2003		(g	)		166		1,052		(1	)		166		1,051		1,217		(255	)		35
Durham	NC		9/24/2003		(c	)		95		551		(2	)		94		550		644		(98	)		35
Durham	NC		9/24/2003		(c	)		79		463		—			79		463		542		(82	)		35
Eden	NC		9/24/2003		(c	)		144		834		(1	)		144		833		977		(148	)		35
Eden	NC		9/24/2003		(g	)		30		184		—			30		184		214		(40	)		35
Elizabethtown	NC		9/24/2003		(c	)		86		499		(2	)		85		498		583		(89	)		35
Farmville	NC		9/24/2003		(c	)		128		747		(1	)		128		746		874		(133	)		35
Fayetteville	NC		9/24/2003		(c	)		86		502		(1	)		86		501		587		(89	)		35
Fayetteville	NC		9/24/2003		(c	)		88		513		(1	)		88		512		600		(91	)		35
Fayetteville	NC		9/24/2003		(c	)		92		535		—			92		535		627		(95	)		35
Garner	NC		9/24/2003		(c	)		103		601		—			103		601		704		(107	)		35
Gastonia	NC		9/24/2003		(c	)		396		2,276		(3	)		395		2,274		2,669		(404	)		35

108

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Gastonia	NC		9/24/2003		(c	)		188		1,087		(1	)		188		1,086		1,274		(193	)		35
Gastonia	NC		9/24/2003		(c	)		81		472		—			81		472		553		(84	)		35
Greensboro	NC		9/24/2003		(c	)		102		594		(1	)		102		593		695		(106	)		35
Greensboro	NC		9/24/2003		(c	)		128		745		—			128		745		873		(133	)		35
Greenville	NC		9/24/2003		—			499		2,831		(2	)		498		2,830		3,328		(501	)		35
Greenville	NC		9/24/2003		(c	)		137		799		(1	)		137		798		935		(142	)		35
Greenville	NC		9/24/2003		—			88		497		—			88		497		585		(88	)		35
Greenville	NC		9/24/2003		(c	)		91		530		—			91		530		621		(94	)		35
Havelock	NC		9/24/2003		(g	)		81		515		(1	)		81		514		595		(126	)		35
Henderson	NC		9/24/2003		(c	)		68		390		(1	)		67		390		457		(69	)		35
Henderson	NC		9/24/2003		(c	)		22		129		671			123		699		822		(124	)		35
High Point	NC		9/24/2003		(c	)		74		429		(1	)		74		428		502		(76	)		35
High Point	NC		9/24/2003		(c	)		131		762		—			131		762		893		(136	)		35
Hillsborough	NC		9/24/2003		(c	)		39		225		(1	)		39		224		263		(40	)		35
Kenansville	NC		9/24/2003		(c	)		72		418		—			72		418		490		(74	)		35
Kinston	NC		9/24/2003		(g	)		60		363		(1	)		60		362		422		(78	)		35
Kinston	NC		9/24/2003		(c	)		150		876		(1	)		150		875		1,025		(156	)		35
Lincolnton	NC		9/24/2003		—			397		2,303		(4	)		396		2,300		2,696		(452	)		35
Lincolnton	NC		9/24/2003		(c	)		96		561		(1	)		96		560		656		(100	)		35
Marion	NC		9/24/2003		(c	)		197		1,148		1			197		1,149		1,346		(204	)		35
Monroe	NC		9/24/2003		(c	)		155		907		(1	)		155		906		1,061		(161	)		35
Mooresville	NC		9/24/2003		(c	)		122		708		(1	)		121		708		829		(126	)		35
Mount Olive	NC		9/24/2003		(c	)		90		519		(1	)		90		518		608		(92	)		35
New Bern	NC		9/24/2003		(c	)		84		489		(1	)		84		488		572		(87	)		35
North Wilkesboro	NC		9/24/2003		(g	)		73		439		—			73		439		512		(92	)		35
Pinehurst	NC		9/24/2003		(c	)		105		610		(1	)		105		609		714		(109	)		35
Pleasant Garden	NC		9/24/2003		(c	)		44		257		—			44		257		301		(46	)		35
Raleigh	NC		9/24/2003		(c	)		258		1,491		(2	)		258		1,489		1,747		(265	)		35
Raleigh	NC		9/24/2003		(c	)		140		819		(1	)		140		818		958		(146	)		35
Raleigh	NC		9/24/2003		(c	)		120		699		(1	)		120		698		818		(124	)		35
Raleigh	NC		9/24/2003		(c	)		84		490		(1	)		84		489		573		(87	)		35
Reidsville	NC		9/24/2003		(c	)		94		541		(1	)		94		540		634		(96	)		35
Richlands	NC		9/24/2003		(g	)		53		328		(1	)		53		327		380		(77	)		35
Salisbury	NC		9/24/2003		(c	)		170		994		(1	)		170		993		1,163		(177	)		35
Salisbury	NC		9/24/2003		(c	)		65		379		—			65		379		444		(67	)		35

109

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Southern Piens	NC		9/24/2003		(c	)		142		829		(1	)		142		828		970		(147	)		35
Spring Lake	NC		9/24/2003		(c	)		155		907		(1	)		155		906		1,061		(161	)		35
Spruce Pine	NC		9/24/2003		(c	)		126		719		(1	)		126		718		844		(127	)		35
Statesville	NC		9/24/2003		(c	)		337		1,927		(3	)		336		1,925		2,261		(342	)		35
Statesville	NC		9/24/2003		(c	)		135		784		(2	)		134		783		917		(140	)		35
Swansboro	NC		9/24/2003		(c	)		47		273		—			47		273		320		(49	)		35
Tarboro	NC		9/24/2003		(g	)		120		733		(1	)		120		732		852		(163	)		35
Tarboro	NC		9/24/2003		(g	)		42		237		—			42		237		279		(42	)		35
Troutman	NC		9/24/2003		(c	)		86		499		(2	)		85		498		583		(89	)		35
Tryon	NC		9/24/2003		(c	)		147		856		(1	)		147		855		1,002		(152	)		35
Washington	NC		9/24/2003		(g	)		70		417		—			70		417		487		(86	)		35
Wilmington	NC		9/24/2003		(c	)		186		1,086		(1	)		186		1,085		1,271		(193	)		35
Wilmington	NC		9/24/2003		—			57		321		(1	)		57		320		377		(57	)		35
Wilmington	NC		9/24/2003		(c	)		155		903		(1	)		155		902		1,057		(161	)		35
Winston-Salem	NC		9/24/2003		(c	)		223		1,301		(2	)		223		1,299		1,522		(231	)		35
Winston-Salem	NC		9/24/2003		(c	)		95		555		—			95		555		650		(99	)		35
Wilmington	DE		9/30/2003		40,832			4,900		38,163		4,699			4,900		42,862		47,762		(9,228	)		33
St. Louis	MO		12/15/2003		56,000			10,153		66,654		3,613			10,123		70,297		80,420		(13,921	)		35
Arlington	TX		2/20/2004		1,669			237		1,522		4			237		1,526		1,763		(253	)		35
Ennis	TX		2/20/2004		1,749			226		1,486		130			226		1,616		1,842		(282	)		35
Hillsboro	TX		2/20/2004		770			100		681		64			100		745		845		(160	)		35
Paris	TX		2/20/2004		1,091			138		908		5			138		913		1,051		(158	)		35
Stephenville	TX		2/20/2004		1,412			190		1,243		6			190		1,249		1,439		(213	)		35
Sylvania	GA		4/1/2004		(g	)		100		568		—			100		568		668		(89	)		35
Leesburg	VA		6/25/2004		(g	)		505		3,065		2			505		3,067		3,572		(447	)		35
Charlotte	NC		7/29/2004		76,494			12,259		77,057		3,019			12,259		80,076		92,335		(15,085	)		35
Charlotte	NC		9/1/2004		(g	)		136		768		—			136		768		904		(107	)		35
Dunwoody	GA		9/1/2004		—			144		817		—			144		817		961		(113	)		35
York	PA		9/1/2004		(g	)		57		324		—			57		324		381		(45	)		35
Alexandria	VA		9/22/2004		(d	)		443		1,075		314			443		1,389		1,832		(175	)		35
Amherst	VA		9/22/2004		(d	)		24		166		—			24		166		190		(23	)		35
Anderson	SC		9/22/2004		(d	)		49		344		25			49		369		418		(48	)		35
Asheville	NC		9/22/2004		(d	)		348		2,853		9			348		2,862		3,210		(382	)		35
Atlanta	GA		9/22/2004		(d	)		1,777		15,215		140			1,777		15,355		17,132		(2,044	)		35
Baltimore	MD		9/22/2004		(d	)		199		1,370		—			199		1,370		1,569		(255	)		35

110

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Bennettsville	SC		9/22/2004		(d	)		48		289		358			48		647		695		(40	)		35
Blacksburg	VA		9/22/2004		(d	)		36		250		8			36		258		294		(43	)		35
Boynton Beach	FL		9/22/2004		(d	)		108		635		26			108		661		769		(90	)		35
Bristol	PA		9/22/2004		(d	)		78		467		35			78		502		580		(51	)		35
Brookneal	VA		9/22/2004		(d	)		36		230		—			36		230		266		(32	)		35
Burlington	NC		9/22/2004		(d	)		216		1,524		120			216		1,644		1,860		(221	)		35
Charleston	SC		9/22/2004		(d	)		408		3,014		363			408		3,377		3,785		(400	)		35
Charlottesville	VA		9/22/2004		(d	)		423		3,085		(158	)		211		3,139		3,350		(457	)		35
Christainsburg	VA		9/22/2004		(d	)		72		456		13			72		469		541		(64	)		35
Clintwood	VA		9/22/2004		(d	)		48		311		145			48		456		504		(45	)		35
Colombia	SC		9/22/2004		(d	)		568		6,490		—			568		6,490		7,058		(893	)		35
Columbus	GA		9/22/2004		(d	)		348		2,720		26			348		2,746		3,094		(371	)		35
Dade City	FL		9/22/2004		(d	)		48		272		159			48		431		479		(44	)		35
Dalton	GA		9/22/2004		(d	)		144		962		261			144		1,223		1,367		(160	)		35
Deland	FL		9/22/2004		(d	)		192		1,163		225			192		1,388		1,580		(166	)		35
Delray Beach	FL		9/22/2004		(d	)		144		857		408			144		1,265		1,409		(139	)		35
Glen Allen	VA		9/22/2004		(d	)		1,019		7,680		—			1,019		7,680		8,699		(1,016	)		35
Glen Allen	VA		9/22/2004		(d	)		863		6,538		194			863		6,732		7,595		(892	)		35
Goldsboro	NC		9/22/2004		(d	)		228		1,694		63			228		1,757		1,985		(378	)		35
Hadden Twnship	NJ		9/22/2004		(d	)		467		3,872		920			467		4,792		5,259		(608	)		35
Harrisinburg	VA		9/22/2004		(d	)		144		899		61			144		960		1,104		(124	)		35
Hendersonville	NC		9/22/2004		(d	)		120		745		—			120		745		865		(103	)		35
Hollywood	FL		9/22/2004		(d	)		72		434		17			72		451		523		(64	)		35
Lakeland	FL		9/22/2004		(d	)		228		1,590		14			228		1,604		1,832		(210	)		35
Lancaster	PA		9/22/2004		(d	)		683		4,953		101			683		5,054		5,737		(668	)		35
Lebanon	PA		9/22/2004		(d	)		36		233		42			36		275		311		(30	)		35
Madison	FL		9/22/2004		(d	)		48		298		254			48		552		600		(41	)		35
Media	PA		9/22/2004		(d	)		216		1,252		60			216		1,312		1,528		(170	)		35
Morristown	NJ		9/22/2004		(d	)		638		4,333		103			638		4,436		5,074		(571	)		35
Naples	FL		9/22/2004		(d	)		132		766		63			132		829		961		(104	)		35
Norristown	PA		9/22/2004		(d	)		240		1,550		216			240		1,766		2,006		(216	)		35
North Brunswick	NJ		9/22/2004		(d	)		—		261		25			—		286		286		(42	)		35
North Brunswick	NJ		9/22/2004		(d	)		1,140		9,485		32			1,140		9,517		10,657		(1,267	)		35
Pensacola	FL		9/22/2004		(d	)		156		937		1,370			156		2,307		2,463		(259	)		35
Petersburg	VA		9/22/2004		(d	)		36		233		56			36		289		325		(32	)		35

111

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Philadelphia	PA		9/22/2004		(d	)		276		1,762		67		276		1,829		2,105		(230	)		35
Philadelphia	PA		9/22/2004		(d	)		1,335		11,570		2,247		1,335		13,817		15,152		(1,754	)		35
Raleigh	NC		9/22/2004		(d	)		3,200		25,480		315		3,200		25,795		28,995		(3,467	)		35
Red Bank	NJ		9/22/2004		(d	)		544		3,686		—		544		3,686		4,230		(484	)		35
Roanoke	VA		9/22/2004		(d	)		3,440		26,788		510		3,440		27,298		30,738		(3,633	)		35
Smithfield	NC		9/22/2004		(d	)		48		302		46		48		348		396		(42	)		35
Succasunna	NJ		9/22/2004		(d	)		204		1,188		154		204		1,342		1,546		(162	)		35
Sumter	SC		9/22/2004		(d	)		108		649		338		108		987		1,095		(89	)		35
Thomasville	NC		9/22/2004		(d	)		84		504		—		84		504		588		(76	)		35
Toms River	NJ		9/22/2004		(d	)		300		2,308		11		300		2,319		2,619		(307	)		35
Trenton	NJ		9/22/2004		(d	)		147		888		87		147		975		1,122		(126	)		35
Union	NJ		9/22/2004		(d	)		228		1,314		492		228		1,806		2,034		(181	)		35
Virginia Beach	VA		9/22/2004		(d	)		156		1,227		—		156		1,227		1,383		(165	)		35
Warrenton	VA		9/22/2004		(d	)		60		359		101		60		460		520		(77	)		35
Waterbury	CT		9/22/2004		(d	)		168		1,632		28		168		1,660		1,828		(220	)		35
West Chester	PA		9/22/2004		(d	)		240		1,586		26		240		1,612		1,852		(209	)		35
West Palm Beach	FL		9/22/2004		(d	)		48		294		54		48		348		396		(65	)		35
West Palm Beach	FL		9/22/2004		(d	)		180		1,106		286		180		1,392		1,572		(231	)		35
West Palm Beach	FL		9/22/2004		(d	)		755		5,219		626		755		5,845		6,600		(835	)		35
Williamsburg	VA		9/22/2004		(d	)		108		649		12		108		661		769		(89	)		35
Winstom Salem	NC		9/22/2004		(d	)		1,258		13,128		33		1,258		13,161		14,419		(1,796	)		35
Winstom Salem	NC		9/22/2004		(d	)		851		7,583		445		851		8,028		8,879		(1,049	)		35
Winter Garden	FL		9/22/2004		(d	)		84		502		104		84		606		690		(106	)		35
Winterville	NC		9/22/2004		(d	)		947		7,265		15		947		7,280		8,227		(967	)		35
York	PA		9/22/2004		(d	)		216		1,605		256		216		1,861		2,077		(260	)		35
Abingdon	VA		10/1/2004		(e	)		91		550		—		91		550		641		(77	)		35
Albany	NY		10/1/2004		(e	)		966		7,642		3		966		7,645		8,611		(1,053	)		35
Allbany	NY		10/1/2004		(e	)		1,296		9,934		134		1,296		10,068		11,364		(1,473	)		35
Arnold	CA		10/1/2004		(e	)		106		601		—		106		601		707		(81	)		35
Auburn	ME		10/1/2004		(e	)		77		438		3		77		441		518		(60	)		35
Auburn	NY		10/1/2004		(e	)		426		3,034		2		426		3,036		3,462		(417	)		35
Austin	TX		10/1/2004		—			67		409		54		67		463		530		(56	)		35
Bakersfield	CA		10/1/2004		(e	)		125		730		—		125		730		855		(98	)		35
Ballwin	MO		10/1/2004		(e	)		111		666		—		111		666		777		(93	)		35
Beaumont	TX		10/1/2004		(e	)		67		379		134		67		513		580		(57	)		35

112

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Belton	MO		10/1/2004		(e	)		106		641		66		106		707		813		(116	)		35
Benton	AR		10/1/2004		(e	)		80		508		—		80		508		588		(77	)		35
Blountstown	FL		10/1/2004		(e	)		80		486		—		80		486		566		(68	)		35
Bradenton	FL		10/1/2004		(e	)		92		555		16		92		571		663		(80	)		35
Bradentown	FL		10/1/2004		(e	)		131		818		—		131		818		949		(114	)		35
Bridgewater	NJ		10/1/2004		(e	)		879		6,109		585		879		6,694		7,573		(977	)		35
Broken Arrow	OK		10/1/2004		(e	)		74		470		10		74		480		554		(89	)		35
Brooksville	FL		10/1/2004		(e	)		117		738		—		117		738		855		(103	)		35
Burbank	CA		10/1/2004		(e	)		142		830		—		142		830		972		(111	)		35
Burlingame	CA		10/1/2004		(e	)		122		779		—		122		779		901		(109	)		35
Camas	WA		10/1/2004		(e	)		72		430		137		72		567		639		(65	)		35
Canoga Park	CA		10/1/2004		(e	)		108		611		73		108		684		792		(83	)		35
Catoosa	OK		10/1/2004		(e	)		85		506		55		85		561		646		(79	)		35
Charlotte	NC		10/1/2004		(e	)		2,828		21,587		98		2,828		21,685		24,513		(3,050	)		35
Clarkson	WA		10/1/2004		(e	)		91		558		—		91		558		649		(79	)		35
Crystal River	FL		10/1/2004		(e	)		99		613		40		99		653		752		(92	)		35
Daytona Beach	FL		10/1/2004		(e	)		144		917		—		144		917		1,061		(129	)		35
Decatur	GA		10/1/2004		—			93		564		—		93		564		657		(79	)		35
Dinuba	CA		10/1/2004		(e	)		105		592		37		105		629		734		(80	)		35
East Brunswick	NJ		10/1/2004		(e	)		149		872		—		149		872		1,021		(117	)		35
East Meadow	NY		10/1/2004		(e	)		76		431		28		76		459		535		(59	)		35
East Point	GA		10/1/2004		(e	)		114		687		6		114		693		807		(105	)		35
Edmonds	WA		10/1/2004		(e	)		84		515		—		84		515		599		(73	)		35
Eureka	CA		10/1/2004		(e	)		124		725		—		124		725		849		(97	)		35
Fairfax	VA		10/1/2004		(e	)		161		941		74		161		1,015		1,176		(126	)		35
Farmington	CT		10/1/2004		(e	)		1,266		9,598		74		1,266		9,672		10,938		(1,337	)		35
Folsum	CA		10/1/2004		(e	)		112		1,191		—		112		1,191		1,303		(128	)		35
Forsyth	MO		10/1/2004		(e	)		82		490		22		82		512		594		(70	)		35
Fort Bragg	CA		10/1/2004		(e	)		85		480		85		85		565		650		(65	)		35
Fresno	CA		10/1/2004		(e	)		114		648		—		114		648		762		(88	)		35
Ft Walton Beach	FL		10/1/2004		(e	)		112		669		104		112		773		885		(121	)		35
Ft. Lauderdale	FL		10/1/2004		(e	)		103		621		253		103		874		977		(121	)		35
Ft. Myers Beach	FL		10/1/2004		(e	)		91		548		—		91		548		639		(77	)		35
Grants Pass	OR		10/1/2004		—			62		392		96		52		498		550		(52	)		35
Great Neck	NY		10/1/2004		(e	)		75		425		—		75		425		500		(57	)		35

113

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Greenwich	CT		10/1/2004		(e	)		256		2,092		89		256		2,181		2,437		(344	)		35
Gresham	OR		10/1/2004		(e	)		115		735		16		115		751		866		(108	)		35
Hammonton	NJ		10/1/2004		(e	)		272		2,038		—		272		2,038		2,310		(284	)		35
Hampton	VA		10/1/2004		(e	)		129		817		—		129		817		946		(126	)		35
Hanford	CA		10/1/2004		(e	)		96		599		—		96		599		695		(86	)		35
Healdsburg	CA		10/1/2004		(e	)		111		630		—		111		630		741		(85	)		35
Helmet	CA		10/1/2004		(e	)		178		1,040		153		178		1,193		1,371		(142	)		35
Hilton Head	SC		10/1/2004		(e	)		141		866		21		141		887		1,028		(125	)		35
Homestead	FL		10/1/2004		(e	)		106		686		107		106		793		899		(100	)		35
Horsham	PA		10/1/2004		(e	)		955		7,227		609		955		7,836		8,791		(1,166	)		35
Houston	TX		10/1/2004		(e	)		110		699		—		110		699		809		(120	)		35
Independence	MO		10/1/2004		(e	)		97		597		88		97		685		782		(92	)		35
Jamaica	NY		10/1/2004		(e	)		99		560		—		99		560		659		(76	)		35
Kansas City	MO		10/1/2004		(e	)		100		598		1		100		599		699		(84	)		35
Kennewick	WA		10/1/2004		(e	)		115		699		—		115		699		814		(98	)		35
Lakewood	NJ		10/1/2004		(e	)		134		782		19		134		801		935		(109	)		35
Las Cruces	NM		10/1/2004		(e	)		95		622		63		95		685		780		(128	)		35
Las Vegas	NV		10/1/2004		(e	)		974		7,368		180		974		7,548		8,522		(1,033	)		35
Lebanon	TN		10/1/2004		(e	)		92		553		106		92		659		751		(78	)		35
Lemoore	CA		10/1/2004		(e	)		83		473		7		83		480		563		(64	)		35
Levittown	NY		10/1/2004		(e	)		116		678		52		116		730		846		(96	)		35
Linden	NJ		10/1/2004		(e	)		166		970		12		166		982		1,148		(134	)		35
Live Oak	FL		10/1/2004		(e	)		61		368		120		61		488		549		(132	)		35
Livermore	CA		10/1/2004		(e	)		176		1,029		—		176		1,029		1,205		(138	)		35
Los Angeles	CA		10/1/2004		(e	)		122		713		—		122		713		835		(95	)		35
Los Angeles	CA		10/1/2004		(e	)		137		803		—		137		803		940		(107	)		35
Lynden	WA		10/1/2004		(e	)		70		419		—		70		419		489		(59	)		35
Malden	MA		10/1/2004		(e	)		3,095		23,448		627		3,095		24,075		27,170		(3,305	)		35
Maplewood	NJ		10/1/2004		(e	)		154		898		111		154		1,009		1,163		(120	)		35
Merrick	NY		10/1/2004		(e	)		194		1,470		167		194		1,637		1,831		(220	)		35
Miami	FL		10/1/2004		(e	)		140		892		—		140		892		1,032		(125	)		35
Miami	FL		10/1/2004		(e	)		172		1,002		133		172		1,135		1,307		(139	)		35
Montrose	CA		10/1/2004		(e	)		109		616		—		109		616		725		(83	)		35
Mountain Home	AR		10/1/2004		(e	)		97		598		—		97		598		695		(85	)		35
Nashua	NH		10/1/2004		(e	)		365		2,720		22		365		2,742		3,107		(425	)		35

114

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Nederland	TX		10/1/2004		(e	)		74		420		31			74		451		525		(58	)		35
New Port Richey	FL		10/1/2004		(e	)		68		413		—			68		413		481		(58	)		35
Newark	DE		10/1/2004		(e	)		1,217		9,182		166			1,217		9,348		10,565		(1,312	)		35
North Kingstown	RI		10/1/2004		(e	)		93		612		18			93		630		723		(92	)		35
Ontario	CA		10/1/2004		(e	)		127		743		35			127		778		905		(115	)		35
Orange	VA		10/1/2004		(e	)		136		818		18			136		836		972		(117	)		35
Orangevale	CA		10/1/2004		(e	)		121		688		133			121		821		942		(93	)		35
Oroville	CA		10/1/2004		(e	)		79		449		50			79		499		578		(67	)		35
Peachtree City	GA		10/1/2004		(e	)		135		874		(14	)		135		860		995		(121	)		35
Pennsauken	NJ		10/1/2004		(e	)		171		1,183		5			171		1,188		1,359		(173	)		35
Philadelphia	PA		10/1/2004		(e	)		186		1,090		43			186		1,133		1,319		(179	)		35
Plantation	FL		10/1/2004		(e	)		139		878		—			139		878		1,017		(123	)		35
Plantation	FL		10/1/2004		(e	)		119		711		—			119		711		830		(99	)		35
Pleasanton	CA		10/1/2004		(e	)		113		642		—			113		642		755		(87	)		35
Port Charlotte	FL		10/1/2004		(e	)		98		590		30			98		620		718		(93	)		35
Port Townsend	WA		10/1/2004		(e	)		77		435		1			77		436		513		(59	)		35
Porterville	CA		10/1/2004		(e	)		103		644		4			103		648		751		(93	)		35
Portland	OR		10/1/2004		(e	)		128		787		20			128		807		935		(111	)		35
Portsmouth	NH		10/1/2004		(e	)		142		829		—			142		829		971		(111	)		35
Providence	RI		10/1/2004		(e	)		1,320		10,438		2			1,320		10,440		11,760		(1,576	)		35
Quincy	WA		10/1/2004		(e	)		88		517		—			88		517		605		(72	)		35
Redding	CA		10/1/2004		(e	)		95		538		114			95		652		747		(112	)		35
Redmond	OR		10/1/2004		(e	)		36		225		10			36		235		271		(34	)		35
Reedley	CA		10/1/2004		(e	)		85		483		—			85		483		568		(65	)		35
Reseda	CA		10/1/2004		(e	)		110		625		5			110		630		740		(85	)		35
Richmond	VA		10/1/2004		(e	)		163		1,020		1			163		1,021		1,184		(142	)		35
Ridgecrest	CA		10/1/2004		(e	)		104		590		—			104		590		694		(80	)		35
Rochester	NY		10/1/2004		—			809		6,552		(4,753	)		809		1,799		2,608		(610	)		35
Rock Hill	SC		10/1/2004		(e	)		157		972		(5	)		157		967		1,124		(134	)		35
San Antonio	TX		10/1/2004		(e	)		110		661		—			110		661		771		(93	)		35
San Antonio	TX		10/1/2004		(e	)		142		827		64			142		891		1,033		(120	)		35
San Francisco	CA		10/1/2004		(e	)		123		722		—			123		722		845		(96	)		35
San Jose	CA		10/1/2004		(e	)		100		568		28			100		596		696		(80	)		35
San Leandro	CA		10/1/2004		(e	)		125		731		162			125		893		1,018		(108	)		35
Santa Fe	NM		10/1/2004		(e	)		299		1,734		3			299		1,737		2,036		(233	)		35

115

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Sarasota	FL		10/1/2004		(g	)		92		585		11		92		596		688		(94	)		35
Seattle	WA		10/1/2004		(e	)		86		523		—		86		523		609		(74	)		35
Seattle	WA		10/1/2004		(e	)		193		1,172		—		193		1,172		1,365		(161	)		35
Sequim	WA		10/1/2004		(e	)		127		786		—		127		786		913		(109	)		35
Sherman Oaks	CA		10/1/2004		(e	)		106		598		—		106		598		704		(81	)		35
South Orange	NJ		10/1/2004		(e	)		61		344		27		61		371		432		(47	)		35
South Portland	ME		10/1/2004		(e	)		214		1,691		—		214		1,691		1,905		(238	)		35
St. Helena	CA		10/1/2004		(e	)		126		737		1		126		738		864		(98	)		35
Stockton	CA		10/1/2004		(e	)		128		747		—		128		747		875		(100	)		35
Stockton	CA		10/1/2004		(e	)		119		694		—		119		694		813		(93	)		35
Summit	NJ		10/1/2004		(e	)		149		873		—		149		873		1,022		(117	)		35
Summit	NJ		10/1/2004		(e	)		131		903		30		131		933		1,064		(132	)		35
Sun City	AZ		10/1/2004		(e	)		130		825		—		130		825		955		(116	)		35
Susanville	CA		10/1/2004		(e	)		89		505		—		89		505		594		(68	)		35
Tulsa	OK		10/1/2004		(e	)		107		646		—		107		646		753		(91	)		35
Tulsa	OK		10/1/2004		(e	)		64		388		16		64		404		468		(59	)		35
Turlock	CA		10/1/2004		(e	)		102		637		—		102		637		739		(91	)		35
Union City	NJ		10/1/2004		(e	)		116		678		—		116		678		794		(91	)		35
Vacaville	CA		10/1/2004		(e	)		146		855		—		146		855		1,001		(114	)		35
Vernon	CA		10/1/2004		(e	)		136		80		—		136		80		216		(52	)		35
W. Los Angeles	CA		10/1/2004		(e	)		154		902		—		154		902		1,056		(121	)		35
Waltham	MA		10/1/2004		(e	)		2,818		21,352		1,232		2,818		22,584		25,402		(2,972	)		35
Wantagh	NY		10/1/2004		(e	)		59		336		—		59		336		395		(46	)		35
Wenatchee	WA		10/1/2004		(e	)		118		740		—		118		740		858		(103	)		35
West Hempstead	NY		10/1/2004		(e	)		319		2,440		1		319		2,441		2,760		(339	)		35
West Palm Beach	FL		10/1/2004		(e	)		142		977		—		142		977		1,119		(142	)		35
West Seneca	NY		10/1/2004		(e	)		886		6,700		46		886		6,746		7,632		(933	)		35
Wheaton	MD		10/1/2004		(e	)		85		538		—		85		538		623		(98	)		35
Wichita Falls	TX		10/1/2004		(e	)		116		700		—		116		700		816		(98	)		35
Richmond	VA		10/8/2004		—			93		528		—		93		528		621		(71	)		35
Kansas City	MO		11/18/2004		(g	)		2,378		17,687		1,986		2,378		19,673		22,051		(2,473	)		35
Pensacola	FL		12/22/2004		—			64		365		—		64		365		429		(46	)		35
Southampton	PA		1/13/2005		(g	)		154		871		106		170		961		1,131		(110	)		35
Fayetteville	GA		1/26/2005		—			159		902		—		159		902		1,061		(110	)		35
Harrisonburg	VA		1/26/2005		—			110		624		—		110		624		734		(76	)		35

116

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Highland Sprngs	VA		1/26/2005		—			115		649		—			115		649		764		(79	)		35
Midlothian	VA		1/26/2005		—			148		838		—			148		838		986		(102	)		35
Richmond	VA		1/26/2005		(g	)		139		788		—			139		788		927		(96	)		35
Delray Beach	FL		2/24/2005		—			154		871		—			154		871		1,025		(103	)		35
Landing	NJ		5/26/2005		—			140		793		—			140		793		933		(85	)		35
Midland	NC		5/27/2005		(g	)		72		408		—			72		408		480		(44	)		35
Addison	IL		6/7/2005		—			51		288		959			37		1,261		1,298		(76	)		35
Cleveland	OH		6/7/2005		—			61		347		(241	)		61		106		167		(25	)		35
Cleveland	OH		6/7/2005		(g	)		112		648		2,141			112		2,789		2,901		(178	)		35
Aiken	SC		6/15/2005		(g	)		74		565		176			74		741		815		(73	)		35
Albertville	AL		6/15/2005		(g	)		20		114		112			20		226		246		(18	)		35
Anniston	AL		6/15/2005		—			132		1,043		—			132		1,043		1,175		(105	)		35
Athens	AL		6/15/2005		(g	)		31		279		87			31		366		397		(41	)		35
Batesville	AR		6/15/2005		(g	)		60		527		437			60		964		1,024		(92	)		35
Beebe	AR		6/15/2005		(g	)		27		205		112			27		317		344		(32	)		35
Belle Chasse	LA		6/15/2005		(g	)		110		849		208			110		1,057		1,167		(102	)		35
Belleville	IL		6/15/2005		(g	)		176		1,400		500			176		1,900		2,076		(182	)		35
Carrolton	GA		6/15/2005		(g	)		54		369		150			54		519		573		(53	)		35
Clarksdale	MS		6/15/2005		(g	)		79		658		253			79		911		990		(83	)		35
Columbia	TN		6/15/2005		(g	)		46		291		199			46		490		536		(46	)		35
Conway	AR		6/15/2005		(g	)		106		893		209			106		1,102		1,208		(115	)		35
Cookeville	TN		6/15/2005		(g	)		93		745		347			93		1,092		1,185		(102	)		35
Cornelia	GA		6/15/2005		(g	)		99		763		369			99		1,132		1,231		(105	)		35
Dallas	GA		6/15/2005		(g	)		29		201		114			29		315		344		(34	)		35
DeFuniak Spring	FL		6/15/2005		(g	)		17		98		110			17		208		225		(24	)		35
East Alton	IL		6/15/2005		(g	)		36		285		36			36		321		357		(38	)		35
El Dorado	AR		6/15/2005		(g	)		93		735		689			93		1,424		1,517		(167	)		35
Enterprise	AL		6/15/2005		(g	)		41		318		101			41		419		460		(46	)		35
Fayetteville	TN		6/15/2005		(g	)		40		311		163			40		474		514		(49	)		35
Franklin	TN		6/15/2005		(g	)		46		325		67			46		392		438		(43	)		35
Goodlettsville	TN		6/15/2005		(g	)		214		1,559		733			214		2,292		2,506		(234	)		35
Hapeville	GA		6/15/2005		(g	)		106		801		302			106		1,103		1,209		(139	)		35
Harriman	TN		6/15/2005		(g	)		52		386		92			52		478		530		(54	)		35
Hialeah	FL		6/15/2005		(g	)		39		275		42			39		317		356		(33	)		35
Hot Springs	AR		6/15/2005		(g	)		300		2,289		805			300		3,094		3,394		(343	)		35

117

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Houma	LA		6/15/2005		(g	)		90		648		412			90		1,060		1,150		(79	)		35
Huntsville	AL		6/15/2005		(g	)		51		492		(330	)		51		162		213		(40	)		35
Indianola	IA		6/15/2005		(g	)		112		867		459			112		1,326		1,438		(142	)		35
Inverness	FL		6/15/2005		(g	)		131		1,023		225			131		1,248		1,379		(126	)		35
Jefferson	GA		6/15/2005		(g	)		71		530		22			71		552		623		(58	)		35
Kilgore	TX		6/15/2005		(g	)		51		475		129			51		604		655		(62	)		35
Lexington	TN		6/15/2005		(g	)		35		265		89			35		354		389		(38	)		35
Lincoln	IL		6/15/2005		(g	)		71		594		250			71		844		915		(110	)		35
Longview	TX		6/15/2005		(g	)		111		970		431			111		1,401		1,512		(140	)		35
Lufkin	TX		6/15/2005		(g	)		66		621		72			66		693		759		(72	)		35
Lutcher	LA		6/15/2005		(g	)		50		348		95			50		443		493		(46	)		35
Marianna	FL		6/15/2005		(g	)		65		434		282			65		716		781		(51	)		35
Minden	LA		6/15/2005		(g	)		63		524		313			63		837		900		(59	)		35
Mobile	AL		6/15/2005		(g	)		54		505		—			54		505		559		(58	)		35
Monticello	IA		6/15/2005		(g	)		80		610		417			80		1,027		1,107		(91	)		35
Mount Olive	MS		6/15/2005		(g	)		18		105		149			18		254		272		(11	)		35
Munford	TN		6/15/2005		(g	)		67		425		243			67		668		735		(63	)		35
Nacogdoches	TX		6/15/2005		(g	)		33		237		—			33		237		270		(29	)		35
Nacogdoches	TX		6/15/2005		(g	)		100		880		695			100		1,575		1,675		(116	)		35
Nashville	IL		6/15/2005		(g	)		32		221		35			32		256		288		(28	)		35
New Smyrna Bch	FL		6/15/2005		(g	)		122		938		205			122		1,143		1,265		(111	)		35
Norcross	GA		6/15/2005		(g	)		50		327		225			50		552		602		(50	)		35
Paris	TN		6/15/2005		(g	)		59		494		60			59		554		613		(60	)		35
Robinson	IL		6/15/2005		(g	)		44		324		136			44		460		504		(47	)		35
Russellville	AR		6/15/2005		(g	)		52		515		303			52		818		870		(62	)		35
Selma	AL		6/15/2005		(g	)		52		530		172			52		702		754		(110	)		35
Sesser	IL		6/15/2005		(g	)		12		70		21			12		91		103		(9	)		35
Shelbyville	TN		6/15/2005		(g	)		54		485		415			54		900		954		(64	)		35
Sparta	IL		6/15/2005		(g	)		48		347		166			48		513		561		(51	)		35
Springfield	MO		6/15/2005		(g	)		117		903		465			117		1,368		1,485		(224	)		35
Toccoa	GA		6/15/2005		(g	)		55		365		198			55		563		618		(55	)		35
Tyler	TX		6/15/2005		(g	)		41		281		93			41		374		415		(40	)		35
West Memphis	AR		6/15/2005		(g	)		20		116		31			20		147		167		(14	)		35
West Monroe	LA		6/15/2005		—			44		248		63			44		311		355		(31	)		35
Wood River	IL		6/15/2005		(g	)		44		439		99			44		538		582		(58	)		35

118

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Lawrenceville	GA		6/16/2005		—			219		1,240		—			219		1,240		1,459		(129	)		35
Canton	OH		6/28/2005		(g	)		486		3,130		3,775			486		6,905		7,391		(550	)		35
Elmhurst	IL		6/28/2005		—			202		1,293		2,447			202		3,740		3,942		(268	)		35
Nashville	TN		9/15/2005		—			63		357		—			63		357		420		(35	)		35
Holiday	FL		9/20/2005		(j	)		266		1,509		181			293		1,663		1,956		(143	)		35
Milton	FL		9/20/2005		—			109		620		—			109		620		729		(58	)		35
N. Little Rock	AR		9/20/2005		(j	)		80		451		—			80		451		531		(42	)		35
New Smyrna Beac	FL		9/20/2005		(i	)		95		537		53			103		582		685		(51	)		35
Ormond Beach	FL		9/20/2005		—			232		1,317		160			256		1,453		1,709		(125	)		35
Simpsonville	SC		9/20/2005		(k	)		90		511		33			95		539		634		(48	)		35
St. Augustine	FL		9/20/2005		—			98		556		—			98		556		654		(52	)		35
Orange City	FL		10/12/2005		(h	)		138		780		—			138		780		918		(73	)		35
Providence	RI		10/21/2005		43,500			7,520		45,979		669			7,520		46,648		54,168		(5,107	)		35
Alpharetta	GA		11/10/2005		(j	)		145		822		—			145		822		967		(74	)		35
Altamont Spring	FL		11/10/2005		(k	)		146		829		—			146		829		975		(75	)		35
Atlanta	GA		11/10/2005		(h	)		161		910		—			161		910		1,071		(82	)		35
Bonita Springs	FL		11/10/2005		(h	)		192		1,090		—			192		1,090		1,282		(98	)		35
Bradenton	FL		11/10/2005		(k	)		247		1,398		—			247		1,398		1,645		(126	)		35
Bradenton	FL		11/10/2005		(h	)		144		817		—			144		817		961		(74	)		35
Brandon	FL		11/10/2005		(j	)		94		533		—			94		533		627		(48	)		35
Brandon	FL		11/10/2005		(k	)		106		599		—			106		599		705		(54	)		35
Cape Coral	FL		11/10/2005		(k	)		114		646		—			114		646		760		(58	)		35
Cary	NC		11/10/2005		(i	)		143		809		—			143		809		952		(73	)		35
Charleston	SC		11/10/2005		(j	)		117		663		—			117		663		780		(60	)		35
Charlotte	NC		11/10/2005		(h	)		195		1,105		—			195		1,105		1,300		(100	)		35
Chester	VA		11/10/2005		(j	)		56		318		—			56		318		374		(29	)		35
Columbia	SC		11/10/2005		(h	)		116		656		—			116		656		772		(59	)		35
Columbus	GA		11/10/2005		(h	)		36		204		—			36		204		240		(18	)		35
De Soto*	TX		11/10/2005		—			1,109		—		(192	)		917		—		917		—			35
Deerfield Beach	FL		11/10/2005		(k	)		351		1,992		—			351		1,992		2,343		(180	)		35
Fort Lauderdale	FL		11/10/2005		(i	)		254		1,437		—			254		1,437		1,691		(130	)		35
Garner	NC		11/10/2005		(j	)		126		712		—			126		712		838		(64	)		35
Greensboro	NC		11/10/2005		—			124		701		—			124		701		825		(63	)		35
Greensboro	NC		11/10/2005		(i	)		116		659		—			116		659		775		(59	)		35
Greensboro	NC		11/10/2005		—			126		716		50			126		766		892		(67	)		35

119

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Grove City	FL		11/10/2005		(j	)		100		566		—			100		566		666		(51	)		35
Hampton	VA		11/10/2005		—			172		976		—			172		976		1,148		(88	)		35
Holly Hill	FL		11/10/2005		(k	)		95		536		—			95		536		631		(48	)		35
Houston*	TX		11/10/2005		—			1,888		—		(182	)		1,706		—		1,706		—			35
Hudson	FL		11/10/2005		(h	)		175		993		—			175		993		1,168		(90	)		35
Irmo	SC		11/10/2005		(i	)		132		750		—			132		750		882		(68	)		35
Largo	FL		11/10/2005		(i	)		145		824		—			145		824		969		(74	)		35
Lilburn	GA		11/10/2005		(k	)		128		726		(2	)		126		726		852		(66	)		35
Lutz	FL		11/10/2005		(h	)		151		857		—			151		857		1,008		(77	)		35
Manakin-Sabot	VA		11/10/2005		(k	)		83		469		—			83		469		552		(42	)		35
Marco Island	FL		11/10/2005		(h	)		281		1,591		—			281		1,591		1,872		(144	)		35
Marietta	GA		11/10/2005		(i	)		127		722		—			127		722		849		(65	)		35
Ocala	FL		11/10/2005		(j	)		101		570		—			101		570		671		(51	)		35
Palm Coast	FL		11/10/2005		(h	)		171		971		—			171		971		1,142		(88	)		35
Pensacola	FL		11/10/2005		(k	)		124		704		—			124		704		828		(64	)		35
Plantation	FL		11/10/2005		(k	)		209		1,187		—			209		1,187		1,396		(107	)		35
Port Charlotte	FL		11/10/2005		(h	)		88		497		—			88		497		585		(45	)		35
Raleigh	NC		11/10/2005		(k	)		148		837		—			148		837		985		(75	)		35
Tampa	FL		11/10/2005		(i	)		204		1,158		—			204		1,158		1,362		(104	)		35
Tucker	GA		11/10/2005		(j	)		208		1,179		—			208		1,179		1,387		(106	)		35
Vero Beach	FL		11/10/2005		(k	)		144		814		—			144		814		958		(73	)		35
Virginia Beach	VA		11/10/2005		(i	)		183		1,038		—			183		1,038		1,221		(94	)		35
Fort Dodge	IA		11/16/2005		—			67		379		—			67		379		446		(32	)		35
Sarasota	FL		12/21/2005		(h	)		162		916		—			162		916		1,078		(76	)		35
Pine Bluff	AR		1/19/2006		—			22		125		(5	)		22		120		142		(4	)		35
DADE CITY*	FL		2/23/2006		—			439		—		—			439		—		439		—			35
SPRING HILL*	FL		2/23/2006		—			731		—		—			731		—		731		—			35
Kalamazoo	MI		3/1/2006		(g	)		1,129		3,338		87			1,129		3,425		4,554		(282	)		35
Lansing	MI		3/1/2006		(g	)		113		768		52			113		820		933		(77	)		35
LaPorte	IN		3/1/2006		(g	)		99		654		89			99		743		842		(64	)		35
London	KY		3/1/2006		(g	)		175		1,076		52			175		1,128		1,303		(85	)		35
Peoria	IL		3/1/2006		(g	)		792		4,806		771			792		5,577		6,369		(424	)		35
Hinsdale	IL		3/2/2006		(g	)		739		4,288		—			739		4,288		5,027		(334	)		35
Frisco	TX		3/7/2006		—			295		1,674		—			295		1,674		1,969		(128	)		35
Pinellas Park	FL		3/7/2006		—			161		915		—			161		915		1,076		(70	)		35

120

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building					Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and					Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements			Total		12/31/07 (2)			Life
Sea Bright	NJ		3/14/2006		—			140		795		—			140		795			935		(61	)		35
Woodbury	NJ		3/14/2006		—			174		985		109			190		1,078			1,268		(76	)		35
Acworth	GA		3/28/2006		—			187		1,008		6			188		1,013			1,201		(77	)		35
Alpharetta	GA		3/28/2006		—			248		1,404		123			266		1,509			1,775		(104	)		35
Cary	NC		3/28/2006		—			106		598		49			106		647			753		(42	)		35
Melbourne	FL		3/28/2006		—			175		990		—			175		990			1,165		—			35
Dripping Springs	TX		4/24/2006		(g	)		405		2,476		1			405		2,477			2,882		(204	)		35
Chapel Hill	NC		5/25/2006		—			—		2,458		—			—		2,458			2,458		(161	)		35
Cameron Park	CA		6/1/2006		(j	)		282		1,601		—			282		1,601			1,883		(106	)		35
El Dorado Hills	CA		6/1/2006		(k	)		314		1,778		—			314		1,778			2,092		(117	)		35
Lakeport	CA		6/1/2006		(i	)		368		2,239		—			368		2,239			2,607		(162	)		35
Placerville	CA		6/1/2006		(h	)		185		1,047		—			185		1,047			1,232		(69	)		35
Roseville	CA		6/1/2006		(i	)		355		2,014		—			355		2,014			2,369		(133	)		35
Sonora	CA		6/1/2006		(j	)		184		1,043		—			184		1,043			1,227		(69	)		35
Sutter Creek	CA		6/1/2006		(k	)		114		647		—			114		647			761		(43	)		35
Valley Springs	CA		6/1/2006		(i	)		142		804		—			142		804			946		(53	)		35
Banner Elk	NC		8/23/2006		(k	)		92		542		—			92		542			634		(34	)		35
Birmingham	AL		8/24/2006		—			54		304		—			54		304			358		(17	)		35
Anniston*	AL		8/31/2006		—			336		—		(3	)		336		(3	)		333		—			35
Decatur	GA		8/31/2006		—			169		958		—			169		958			1,127		(53	)		35
Easton	PA		8/31/2006		—			108		615		—			108		615			723		(34	)		35
Gastonia	NC		8/31/2006		—			53		302		—			53		302			355		(17	)		35
Haddonfield	NJ		8/31/2006		(j	)		79		450		—			79		450			529		(25	)		35
Jacksonville	FL		8/31/2006		(i	)		118		670		—			118		670			788		(37	)		35
Madison Heights	VA		8/31/2006		—			117		662		—			117		662			779		(37	)		35
Odessa*	FL		8/31/2006		—			787		—		—			787		—			787		—			35
Richmond	VA		8/31/2006		(j	)		122		694		—			122		694			816		(39	)		35
Stockbridge	GA		8/31/2006		—			118		668		—			118		668			786		(37	)		35
Woodstock	GA		8/31/2006		(i	)		189		1,072		—			189		1,072			1,261		(60	)		35
High Point	NC		9/15/2006		—			126		714		—			126		714			840		(45	)		35
Oviedo	FL		9/15/2006		—			226		1,281		—			226		1,281			1,507		(71	)		35
Meridian	MS		9/27/2006		—			41		236		—			41		236			277		(12	)		35
Pegram	TN		9/27/2006		—			75		430		—			75		430			505		(22	)		35
Schreveport	LA		9/27/2006		—			97		552		1			97		553			650		(29	)		35
Tuscaloosa	AL		9/27/2006		—			125		714		1			125		715			840		(37	)		35

121

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Avon Park	FL		12/14/2006		—			88		498		—		88		498		586		(22	)		35
Boca Raton	FL		12/14/2006		—			322		1,825		—		322		1,825		2,147		(82	)		35
Cartersville	GA		12/14/2006		—			266		1,510		—		266		1,510		1,776		(68	)		35
Cheshire	CT		12/14/2006		—			114		646		—		114		646		760		(29	)		35
Essington	PA		12/14/2006		—			77		436		—		77		436		513		(20	)		35
Fort Myers	FL		12/14/2006		(i	)		242		1,371		—		242		1,371		1,613		(62	)		35
Fountain Inn	SC		12/14/2006		—			57		325		—		57		325		382		(15	)		35
GADSEN*	AL		12/14/2006		—			16		88		—		16		88		104		(4	)		35
Griffin	GA		12/14/2006		—			82		466		—		82		466		548		(21	)		35
Lake Hiawatha	NJ		12/14/2006		—			107		606		—		107		606		713		(27	)		35
Lake Mary	FL		12/14/2006		—			242		1,374		—		242		1,374		1,616		(62	)		35
Lansdale	PA		12/14/2006		—			214		1,211		—		214		1,211		1,425		(55	)		35
Margate	FL		12/14/2006		—			450		2,553		—		450		2,553		3,003		(115	)		35
Pembroke Pines	FL		12/14/2006		—			340		1,926		—		340		1,926		2,266		(87	)		35
PennDel	PA		12/14/2006		—			99		558		—		99		558		657		(25	)		35
Spindale	NC		12/14/2006		—			103		586		—		103		586		689		(26	)		35
Tamaqua	PA		12/14/2006		—			35		197		—		35		197		232		(9	)		35
TAMPA*	FL		12/14/2006		—			144		819		—		144		819		963		(34	)		35
Virginia Beach	VA		12/14/2006		—			96		546		—		96		546		642		(25	)		35
Dallas	TX		12/15/2006		(f	)		302		1,774		—		302		1,774		2,076		(74	)		35
Deer Park	TX		12/15/2006		(f	)		122		715		—		122		715		837		(30	)		35
Duncanville	TX		12/15/2006		(f	)		93		594		—		93		594		687		(35	)		35
Houston	TX		12/15/2006		(f	)		330		1,945		1		330		1,946		2,276		(82	)		35
Houston	TX		12/15/2006		(f	)		310		1,835		—		310		1,835		2,145		(77	)		35
Houston	TX		12/15/2006		(f	)		202		1,196		—		202		1,196		1,398		(58	)		35
Houston	TX		12/15/2006		(f	)		268		1,584		—		268		1,584		1,852		(66	)		35
Houston	TX		12/15/2006		(f	)		434		2,808		—		434		2,808		3,242		(162	)		35
Houston	TX		12/15/2006		(f	)		450		2,611		1		450		2,612		3,062		(109	)		35
Houston	TX		12/15/2006		(f	)		118		699		—		118		699		817		(29	)		35
Houston	TX		12/15/2006		(f	)		28		267		—		28		267		295		(43	)		35
Houston	TX		12/15/2006		(f	)		221		1,388		8		221		1,396		1,617		(59	)		35
Humble	TX		12/15/2006		(f	)		321		1,897		—		321		1,897		2,218		(80	)		35
San Antonio	TX		12/15/2006		(f	)		107		633		—		107		633		740		(27	)		35
Hatboro	PA		2/27/2007		—			195		1,103		—		195		1,103		1,298		(38	)		37
Richland	PA		2/27/2007		—			48		269		—		48		269		317		(9	)		37

122

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net		Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements				Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)				and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition		Land		Improvements		Total		12/31/07 (2)			Life
Casselberry	FL		3/14/2007		—			177		1,001		—		177		1,001		1,178		(35	)		37
New Port Richey	FL		3/14/2007		—			129		733		—		129		733		862		(25	)		37
Ocean City	NJ		3/14/2007		—			200		1,133		—		200		1,133		1,333		(39	)		37
Clifton Heights	PA		5/18/2007		—			90		510		—		90		510		600		(12	)		37
Coatsville	PA		5/18/2007		—			38		214		—		38		214		252		(5	)		37
East Greenville	PA		5/18/2007		—			42		239		—		42		239		281		(6	)		37
Enterprise*	AL		5/18/2007		—			909		—		—		909		—		909		—			37
Gulfport*	MS		5/18/2007		—			607		—		—		607		—		607		—			37
Lemnoir	NC		5/18/2007		—			114		647		—		114		647		761		(16	)		37
Linwood	PA		5/18/2007		—			57		321		—		57		321		378		(8	)		37
Marietta	GA		5/18/2007		—			198		1,122		—		198		1,122		1,320		(27	)		37
Norcorss	GA		5/18/2007		—			206		1,169		—		206		1,169		1,375		(8	)		37
Ozarks	AL		5/18/2007		—			37		207		—		37		207		244		(5	)		37
Pennsburg	PA		5/18/2007		—			44		250		—		44		250		294		(6	)		37
Riverdale	GA		5/18/2007		—			102		578		—		102		578		680		(14	)		37
Salisbury	NC		5/18/2007		—			73		412		—		73		412		485		(10	)		37
San Antonio	TX		5/18/2007		—			85		480		—		85		480		565		(12	)		37
Smyra	GA		5/18/2007		—			174		985		—		174		985		1,159		(24	)		37
Snellville	GA		5/18/2007		—			184		1,042		—		184		1,042		1,226		(25	)		37
Woodbury	NJ		5/18/2007		—			221		1,253		—		221		1,253		1,474		(30	)		37
Stoughton	MA		6/7/2007		—			126		715		—		126		715		841		(17	)		37
Arroyo Grande	CA		6/27/2007		(g	)		200		1,133		—		200		1,133		1,333		(24	)		37
Paso Robles	CA		6/27/2007		(g	)		408		2,310		—		408		2,310		2,718		(48	)		37
Paso Robles	CA		6/27/2007		(g	)		918		5,201		—		918		5,201		6,119		(108	)		37
Santa Maria	CA		6/27/2007		(g	)		316		1,793		—		316		1,793		2,109		(37	)		37
Hackleburg	AL		6/29/2007		—			39		221		—		39		221		260		(5	)		37
Horton	AL		6/29/2007		—			24		135		—		24		135		159		(3	)		37
Philadelphia	PA		8/15/2007		—			39		220		—		39		220		259		(4	)		37
Columbus	IN		9/27/2007		(g	)		129		761		—		129		761		890		(8	)		37
Columbus	IN		9/27/2007		(g	)		73		427		—		73		427		500		(5	)		37
Seymour	IN		9/27/2007		(g	)		121		720		—		121		720		841		(8	)		37
Seymour	IN		9/27/2007		(g	)		164		977		—		164		977		1,141		(10	)		37
Athens*	GA		10/30/2007		—			808		—		—		808		—		808		—			37
Bordentown	NJ		10/30/2007		—			108		613		—		108		613		721		(4	)		37
Columbus	GA		10/30/2007		—			140		796		—		140		796		936		(6	)		37

123

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Columbus	GA		10/30/2007		—			225		1,272		—			225		1,272		1,497		(9	)		37
Decatur	GA		10/30/2007		—			83		470		—			83		470		553		(3	)		37
Goodwater	AL		10/30/2007		—			52		297		—			52		297		349		(2	)		37
Houston	TX		10/30/2007		—			295		1,670		—			295		1,670		1,965		(12	)		37
Jacksonville	FL		10/30/2007		—			65		366		—			65		366		431		(3	)		37
Jacksonville	FL		10/30/2007		—			87		493		—			87		493		580		(3	)		37
Kennesaw	GA		10/30/2007		—			194		1,100		—			194		1,100		1,294		(8	)		37
Leeds*	AL		10/30/2007		—			679		—		—			679		—		679		—			37
Midlothian	VA		10/30/2007		—			196		1,113		—			196		1,113		1,309		(8	)		37
Newport News	VA		10/30/2007		—			69		389		—			69		389		458		(3	)		37
Roswell	GA		10/30/2007		—			431		2,445		—			431		2,445		2,876		(17	)		37
San Antonio*	TX		10/30/2007		—			1,502		—		—			1,502		—		1,502		—			37
Shenandoah	TX		10/30/2007		—			341		1,932		—			341		1,932		2,273		(13	)		37
Sneads	FL		10/30/2007		—			52		297		—			52		297		349		(2	)		37
Suwannee*	GA		10/30/2007		—			946		—		—			946		—		946		—			37
Wescosville	PA		10/30/2007		—			104		589		—			104		589		693		(4	)		37
Woodstock	GA		10/30/2007		—			129		731		—			129		731		860		(5	)		37
Bonita Springs	FL		12/19/2007		—			216		1,224		—			216		1,224		1,440		—			37
Buford	GA		12/19/2007		—			247		1,402		—			247		1,402		1,649		—			37
East Gadsden	AL		12/19/2007		—			70		397		—			70		397		467		—			37
New Port Richey	FL		12/19/2007		—			144		818		—			144		818		962		—			37
Suwannee	GA		12/19/2007		—			172		976		—			172		976		1,148		—			37
Troy	AL		12/19/2007		—			201		1,142		—			201		1,142		1,343		—			37

					302,229			322,899		2,009,639		99,566			322,760		2,109,344		2,432,104		(355,051	)

Assets held for sale:
Philadelphia	PA		9/26/2000		(g	)		8,064		66,629		(9,624	)		8,064		57,005		65,069		(21,294	)		34
Florence	SC		12/10/2002		(g	)		109		617		—			109		617		726		(120	)		35
Waycross	GA		12/16/2002		(g	)		144		868		(73	)		144		795		939		(126	)		36
East Point	GA		3/31/2003		(g	)		180		1,052		(209	)		180		843		1,023		(199	)		35
Aransas Pass	TX		6/30/2003		(b	)		209		1,184		(545	)		209		639		848		(169	)		35
Brownwood	TX		6/30/2003		(b	)		129		734		(322	)		129		412		541		(108	)		35
Denison	TX		6/30/2003		(b	)		135		774		(323	)		135		451		586		(109	)		35
Dumas	TX		6/30/2003		(b	)		158		895		(491	)		158		404		562		(127	)		35

124

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Fort Worth	TX		6/30/2003		(b	)		202		1,142		(465	)		202		677		879		(163	)		35
Mexico	MO		6/30/2003		(b	)		215		1,230		(968	)		215		262		477		(191	)		35
Miami Lakes	FL		6/30/2003		(b	)		2,123		12,161		(557	)		2,123		11,604		13,727		(1,972	)		35
Moultrie	GA		6/30/2003		(b	)		135		763		14			135		777		912		(109	)		35
Mt. Pleasant	TX		6/30/2003		(b	)		131		740		(167	)		131		573		704		(112	)		35
Norton	VA		6/30/2003		—			80		452		(82	)		80		370		450		(67	)		35
Port Angeles	WA		6/30/2003		(b	)		159		902		(487	)		159		415		574		(128	)		35
Waco	TX		6/30/2003		(b	)		268		1,534		—			268		1,534		1,802		(217	)		35
Wenatchee	WA		6/30/2003		(b	)		159		903		(162	)		159		741		900		(128	)		35
Eden	NC		9/24/2003		—			93		526		(397	)		93		129		222		(71	)		35
Basset	VA		9/22/2004		(d	)		108		640		8			108		648		756		(60	)		35
Beaufort	SC		9/22/2004		(d	)		90		565		(62	)		90		503		593		(54	)		35
Camden	SC		9/22/2004		(d	)		48		291		32			48		323		371		(28	)		35
Cape Canaveral	FL		9/22/2004		(d	)		114		671		(67	)		114		604		718		(63	)		35
Cocoa	FL		9/22/2004		(d	)		96		572		77			96		649		745		(55	)		35
Crandford	NJ		9/22/2004		—			236		1,367		(591	)		236		776		1,012		(129	)		35
Daytona Beach	FL		9/22/2004		(d	)		192		1,152		38			192		1,190		1,382		(109	)		35
Dillon	SC		9/22/2004		(d	)		48		290		106			48		396		444		(28	)		35
Doylestown	PA		9/22/2004		(d	)		168		977		19			168		996		1,164		(98	)		35
Dunedin	FL		9/22/2004		(d	)		216		1,457		458			216		1,915		2,131		(139	)		35
Fort Myers	FL		9/22/2004		(d	)		396		2,723		(121	)		396		2,602		2,998		(429	)		35
Hanover	PA		9/22/2004		(d	)		144		857		(254	)		144		603		747		(81	)		35
Hillside	NJ		9/22/2004		(d	)		144		830		(164	)		144		666		810		(79	)		35
Jenkintown	PA		9/22/2004		(d	)		204		1,221		(704	)		204		517		721		(119	)		35
Kingston	NY		9/22/2004		(d	)		70		419		240			70		659		729		(40	)		35
Melbourne	FL		9/22/2004		(d	)		144		855		(506	)		144		349		493		(81	)		35
Milford	PA		9/22/2004		(d	)		42		255		34			42		289		331		(24	)		35
Mount Carmel	PA		9/22/2004		(d	)		18		120		65			18		185		203		(12	)		35
Mt. Penn	PA		9/22/2004		(d	)		39		244		5			39		249		288		(23	)		35
Naples	FL		9/22/2004		(d	)		216		1,242		(289	)		216		953		1,169		(117	)		35
Norfolk	VA		9/22/2004		(d	)		48		307		64			48		371		419		(29	)		35
Paterson	NJ		9/22/2004		(d	)		180		1,079		(1,028	)		180		51		231		(102	)		35
Pennington	NJ		9/22/2004		(d	)		229		1,327		(655	)		229		672		901		(125	)		35
Perry	FL		9/22/2004		—			48		304		152			48		456		504		(29	)		35
Pheonixville	PA		9/22/2004		(d	)		120		716		(140	)		120		576		696		(68	)		35

125

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
Philadelphia	PA		9/22/2004		—			132		782		54			132		836		968		(83	)		35
Pittston	PA		9/22/2004		(d	)		24		158		45			24		203		227		(15	)		35
Port Richey	FL		9/22/2004		(d	)		204		1,259		(585	)		204		674		878		(120	)		35
Pottstown	PA		9/22/2004		(d	)		24		158		27			24		185		209		(15	)		35
Richlands	VA		9/22/2004		(d	)		24		161		(7	)		24		154		178		(16	)		35
Scotch Plains	NJ		9/22/2004		(d	)		156		901		(460	)		156		441		597		(85	)		35
Scranton	PA		9/22/2004		(d	)		45		456		(92	)		45		364		409		(75	)		35
St. Petersburg	FL		9/22/2004		(d	)		472		2,709		3			472		2,712		3,184		(127	)		35
Titusville	FL		9/22/2004		(d	)		144		852		34			144		886		1,030		(102	)		35
Vienna	VA		9/22/2004		(d	)		320		739		55			320		794		1,114		(141	)		35
Washington	NJ		9/22/2004		(d	)		60		367		155			60		522		582		(35	)		35
Williamston	NC		9/22/2004		(d	)		48		303		81			48		384		432		(29	)		35
Wind Gap	PA		9/22/2004		(d	)		24		149		(147	)		24		2		26		(14	)		35
Winstom Salem	NC		9/22/2004		(d	)		6,832		22,876		877			6,832		23,753		30,585		(3,123	)		35
Batesville	AR		10/1/2004		—			57		350		39			57		389		446		(34	)		35
Belleair Bluffs	FL		10/1/2004		—			90		1,171		—			179		1,082		1,261		(102	)		35
Bergenfield	NJ		10/1/2004		—			88		496		15			88		511		599		(54	)		35
Clarksville	TN		10/1/2004		—			111		672		(90	)		111		582		693		(74	)		35
Cocoa	FL		10/1/2004		—			108		710		714			108		1,424		1,532		(46	)		35
East Brunswick	NJ		10/1/2004		—			111		631		(197	)		111		434		545		(59	)		35
Eustis	FL		10/1/2004		—			108		613		32			108		645		753		(58	)		35
Fitzgerald	GA		10/1/2004		—			60		340		—			60		340		400		(32	)		35
Florence	SC		10/1/2004		—			119		707		(87	)		119		620		739		(69	)		35
Inverness	FL		10/1/2004		—			127		783		—			127		783		910		(75	)		35
Jesup	GA		10/1/2004		—			75		458		(134	)		75		324		399		(45	)		35
Kansas City	KS		10/1/2004		—			61		346		(306	)		61		40		101		(32	)		35
Largo	FL		10/1/2004		—			176		1,065		57			176		1,122		1,298		(101	)		35
Lodi	NJ		10/1/2004		—			100		564		31			100		595		695		(56	)		35
Marshall	MO		10/1/2004		—			46		290		—			46		290		336		(29	)		35
Niagara Falls	NY		10/1/2004		—			204		1,301		(889	)		204		412		616		(127	)		35
Northfield	NJ		10/1/2004		—			124		705		(396	)		295		138		433		(66	)		35
O’Fallon	MO		10/1/2004		—			49		299		—			49		299		348		(29	)		35
Oklahoma City	OK		10/1/2004		—			169		1,057		(134	)		169		923		1,092		(102	)		35
Palatka	FL		10/1/2004		—			46		281		154			46		435		481		(27	)		35
Ridgewood	NJ		10/1/2004		—			250		1,662		18			250		1,680		1,930		(153	)		35

126

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


							Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
									Building		Improvements					Building						Accumulated			Average
		Acquisition		Encumbrances at					and		(Retirements)					and						Depreciation			Depreciable
City	State	Date		December 31, 2007			Land		Improvements		Since Acquisition			Land		Improvements			Total			12/31/07 (2)			Life
Santa Clara	CA		10/1/2004		—			194		1,127		—			194		1,127			1,321			(104	)		35
Schenectady	NY		10/1/2004		—			300		2,255		(1,250	)		300		1,005			1,305			(306	)		35
Seaside	CA		10/1/2004		—			91		518		—			91		518			609			(49	)		35
Sparks	NV		10/1/2004		—			369		2,598		(400	)		369		2,198			2,567			(245	)		35
Spotswood	NJ		10/1/2004		—			117		664		(45	)		117		619			736			(62	)		35
St. Petersburg	FL		10/1/2004		—			103		611		—			103		611			714			(59	)		35
Sunnyvale	CA		10/1/2004		—			231		1,348		—			231		1,348			1,579			(125	)		35
Tarpon Springs	FL		10/1/2004		—			93		567		—			93		567			660			(55	)		35
Wood Ridge	NJ		10/1/2004		—			109		617		(77	)		109		540			649			(58	)		35
Woodland	CA		10/1/2004		—			147		900		(185	)		147		715			862			(86	)		35
Cleveland	OH		1/28/2005		6,243			1,474		10,625		53			1,474		10,678			12,152			(1,633	)		35
Las Vegas	NV		3/15/2005		16,388			3,007		18,240		(76	)		3,007		18,164			21,171			(2,419	)		35
San Francisco	CA		4/8/2005		(g	)		4,718		27,862		—			4,718		27,862			32,580			(3,607	)		35
Philadelphia	PA		4/20/2005		41,346			7,665		48,609		(187	)		7,665		48,422			56,087			(6,495	)		35
Kingston	NY		6/7/2005		—			80		451		(608	)		80		(157	)		(77	)		—			35
Lansing	IL		6/7/2005		—			173		1,090		(368	)		173		722			895			(69	)		35
Andalusia	AL		6/15/2005		(g	)		64		361		159			64		520			584			(25	)		35
Bedford	IN		6/15/2005		(g	)		76		487		284			76		771			847			(35	)		35
Bloomington	IL		6/15/2005		(g	)		52		458		187			52		645			697			(30	)		35
Centralia	IL		6/15/2005		(g	)		69		636		(436	)		69		200			269			(47	)		35
Decatur	TN		6/15/2005		—			48		307		13			48		320			368			—			35
Frankfort	IN		6/15/2005		(g	)		119		922		3			119		925			1,044			(78	)		35
Greenville	MS		6/15/2005		(g	)		109		810		(358	)		109		452			561			(57	)		35
Jonesboro	AR		6/15/2005		(g	)		181		1,653		176			181		1,829			2,010			(265	)		35
Memphis	TN		6/15/2005		—			392		2,737		(1,913	)		392		824			1,216			(183	)		35
Monroe	LA		6/15/2005		(g	)		149		1,180		310			149		1,490			1,639			(79	)		35
Scottsboro	AL		6/15/2005		—			103		585		(239	)		103		346			449			—			35
Texarkana	AR		6/15/2005		—			178		1,246		(437	)		178		809			987			(89	)		35
Villa Rica	GA		6/15/2005		(g	)		153		1,134		553			153		1,687			1,840			(90	)		35
Vincennes	IN		6/15/2005		(g	)		227		1,910		(1,878	)		227		32			259			(131	)		35
Snellville	GA		11/10/2005		—			150		850		(64	)		150		786			936			(38	)		35
Newton	KS		11/16/2005		—			95		540		(31	)		95		509			604			(23	)		35
Glen Allen	VA		11/30/2005		18,000			3,427		21,062		42			3,418		21,113			24,531			(2,234	)		35
Logansport	IN		3/1/2006		—			119		466		(15	)		119		451			570			—			35
Jackson	TN		7/28/2006		—			60		326		(8	)		60		318			378			—			35

127

AMERICAN FINANCIAL REALTY TRUST
SCHEDULE III
Real Estate Investments
(In thousands)


						Initial Costs				Net			Gross Amount at Which Carried December 31, 2007 (1)
								Building		Improvements					Building				Accumulated			Average
		Acquisition		Encumbrances at				and		(Retirements)					and				Depreciation			Depreciable
City	State	Date		December 31, 2007		Land		Improvements		Since Acquisition			Land		Improvements		Total		12/31/07 (2)			Life
McMinnville	TN		7/28/2006		—		90		464		(3	)		90		461		551		—			35
Albemarle	NC		8/31/2006		—		44		251		(2	)		44		249		293		(3	)		35
Orlando	FL		9/15/2006		—		256		1,449		(917	)		256		532		788		(90	)		35
Huntsville	AL		9/27/2006		—		60		342		—			60		342		402		(2	)		35
Galax	VA		12/14/2006		—		24		137		—			24		137		161		—			35
Hampton	VA		12/14/2006		—		94		535		—			94		535		629		—			35
Paulsboro	NJ		5/18/2007		—		63		355		—			63		355		418		(7	)		37
Tampa	FL		5/18/2007		—		376		2,133		—			376		2,133		2,509		—			37
Zephyrhills	FL		5/18/2007		—		183		1,036		—			183		1,036		1,219		—			37
Bremen	GA		10/30/2007		—		94		488		—			94		488		582		—			37
Cottonwood	AL		10/30/2007		—		39		194		—			39		194		233		—			37
Dobbs Ferry	NY		10/30/2007		—		159		733		—			159		733		892		—			37
Dover	DE		10/30/2007		—		82		462		—			82		462		544		(3	)		37
Herndon	VA		10/30/2007		—		160		836		—			160		836		996		(6	)		37
Newton	AL		10/30/2007		—		24		112		—			24		112		136		—			37
Orlando	FL		10/30/2007		—		256		1,345		—			256		1,345		1,601		—			37
Voorhees	NJ		10/30/2007		—		79		406		—			79		406		485		—			37
Atlanta	GA		12/19/2007		—		70		357		—			70		357		427		—			37

					81,977		53,634		327,345		(26,991	)		53,885		300,103		353,988		(51,768	)

				$	384,206	$	376,533	$	2,336,984	$	72,575		$	376,645	$	2,409,447	$	2,786,092	$	(406,819	)


		NOTES:

All properties are office buildings unless otherwise noted.

(a)		These properties collateralize a $180.0 million mortgage note payable of which $180.0 million was outstanding at December 31, 2007.

(b)		These properties collateralize a $381.7 million mortgage note payable of which $371.6 million was outstanding at December 31, 2007.

(c)		These properties collateralize a $65.0 million mortgage note payable of which $51.3 million was outstanding at December 31, 2007.

(d)		These properties collateralize a $234.0 million mortgage note payable of which $173.8 million was outstanding at December 31, 2007.

(e)		These properties collateralize a $304.0 million mortgage note payable of which $223.0 million was outstanding at December 31, 2007.

(f)		These properties collateralize a $19.9 million mortgage note payable of which $19.9 million was outstanding at December 31, 2007.

(g)		These properties collateralize a secured credit facility of which $230.4 million was outstanding at December 31, 2007.

(h)		These properties collateralize a $26.4 million mortgage note payable of which $26.4 million was outstanding at December 31, 2007.

(i)		These properties collateralize a $30.0 million mortgage note payable of which $30.0 million was outstanding at December 31, 2007.

(j)		These properties collateralize a $22.7 million mortgage note payable of which $22.7 million was outstanding at December 31, 2007.

(k)		These properties collateralize a $31.3 million mortgage note payable of which $31.3 million was outstanding at December 31, 2007.

*		Denotes land parcel

128

BANK OF AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

(Dollars in millions)


	December 31			December 31
	2007			2006
Assets
Cash and cash equivalents	$	42,531		$	36,429
Time deposits placed and other short-term investments		11,773			13,952
Federal funds sold and securities purchased under agreements to resell		129,552			135,478
Trading account assets		162,064			153,052
Derivative assets		34,662			23,439
Securities:
Available-for-sale		213,330			192,806
Held-to-maturity, at cost		726			40

Total securities		214,056			192,846

Loans and leases		876,344			706,490
Allowance for loan and lease losses		(11,588	)		(9,016	)

Loans and leases, net of allowance		864,756			697,474

Premises and equipment, net		11,240			9,255
Mortgage servicing rights (includes $3,053 and $2,869 measured at fair value at December 31)		3,347			3,045
Goodwill		77,530			65,662
Intangible assets		10,296			9,422
Other assets		153,939			119,683

Total assets	$	1,715,746		$	1,459,737


Liabilities
Deposits in domestic offices:
Noninterest-bearing	$	188,466		$	180,231
Interest-bearing		501,882			418,100
Deposits in foreign offices:
Noninterest-bearing		3,761			4,577
Interest-bearing		111,068			90,589

Total deposits		805,177			693,497

Federal funds purchased and securities sold under agreements to repurchase		221,435			217,527
Trading account liabilities		77,342			67,670
Derivative liabilities		22,423			16,339
Commercial paper and other short-term borrowings		191,089			141,300
Accrued expenses and other liabilities (includes $518 and $397 of reserve for unfunded lending commitments)		53,969			42,132
Long-term debt		197,508			146,000

Total liabilities		1,568,943			1,324,465

Shareholders’ equity
Preferred stock, $0.01 par value; authorized — 100,000,000 shares; issued and outstanding — 185,067 and 121,739 shares		4,409			2,851
Common stock and additional paid-in capital, $0.01 par value; authorized — 7,500,000,000 shares; issued and outstanding — 4,437,885,419 and 4,458,151,391 shares		60,328			61,574
Retained earnings		81,393			79,024
Accumulated other comprehensive income (loss)		1,129			(7,711	)
Other		(456	)		(466	)

Total shareholders’ equity		146,803			135,272

Total liabilities and shareholders’ equity	$	1,715,746		$	1,459,737

131

BANK OF AMERICA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME


	Year Ended
	2007			2006
Interest income
Interest and fees on loans and leases	$	55,681		$	48,274
Interest and dividends on securities		9,784			11,655
Federal funds sold and securities purchased under agreements to resell		7,722			7,823
Trading account assets		9,417			7,232
Other interest income		4,700			3,601

Total interest income		87,304			78,585

Interest expense
Deposits		18,093			14,480
Short-term borrowings		21,975			19,840
Trading account liabilities		3,444			2,640
Long-term debt		9,359			7,034

Total interest expense		52,871			43,994

Net interest income		34,433			34,591

Noninterest income
Card income		14,077			14,290
Service charges		8,908			8,224
Investment and brokerage services		5,147			4,456
Investment banking income		2,345			2,317
Equity investment gains		4,064			3,189
Trading account profits		(5,131	)		3,166
Mortgage banking income		902			541
Gains (losses) on sales of debt securities		180			(443	)
Other income		1,394			2,249

Total noninterest income		31,886			37,989

Total revenue		66,319			72,580
Provision for credit losses		8,385			5,010
Noninterest expense
Personnel		18,753			18,211
Occupancy		3,038			2,826
Equipment		1,391			1,329
Marketing		2,356			2,336
Professional fees		1,174			1,078
Amortization of intangibles		1,676			1,755
Data processing		1,962			1,732
Telecommunications		1,013			945
Other general operating		5,237			4,580
Merger and restructuring charges		410			805

Total noninterest expense		37,010			35,597

Income before income taxes		20,924			31,973
Income tax expense		5,942			10,840

Net income	$	14,982		$	21,133

Preferred stock dividends		182			22
Net income available to common shareholders	$	14,800		$	21,111

Per common share information
Earnings	$	3.35		$	4.66

Diluted earnings	$	3.30		$	4.59

Dividends paid	$	2.40		$	2.12

Average common shares issued and outstanding		4,423,579			4,526,637

Average diluted common shares issued and outstanding		4,480,254			4,595,896

132


		Page
1. Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2007 and 2006
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements for the years ended December 31, 2007, 2006 and 2005

2. Financial Statement Schedules
Schedule III — Real Estate Investments

3. Historical Financial Information of Lease Guarantor
Bank of America Corporation and Subsidiaries


PART I
Item 1.		Business
Item 1A.		Risk Factors
Item 1B.		Unresolved Staff Comments
Item 2.		Properties
Item 3.		Legal Proceedings
Item 4.		Submission of Matters to a Vote of Security Holders

PART II
Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6.		Selected Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.		Controls and Procedures
Item 9B.		Other Information

PART III
Item 10.		Directors, Executive Officers and Corporate Governance
Item 11.		Executive Compensation
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.		Certain Relationships and Related Transactions, and Director Independence
Item 14.		Principal Accounting Fees and Services

PART IV
Item 15.		Exhibits, Financial Statement Schedules

Subsidiaries of the Registrant
Consent of KPMG LLP (independent registered public accounting firm of the Registrant)
Certificate of Principal Executive Officer
Certificate of Principal Financial Officer
Certificate of Principal Executive Officer Required by Rule 13a-14(b)
Certificate of Principal Financial Officer Required by Rule 13a-14(b)


	2007 (A)			2006 (A)
Balance, beginning of period	$	2,580,029		$	3,547,299
Change in assets held for sale		187,226			(223,636	)
Additions:
Acquisitions		129,285			225,115
Dispositions		(464,436	)		(968,749	)

Balance, end of period	$	2,432,104		$	2,580,029


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


	2007 (B)			2006 (B)
Balance, beginning of period	$	294,973		$	259,358
Depreciation expense		102,274			133,190
Change in assets held for sale		(10,588	)		(19,173	)
Dispositions		(31,608	)		(78,402	)

Balance, end of period	$	355,051		$	294,973


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


		State of
Subsidiaries		Formation
American Financial Realty Abstract, LLC		PA
American Financial TRS, Inc.		DE
Chester Court Realty LP		PA
Dresher Court Realty LP		PA
First States Charleston, L.P.		DE
First States Charleston, LLC		DE
First States Chester, LLC		PA
First States Dresher, LLC		PA
First States Group, LLC		DE
First States Group, LP		DE
First States Investors 104, L.P.		DE
First States Investors 2100, 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 2208, LLC		DE
First States Investors 225, LLC		DE
First States Investors 2550, LLC		DE
First States Investors 2550A, LLC		DE
First States Investors 27, LLC		NC
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 3014, LLC		GA
First States Investors 3016, L.P.		NC
First States Investors 3017, L.P.		NC
First States Investors 3018, L.P.		NC
First States Investors 3022, L.P.		NC
First States Investors 3024, L.P.		NC
First States Investors 3028, 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 Investors 3034, L.P.		SC
First States Investors 3035, L.P.		SC
First States Investors 3038, L.P.		SC
First States Investors 3039, L.P.		SC
First States Investors 3040, L.P.		SC
First States Investors 3043, L.P.		SC
First States Investors 3048, L.P.		VA
First States Investors 3220, L.P.		AL
First States Investors 3225, L.P.		FL
First States Investors 3300, L.P.		DE
First States Investors 3500, L.P.		DE
First States Investors 3500A, L.P.		DE
First States Investors 40, L.P.		MO
First States Investors 4000A, L.P.		DE
First States Investors 4000B, L.P.		DE
First States Investors 4000C, L.P.		DE
First States Investors 4000D, L.P.		DE
First States Investors 4000E, L.P.		DE
First States Investors 4000F, L.P.		DE
First States Investors 4100, L.P.		DE
First States Investors 4100A, L.P.		DE
First States Investors 4100B, L.P.		DE
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, L.P.		DE
First States Investors 4300, L.P.		DE
First States Investors 4500, L.P.		DE
First States Investors 4501, L.P.		DE
First States Investors 4600, L.P.		DE
First States Investors 5000, L.P.		DE
First States Investors 5000A, L.P.		DE
First States Investors 5000B, L.P.		DE
First States Investors 5200, L.P.		DE
First States Investors 5300, L.P.		DE
First States Investors 72, L.P.		NV
First States Investors 74 GP, L.P.		TX
First States Investors 74, Limited Partnership		TX
First States Investors 77, Limited Partnership		FL
First States Investors 81, L.P.		GA
First States Investors 922, L.P.		IL
First States Investors Realty, L.P.		DE
First States Investors Branch One, L.P.		DE
First States Investors Branch Two, L.P.		DE
First States Investors, L.P.		DE
First States Investors DB I, L.P.		DE
First States Management Corp., L.P.		PA
First States Management, LLC.		DE
First States Partners II, LP		PA
First States Partners III LP		DE
First States Partners No. 201, L.P.		PA
First States Partners No. 203, L.P.		NJ
First States Partners No. 213, L.P.		NJ
First States Partners No. 216, L.P.		PA
First States Partners No. 236, L.P.		PA
First States Partners, LP		PA
First States Properties Jenkins Court, L.P.		PA
First States Properties L.P.		PA
First States Properties No. 12, L.P.		PA
First States Properties No. 14, L.P.		PA
First States Properties No. 15, L.P.		PA
First States Properties No. 19, L.P.		PA
First States Properties No. 26, L.P.		PA
First States Properties No. 31, L.P.		PA
First States Properties No. 33, L.P.		PA
First States Properties No. 34, L.P.		PA
First States Properties No. 35, L.P.		PA
First States Properties No. 36, L.P.		PA
First States Properties No. 37, L.P.		PA
First States Properties No. 41, L.P.		PA
First States Properties No. 43, L.P.		PA
First States Properties No. 45, L.P.		PA
First States Properties No. 48, L.P.		PA
First States Properties No. 49, L.P.		PA
First States Properties No. 51, L.P.		PA
First States Properties No. 52, L.P.		PA
First States Properties No. 56, L.P.		PA
First States Properties No. 59, L.P.		PA
First States Properties No. 62, L.P.		PA
First States Properties No. 63, L.P.		PA
First States Properties No. 67, L.P.		PA
First States Properties No. 69, L.P.		PA
First States Properties No. 71, L.P.		PA
First States Properties No. 73, L.P.		PA
First States Properties No. 75, L.P.		PA
First States Properties No. 76, L.P.		PA
First States Properties No. 9, L.P.		PA
First States Realty Corp., L.P.		PA
First States Realty, L.P.		PA
First States Wilmington JV, LP		DE


		/s/ DAVID J. NETTINA
		David J. Nettina
		President and Chief Financial Officer
		(Principal Executive Officer)

	(a)		the Form 10-K of the Company for the year ended December 31, 2007 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.